-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D1wj3Ze9cguPYF+it3EZX72UH87CtrSZeaEd2Ztn8ibaWzZEYQo+Pkc5B7sssYte vyBJ1w28v20WPgUBMHGwLA== 0000890566-00-000042.txt : 20000202 0000890566-00-000042.hdr.sgml : 20000202 ACCESSION NUMBER: 0000890566-00-000042 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERRY PLASTICS CORP CENTRAL INDEX KEY: 0000919463 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 351813706 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739 FILM NUMBER: 507768 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST STREET 2: P O BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 MAIL ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BPC HOLDING CORP CENTRAL INDEX KEY: 0000919465 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 351814673 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-01 FILM NUMBER: 507769 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST STREET 2: P O BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERRY IOWA CORP CENTRAL INDEX KEY: 0000919467 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 421382173 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-02 FILM NUMBER: 507770 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST STREET 2: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 BUSINESS PHONE: 8124242904 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERRY TRI PLAS CORP CENTRAL INDEX KEY: 0001011391 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 561949250 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-03 FILM NUMBER: 507771 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST CITY: EVANSVILLE STATE: IN ZIP: 47710 MAIL ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERRY STERLING CORP CENTRAL INDEX KEY: 0001075619 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 541749681 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-04 FILM NUMBER: 507772 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST STREET 2: P O BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 MAIL ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACKERWARE CORP CENTRAL INDEX KEY: 0001075620 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 480759852 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-05 FILM NUMBER: 507773 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST STREET 2: P O BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 MAIL ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERRY PLASTICS DESIGN CORP CENTRAL INDEX KEY: 0001075621 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 621689708 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-06 FILM NUMBER: 507774 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST STREET 2: P O BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 MAIL ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VENTURE PACKAGING INC CENTRAL INDEX KEY: 0001075622 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 510368479 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-07 FILM NUMBER: 507775 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST STREET 2: P O BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 MAIL ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VENTURE PACKAGING MIDWEST INC CENTRAL INDEX KEY: 0001075623 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-08 FILM NUMBER: 507776 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST STREET 2: P O BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 MAIL ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VENTURE PACKAGING SOUTHEAST INC CENTRAL INDEX KEY: 0001075624 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-09 FILM NUMBER: 507777 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST STREET 2: P O BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 MAIL ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NIM HOLDINGS LTD CENTRAL INDEX KEY: 0001075625 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-10 FILM NUMBER: 507778 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST STREET 2: P O BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 MAIL ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KNIGHT PLASTICS INC CENTRAL INDEX KEY: 0001075626 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 352056610 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-11 FILM NUMBER: 507779 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST STREET 2: P O BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 MAIL ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEROCON INC /DE/ CENTRAL INDEX KEY: 0001075629 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 351948748 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-12 FILM NUMBER: 507780 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST STREET 2: P O BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 MAIL ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORWICH INJECTION MOULDERS LTD CENTRAL INDEX KEY: 0001075630 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 351948748 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-13 FILM NUMBER: 507781 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST STREET 2: P O BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 MAIL ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARDINAL PACKAGING INC CENTRAL INDEX KEY: 0001093665 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 341396561 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-14 FILM NUMBER: 507782 BUSINESS ADDRESS: STREET 1: 101 OAKLEY ST STREET 2: P O BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 MAIL ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CPI HOLDING CORP CENTRAL INDEX KEY: 0001093666 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 341820303 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-85739-15 FILM NUMBER: 507783 BUSINESS ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 MAIL ADDRESS: STREET 1: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47706-0959 S-4/A 1 As filed with the Securities and Exchange Commission on January 14, 2000 Registration No. 333-85739 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- AMENDMENT NO. 2 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------
BERRY PLASTICS CORPORATION (Exact name of registrant as specified in charter) Delaware 3089 35-1813706 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) BPC HOLDING CORPORATION (Exact name of registrant as specified in charter) Delaware 3089 35-1814673 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) BERRY IOWA CORPORATION (Exact name of registrant as specified in charter) Delaware 3089 42-1382173 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) BERRY TRI-PLAS CORPORATION (Exact name of registrant as specified in charter) Delaware 3089 56-1949250 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) BERRY STERLING CORPORATION (Exact name of registrant as specified in charter) Delaware 3089 54-1749681 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) AEROCON, INC. (Exact name of registrant as specified in charter) Delaware 3089 35-1948748 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
PACKERWARE CORPORATION (Exact name of registrant as specified in charter) Delaware 3089 48-0759852 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) BERRY PLASTICS DESIGN CORPORATION (Exact name of registrant as specified in charter) Delaware 3089 62-1689708 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) VENTURE PACKAGING, INC. (Exact name of registrant as specified in charter) Delaware 3089 51-0368479 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) VENTURE PACKAGING MIDWEST, INC. (Exact name of registrant as specified in charter) Delaware 3089 34-1809003 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) VENTURE PACKAGING SOUTHEAST, INC. (Exact name of registrant as specified in charter) Delaware 3089 57-1029638 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) NIM HOLDINGS LIMITED (Exact name of registrant as specified in charter) England and Wales 3089 N/A (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) NORWICH INJECTION MOULDERS LIMITED (Exact name of registrant as specified in charter) England and Wales 3089 N/A (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) KNIGHT PLASTICS, INC. (Exact name of registrant as specified in charter) Delaware 3089 35-2056610 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) ------------------- CPI HOLDING CORPORATION (Exact name of registrant as specified in charter) Delaware 3089 34-1820303 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
CARDINAL PACKAGING, INC. (Exact name of registrant as specified in charter) Ohio 3089 34-1396561 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) NORWICH ACQUISITION LIMITED (Exact name of registrant as specified in charter) England and Wales 3089 N/A (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) BERRY PLASTICS ACQUISITION CORPORATION (Exact name of registrant as specified in charter) Delaware 3089 N/A (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
101 Oakley Street Evansville, Indiana 47710 (812) 424-2904 (Address, including zip code, and telephone number, including area code, of registrants' principal executive offices) ------------------- Martin R. Imbler President and Chief Executive Officer 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 of process) ------------------- WITH COPIES TO: Michael J. O'Brien, Esq. O'Sullivan Graev & Karabell, LLP 30 Rockefeller Plaza New York, New York 10112 (212) 408-2400 ------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. If any of the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [ ] 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(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. [ ] --------------------- 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 SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. PROSPECTUS BERRY PLASTICS CORPORATION OFFER TO EXCHANGE ALL OUTSTANDING 11% SENIOR SUBORDINATED NOTES DUE 2007 $75,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING, FOR 11% SERIES B SENIOR SUBORDINATED NOTES DUE 2007 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 - ---------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FEBRUARY 25, 2000, UNLESS EXTENDED. - ---------------------------------------------------------------- o We will exchange all notes that you validly tender and do not validly withdraw. o You may withdraw your tender of notes any time before the expiration of the exchange offer. o The exchange offer is not subject to any condition, other than that it not violate any applicable law or interpretation of the staff of the Securities and Exchange Commission. o Neither us nor our guarantors will receive any proceeds from the exchange offer. o Based on the advice of our counsel, we believe the exchange of notes will not be a taxable exchange for U.S. federal income tax purposes. o The terms of the exchange notes are substantially identical to the outstanding notes, except for the transfer restrictions and registration rights relating to the outstanding notes. o There is no existing market for the exchange notes, and we do not intend to apply for their listing on any securities exchange. o Each broker-dealer that receives exchange notes must deliver a prospectus in connection with any resales of the exchange notes or the new preferred stock. o Each broker-dealer that acquired exchange notes for its own account in exchange for outstanding notes, where the outstanding notes were acquired as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of those exchange notes. o As of October 2, 1999, the aggregate amount of outstanding senior indebtedness of Berry Plastics Corporation would have been $83.6 million, the aggregate amount of outstanding total indebtedness of Berry Plastics Corporation would have been $284.9 million, including the 1994 notes of BPC Holding Corporation, and the indebtedness of the guarantors senior to the note guarantees would have been $389.9 million. SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR A DISCUSSION OF FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING OUTSTANDING NOTES IN THE EXCHANGE OFFER. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------ THE DATE OF THIS PROSPECTUS IS JANUARY 20, 2000 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the securities and exchange commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. TABLE OF CONTENTS PAGE PAGE Prospectus Summary................. 1 Principal Stockholders........ 61 Risk Factors ...................... 11 Certain Transactions.......... 63 Where You Can Find More Information 20 Description of Other Debt..... 68 Exchange Offer..................... 21 Description of Notes.......... 71 Capitalization..................... 31 Material Federal Income Tax Pro Forma Condensed Consolidated 21 Considerations................109 Financial Statements............. 31 Plan of Distribution......... 114 Selected Historical Financial Data. 36 Legal Matters................ 115 Management's Discussion and Analysis 32 Experts...................... 115 of Financial Condition and Results of Index to Financial 115 Operations......................... 38 Statements.................. F-1 Business........................... 44 Management......................... 54 - ---------------------------------------------------- Some of the names and logos of our products referenced in this prospectus are our trademarks. Each trade name, trademark or servicemark of any other company appearing in this prospectus is the property of its holder. i PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, "BERRY PLASTICS," "WE," "US," "OUR" AND SIMILAR TERMS REFER TO BERRY PLASTICS CORPORATION, ITS SUBSIDIARIES AND THEIR RESPECTIVE OPERATIONS, AND THE TERM "BPC HOLDING" REFERS TO BPC HOLDING CORPORATION. THE FISCAL YEAR OF BPC HOLDING AND BERRY PLASTICS IS THE 52 OR 53 WEEK PERIOD ENDING ON THE SATURDAY CLOSEST TO DECEMBER 31. ALL REFERENCES IN THIS PROSPECTUS TO "FISCAL 1994," "FISCAL 1995," "FISCAL 1996," "FISCAL 1997" AND "FISCAL 1998" REFER TO THE FISCAL YEARS OF BERRY PLASTICS AND BPC HOLDING ENDED ON JANUARY 1, 1994, DECEMBER 31, 1994, DECEMBER 30, 1995, DECEMBER 28, 1996, DECEMBER 27, 1997 AND JANUARY 2, 1999, RESPECTIVELY. ALSO, UNLESS THE CONTEXT OTHERWISE REQUIRES, THE INFORMATION CONTAINED IN THIS PROSPECTUS GIVES PRO FORMA EFFECT TO THE ACQUISITION BY US OF NORWICH INJECTION MOULDERS LIMITED, THE KNIGHT ENGINEERING AND PLASTICS DIVISION OF COURTAULDS PACKAGING INC., AND CARDINAL PACKAGING, INC. AS OF THE BEGINNING OF THE PERIOD STATED FOR INCOME STATEMENT DATA AND AT THE DATE STATED FOR BALANCE SHEET DATA. THE EXCHANGE OFFER REGISTRATION RIGHTS AGREEMENT...........The outstanding notes were sold by us on July 6, 1999 to the initial purchasers, Donaldson, Lufkin & Jenrette Securities Corporation and Chase Securities Inc., who placed the outstanding notes with institutional investors. In connection therewith, we and the initial purchasers executed and delivered for the benefit of the holders of the outstanding notes a registration rights agreement providing, among other things, for the exchange offer. THE EXCHANGE OFFER......................Exchange notes are being offered in exchange for a like principal amount of outstanding notes. As of the date of this prospectus, $75,000,000 aggregate principal amount of notes are outstanding. We will issue the exchange notes to holders promptly following the expiration date. See "Risk Factors - Your ability to resell your notes will remain restricted if you fail to exchange them in the exchange offer." EXPIRATION DATE.........................The exchange offer will expire at 5:00 p.m., New York City time, on February 25, 2000, unless we decide to extend the expiration date. INTEREST................................The exchange offer will expire at 5:00 p.m., New York City time, on February 25, 2000, unless we decide to extend the expiration date. CONDITIONS TO THE EXCHANGE OFFER........Each exchange note will bear interest from the date on which it is issued. Interest will be payable on the outstanding notes accepted for exchange to, but not including, the date on which the exchange notes are issued. PROCEDURES FOR TENDERING OUTSTANDING NOTES...................................If you wish to accept the exchange offer, you must complete, sign and date the letter of transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver the letter of transmittal, or facsimile, or an agent's message together with the outstanding notes and any 1 If you wish to accept the exchange offer, you must complete, sign and date the letter of transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver the letter of transmittal, or facsimile, or an agent's message together with the outstanding notes and any other required documentation to the exchange agent at the address set forth herein. By executing the letter of transmittal or delivering an agent's message, you will represent to us, among other things, that o the exchange notes acquired pursuant to the exchange offer by you and any beneficial owners of outstanding notes are being obtained in the ordinary course of business of the person receiving the exchange notes; o neither you nor such beneficial owner has an arrangement with any person to participate in the distribution of the exchange notes; o neither you nor such beneficial owner nor any such other person is engaging in or intends to engage in a distribution of such exchange notes; and o neither you nor such beneficial owner is our "affiliate," as defined under Rule 405 promulgated under the Securities Act. Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes, where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities and were not acquired directly from us, may participate in the exchange offer but may be deemed an "underwriter" under the Securities Act and, therefore, must acknowledge in the letter of transmittal that it will deliver a prospectus in connection with any resale of such exchange notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "The Exchange Offer - Procedures for Tendering" and "Plan of Distribution." SPECIAL PROCEDURES FOR BENEFICIAL OWNERS..................................If you are a beneficial owner whose outstanding notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender you should contact such registered person promptly and instruct that registered person to tender on your behalf. If you wish to tender on your own behalf you must, prior to completing and executing the letter of transmittal or delivering an agent's message and delivering his outstanding notes, either make appropriate arrangements to register ownership of the outstanding notes in such beneficial owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. See "The Exchange Offer - Procedures for Tendering." GUARANTEED DELIVERY PROCEDURES..........If you wish to tender your outstanding notes and: o time will not permit your notes or other required 2 documents to reach the notes exchange agent by the expiration date; or o the procedure for book-entry transfer cannot be completed on time; you may tender your notes in compliance with the guaranteed delivery procedures described in this prospectus under the heading "The Exchange Offer - Withdrawal of Tenders." WITHDRAWAL RIGHTS.......................You may withdraw your tender as provided in this prospectus at any time prior to 5:00 p.m., New York City time, on the expiration date. See "The Exchange Offer - Withdrawal of Tenders." ACCEPTANCE OF OUTSTANDING NOTES AND DELIVERY OF EXCHANGE NOTES..............We will accept for exchange any and all outstanding notes that are properly tendered in the exchange offer prior to 5:00 p.m., New York City time, on the expiration date. The exchange notes issued pursuant to the exchange offer will be delivered promptly following the expiration date. See "The Exchange Offer - Terms of the Exchange Offer." EXCHANGE AGENT..........................United States Trust Company of New York is serving as exchange agent in connection with the exchange offer. See "The Exchange Offer - Exchange Agent." USE OF PROCEEDS.........................There will be no cash proceeds to us or the guarantors from the exchange pursuant to the exchange offer. FEDERAL INCOME TAX CONSEQUENCES.........The exchange of outstanding notes for exchange notes will not be a taxable exchange for Federal income tax purposes. See "Material Federal Income Tax Considerations." CONSEQUENCES OF FAILURE TO EXCHANGE.....If you do not exchange your outstanding notes for exchange notes pursuant to the exchange offer you will continue to be subject to the restrictions on transfer of such outstanding notes as set forth in the legend thereon as a consequence of the issuance of the outstanding notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, outstanding notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. SUMMARY DESCRIPTION OF THE EXCHANGE NOTES The exchange offer applies to $75,000,000 aggregate principal amount of outstanding notes. The terms of the exchange notes are identical in all material respects to the outstanding notes, except that the exchange notes have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer and will not contain some provisions providing for an increase in the interest rate on the outstanding notes under some circumstances relating to the registration rights agreement, which provisions will terminate as to all of the notes upon the consummation of the exchange offer. The exchange notes will evidence the same debt as the outstanding notes and, except as set forth in the immediately preceding sentence, will be entitled to the benefits of the indenture, under which both the outstanding notes were, and the exchange notes will be, issued. See "Description of Notes." 3 THE EXCHANGE NOTES/1999 NOTES...........$75 million in aggregate principal amount of 11% Series B Senior Subordinated Notes due 2007. MATURITY DATE...........................July 15, 2007. INTEREST PAYMENT DATES..................January 15 and July 15 of each year, commencing on January 15, 2000. MANDATORY REDEMPTION....................We are not required to make mandatory redemption or sinking fund payments with respect to the exchange notes. OPTIONAL REDEMPTION.....................On or after July 15, 2003, the exchange notes will be redeemable at any time at our option, in whole or in part, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. CHANGE OF CONTROL.......................In the event of a change of control, each holder of the notes will have the right to require us to repurchase such holder's notes, in whole or in part, at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. GUARANTEES..............................The exchange notes will be guaranteed by our parent corporation, BPC Holding, and each of our domestic and foreign subsidiaries. The note guarantees will be unconditional joint and several obligations of each guarantor and will be subordinated as described below under "Ranking." RANKING.................................The exchange notes will be unsecured senior subordinated obligations of Berry Plastics, will rank equally with our 1994 notes that consist of $100 million principal amount of 12 1/4% Senior Subordinated Notes due 2004 and our 1998 notes that consist of $25 million principal amount of 12 1/4% Senior Subordinated Notes due 2004 and will be subordinate in right of payment to all our senior indebtedness, which will include borrowings under our credit facility. The exchange notes will be senior to any indebtedness which by its terms is subordinate to the exchange notes, regardless of when such indebtedness is incurred. Each note guarantee will be subordinate in right of payment to all senior indebtedness of each guarantor. Our senior indebtedness consists of borrowings under our credit facility and our Nevada industrial revenue bonds. Senior indebtedness of the guarantors consists of their joint and several guarantee of our obligations under our credit facility and obligations with respect to our Nevada industrial revenue bonds and, in the case of BPC Holding, its 1996 notes. As of October 2, 1999, the aggregate amount of our outstanding senior indebtedness would have been $83.6 million, the aggregate amount of our outstanding total 4 indebtedness, including the 1994 notes and the 1998 notes, would have been $284.9 million, and the indebtedness of the guarantors senior to the note guarantees would have been $389.9 million. As of October 2, 1999, all of our indebtedness other than the senior indebtedness was equal in right of payment to the exchange notes, and there was no indebtedness subordinated to the exchange notes. COVENANTS...............................The indenture pursuant to which the outstanding notes were, and the exchange notes will be, issued contains covenants, including, but not limited to, covenants with respect to the following matters: o limitations on the retention of proceeds from asset sales; o limitations on the incurrence of additional indebtedness and the issuance of disqualified stock; o limitations on restricted payments; o limitations on transactions with affiliates; o limitations on liens; o limitations on dividends and other payment restrictions affecting subsidiaries; and o limitations on mergers, consolidations and sales of assets. In addition, while the indenture contains, among other things, the foregoing covenants as well as a requirement to offer to purchase exchange notes upon specific change of control transactions, the indenture does not 5 THE COMPANY We believe that we are the nation's leading manufacturer and supplier of plastic injection-molded aerosol overcaps, drink cups and rigid thinwall open-top containers for a wide variety of end-use markets. Based on discussions with our customers, sales representatives and external sales brokers, we believe that we are also a leading manufacturer and supplier of plastic injection-molded semi-disposable housewares. In addition, with sales of over two billion aerosol overcaps in fiscal 1998 and based on discussions with our customers, sales representatives and external sales brokers we believe that we are the largest supplier of plastic aerosol overcaps in the world. In our plastic packaging business, we focus primarily on three markets: aerosol overcaps, rigid thinwall open-top containers and drink cups. Our housewares business produces home products such as dinnerware, tumblers and garden items. We concentrate on manufacturing high-quality items sold to image-conscious marketers of consumer and industrial products. With over 1,000 proprietary molds, superior color matching capabilities, sophisticated multi-color printing techniques and nationwide plant locations, we consistently produce and deliver mass quantities of high-quality products on a cost-efficient basis. Our total net sales among our product categories is as follows: FISCAL ---------------------------------------------- 1994 1995 1996 1997 1998 ------ ------ ------ ------ ------ (DOLLARS IN MILLIONS) PLASTIC PACKAGING PRODUCTS: Aerosol overcaps .......... $ 38.0 $ 43.6 $ 49.7 $ 47.1 $ 49.1 Rigid open-top containers . 61.6 71.1 80.8 111.5 145.9 Drink cups ................ 17.3 14.1 37.6 39.9 Other ..................... 6.5 8.7 6.5 13.3 15.3 PLASTIC HOUSEWARES PRODUCTS ..................... 17.5 21.6 ------ ------ ------ ------ ------ Total net sales .............. $106.1 $140.7 $151.1 $227.0 $271.8 ====== ====== ====== ====== ====== We supply aerosol overcaps to a wide variety of customers and for a wide variety of products, containers are used for packaging a broad spectrum of consumer and commercial products. Our drink cups are sold to fast food and family-dining restaurants, convenience stores, stadiums and retail stores. Our housewares products are primarily seasonal, semi-disposable housewares and lawn and garden items such as plates, bowls, pitchers, tumblers and flower pots. Our largest housewares customer, Wal-Mart, named us their housewares "Supplier of the Year" for 1998. COMPETITIVE STRENGTHS We believe that we are a strong competitor in our industry for the following reasons: o SUCCESSFUL INTEGRATION OF NUMEROUS STRATEGIC ACQUISITIONS. o HIGH-CAPACITY, STATE-OF-THE-ART PRODUCTION CAPABILITIES. o FULL PRODUCT LINES AND STRONG MARKET POSITION. o LARGE, DIRECT SALES FORCE. o IN-HOUSE PRODUCT DESIGN AND GRAPHIC ARTS CAPABILITIES. o DEDICATION TO SERVICE AND QUALITY. o LARGE, DIVERSE CUSTOMER BASE. 6 There are certain risks associated with some of our competitive strengths, such as the possibility that our rapid acquisition pace will prevent us from successfully integrating new businesses or that competition will reduce our market share. For a complete discussion of our competitive strengths, see "Business -- Competitive Strengths." GROWTH STRATEGY Our goal is to maintain and enhance our market position and leverage our core strengths to increase profitability. Our strategy to achieve this goal includes the following elements: o PURSUE STRATEGIC ACQUISITIONS IN OUR CORE BUSINESSES. o DESIGN AND INTRODUCE INNOVATIVE NEW PRODUCTS TO PENETRATE NEW MARKETS. o EMPHASIZE OUTSTANDING PRODUCT QUALITY AND CUSTOMER SERVICE. There are certain risks associated with our growth strategy, such as the possibility that we will not successfully integrate acquired businesses or develop new products to penetrate targeted markets. For a complete discussion of our growth strategy, see "Business -- Growth Strategy." Our address is 101 Oakley Street, Evansville, Indiana 47710. Our telephone number is (812) 424-2904. ACQUISITIONS CARDINAL Cardinal, which is headquartered in Streetsboro, Ohio, operates three manufacturing locations and is the nation's leading producer and marketer of plastic containers for ice cream and other frozen desserts. Cardinal also sells containers for other consumer products, such as refrigerated dairy products and non-dairy foods. Cardinal has filling equipment in many of its customers' plants and provides the services needed to operate this equipment. By providing its customers with both containers and the filling machine equipment, Cardinal significantly increases customer retention. In July 1999, we acquired Cardinal for about $72.0 million, including related acquisition costs. For the year ended November 30, 1998, Cardinal reported net sales of $54.0 million and net income of $0.8 million. As in our nine previous acquisitions, we believe that we can lower Cardinal's costs by consolidating plants, purchasing resin in greater volume, using larger, more cost-efficient injection-molding equipment and improving Cardinal's operating systems. 1998 ACQUISITIONS In July 1998, we acquired Norwich Injection Moulders Limited for about $14 million. Norwich, which is headquartered in Norwich, England, manufactures and markets plastic injection-molded overcaps and closures for the European market. For the year ended October 31, 1997, Norwich reported net sales of about $13.4 million and net income of $1.4 million. Norwich provides us with a European production platform that allows us to better serve our global overcap customers and to introduce our other product lines in Europe. In October 1998, we acquired certain assets of the Knight Engineering and Plastics Division of Courtaulds Packaging Inc. for about $18 million. Knight, which is headquartered in Woodstock, Illinois, manufactures and markets plastic injection- molded aerosol overcaps. We believe that this acquisition enhanced our aerosol overcap business and better positioned us to meet the needs of our domestic customers. For the year ended March 31, 1998, Knight reported net sales of $23.8 million and a division loss of $0.8 million. Since the acquisition, we have 7 significantly reduced Knight's manufacturing and operating costs, principally by closing one of its two manufacturing plants. 1997 ACQUISITIONS During 1997 we completed four acquisitions, including PackerWare Corporation and Venture Packaging, Inc. PackerWare, which is headquartered in Lawrence, Kansas, is a major producer of drink cups and housewares. For the year ended October 31, 1996, PackerWare reported net sales of $42.8 million and net income of $0.2 million. The acquisition of PackerWare enabled us to enter the housewares business and strengthened our position in the plastic drink cup market. Venture Packaging, which is headquartered in Monroeville, Ohio, reported net sales of $42.3 million and a net loss of $0.9 million for the year ended September 30, 1996 and is one of the nation's largest producers of plastic injection-molded containers for the food and dairy markets. RISK FACTORS SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF SOME FACTORS THAT YOU SHOULD CONSIDER PRIOR TO TENDERING OUTSTANDING NOTES IN THE EXCHANGE OFFER. 8 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA The following table presents summary financial data for BPC Holding and its subsidiaries. The summary historical financial data for fiscal 1994, fiscal 1995, fiscal 1996, fiscal 1997 and fiscal 1998 come from BPC Holding's audited consolidated financial statements. BPC Holding's and its subsidiaries' audited consolidated financial statements for fiscal 1997 and fiscal 1998 and the audited consolidated statement of operations and cash flows for fiscal 1996 are included in this prospectus. The summary unaudited pro forma financial data give effect to our acquisitions of Cardinal, Knight and Norwich, and issuance of the notes. The summary unaudited pro forma financial data are not necessarily indicative of the operating results or the financial position that would have been achieved had the events given effect therein been consummated and should not be construed as representative of future operating results or financial position.
FISCAL -------------------------------------- 1994 1995 1996 --------- --------- --------- (DOLLARS IN THOUSANDS) CONSOLIDATED OPERATIONS STATEMENT DATA: Net sales ............................... $ 106,141 $ 140,681 $ 151,058 Cost of goods sold ...................... 73,997 102,484 110,110 --------- --------- --------- Gross margin ............................ 32,144 38,197 40,948 Operating expenses ...................... 15,160 17,670 23,679 --------- --------- --------- Operating income ........................ 16,984 20,527 17,269 Other expenses(1) ....................... 184 127 302 Interest expense, net (2) ............... 10,972 13,389 20,075 --------- --------- --------- Income (loss) before income taxes and extraordinary charge ................ 5,828 7,011 (3,108) Income taxes (benefit) .................. 11 678 239 --------- --------- --------- Income (loss) before extraordinary charge 5,817 6,333 (3,347) Extraordinary charge(3) ................. 3,652 -- -- --------- --------- --------- Net income (loss) ....................... $ 2,165 $ 6,333 $ (3,347) --------- --------- --------- CONSOLIDATED OTHER DATA: Adjusted EBITDA(4) ...................... $ 26,380 $ 31,569 $ 34,718 Adjusted EBITDA margin(5) ............... 24.9% 22.4% 23.0% Cash provided by operating activities ... 15,556 12,969 14,426 Cash used for investing activities ...... (9,495) (25,385) (14,639) Cash provided by financing activities ... 2,184 11,124 2,370 Depreciation and amortization(6) ........ 8,176 9,536 11,331 Capital expenditures .................... 9,118 11,247 13,581 Ratios of earnings to fixed charges (7) ............................. 1.5x 1.5x -- BERRY PLASTICS DATA: Cash interest expense, net .................... $ 9,795 $ 12,439 $ 12,854
PRO FORMA 39 FISCAL PRO FORMA WEEKS ENDED ------------------------ FISCAL OCTOBER 2 1997 1998 1998 1999 --------- --------- --------- --------- (DOLLARS IN THOUSANDS) CONSOLIDATED OPERATIONS STATEMENT DATA: Net sales ............................... $ 226,953 $ 271,830 $ 352,670 $ 278,422 Cost of goods sold ...................... 180,249 199,227 265,079 204,647 --------- --------- --------- --------- Gross margin ............................ 46,704 72,603 87,591 73,775 Operating expenses ...................... 30,505 44,001 55,851 44,238 --------- --------- --------- --------- Operating income ........................ 16,199 28,602 31,740 29,537 Other expenses(1) ....................... 226 1,865 1,861 1,150 Interest expense, net (2) ............... 30,246 34,556 45,604 33,649 --------- --------- --------- --------- Income (loss) before income taxes and extraordinary charge ................ (14,273) (7,819) (15,725) (5,262) Income taxes (benefit) .................. 138 (249) 90 659 --------- --------- --------- --------- Income (loss) before extraordinary charge (14,411) (7,570) (15,815) (5,921) Extraordinary charge(3) ................. -- -- -- -- --------- --------- --------- --------- Net income (loss) ....................... $ (14,411) $ (7,570) $ (15,815) $ (5,921) ========= ========= ========= ========= CONSOLIDATED OTHER DATA: Adjusted EBITDA(4) ...................... $ 40,268 $ 59,768 $ 77,526 $ 62,009 Adjusted EBITDA margin(5) ............... 17.7% 22.0% 22.0% 22.3% Cash provided by operating activities ... 14,154 34,131 47,745 37,137 Cash used for investing activities ...... (102,102) (52,120) (133,059) (97,276) Cash provided by financing activities ... 80,444 17,619 84,944 59,910 Depreciation and amortization(6) ........ 19,026 24,830 32,496 26,438 Capital expenditures .................... 16,774 22,595 28,759 28,962 Ratios of earnings to fixed charges (7) ............................. -- -- -- -- BERRY PLASTICS DATA: Cash interest expense, net .................... $ 17,187 $ 20,569 $ 31,243 $ 22,220 Ratio of Adjusted EBITDA to cash interest expense, net.......... 2.9x 2.5x 2.8x Ratio of net debt to Adjusted EBITDA............................ 3.6x 3.8x -- AT OCTOBER 2, 1999 ------------------ HISTORICAL ------------------ BERRY PLASTICS CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents............................................................ $ 1,658 Working capital...................................................................... 10,919 Total assets......................................................................... 327,989 Total long-term debt, including current portion...................................... 284,948 Stockholders' equity (deficit)....................................................... (17,999)
9 - ------------------------ (1)Other expenses consist of loss on disposal of property and equipment for the respective periods. (2)Includes non-cash interest expense of $1,178 in fiscal 1994, $950 in fiscal 1995, $1,212 in fiscal 1996, $2,005 in fiscal 1997, $1,765 in fiscal 1998, $2,140 in pro forma fiscal 1998 and $1,593 for the pro forma 39 weeks ended October 2, 1999. (3)During 1994, an extraordinary charge of $3.7 million was recognized as a result of the retirement of debt concurrently with the issuance of the 1994 Notes. (4)Adjusted EBITDA should not be considered in isolation or as an alternative to income from operations or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of a company's operating performance or as a measure of liquidity. In addition, our calculation of Adjusted EBITDA differs from that presented by some other companies and thus is not necessarily comparable to similarly titled measures used by other companies. The following table reconciles operating income to EBITDA and Adjusted EBITDA for each respective period:
PRO FORMA PRO 39 WEEKS FISCAL FORMA ENDED -------------------------------------------------- FISCAL OCTOBER 1994 1995 1996 1997 1998 1998 2, 1999 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Operating income ......................................... $ 16,984 $ 20,527 $ 17,269 $ 16,199 $ 28,602 $ 31,740 $ 29,537 Depreciation and amortization ............................ 8,176 9,536 11,331 19,026 24,830 32,496 26,438 -------- -------- -------- -------- -------- -------- -------- EBITDA ................................................... 25,160 30,063 28,600 35,225 53,432 64,236 55,975 One-time expenses: 1996 transaction compensation expenses ............ -- -- 2,762 -- -- -- -- Plant shutdown expenses ........................... -- -- 907 848 2,559 2,559 1,048 Acquisition integration expenses .................. 116 867 692 3,267 1,525 1,525 1,842 Litigation expenses related to drink cup patent ... -- -- 650 100 631 631 -- Corporate expenses: Non-cash compensation expenses (benefit) .......... 358 (214) 358 -- 749 749 225 Management fees and expenses ...................... 746 853 749 828 872 872 655 Pro Forma adjustments relating to the acquisitions: Raw material savings .............................. 3,368 1,256 Plant consolidations .............................. 1,906 508 Tooling consolidation ............................. 416 -- Discontinued sales ................................ (340) -- Expense reductions (i.e. legal, management fees) .. 766 500 Staff reductions .................................. 838 -- -------- -------- -------- -------- -------- -------- -------- Adjusted EBITDA .......................................... $ 26,380 $ 31,569 $ 34,718 $ 40,268 $ 59,768 $ 77,526 $ 62,009 ======== ======== ======== ======== ======== ======== ========
(5)Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of net sales. (6)Depreciation and amortization excludes non-cash amortization of deferred financing and origination fees and debt premium/discount amortization which are included in interest expense. (7)In calculating the ratio of earnings to fixed charges, earnings consist of: o income (loss) before income taxes, plus; o fixed charges consisting of interest on debt, including amortization of deferred financing fees, plus; o that portion of lease rental expense representative of the interest factor. Earnings were inadequate to cover fixed charges by $2,883 in fiscal 1996, by $13,932 in fiscal 1997, by $7,042 in fiscal 1998, by $14,948 in pro forma fiscal 1998 and by $6,003 for the pro forma 39 weeks ended October 2, 1999. 10 RISK FACTORS IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD CONSIDER THE FACTORS BELOW BEFORE MAKING A DECISION TO TENDER OUTSTANDING NOTES IN THE EXCHANGE OFFER. THE FOLLOWING RISKS MAY CAUSE OUR BUSINESS, RESULT OF OPERATIONS OR FINANCIAL CONDITION TO DECLINE. WE HAVE A SIGNIFICANT AMOUNT OF DEBT. We have now and, after this offering, will continue to have a large amount of debt. As of October 2, 1999, our aggregate amount of total indebtedness was about $284.9 million. We may also incur additional debt from time to time to finance acquisitions or capital expenditures or for other purposes subject to the restrictions in our credit facility and the indentures governing the notes, the 1994 notes and the 1998 notes. See "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources," "Description of Other Debt" and "Description of Notes." Our high degree of debt has important consequences for us, including the following: o It may be more difficult for us to satisfy our obligations under the notes; o Our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms; o We will need a substantial portion of our cash flow to pay the principal and interest on our debt, including debt that we may incur in the future; o Payments on our debt will reduce the funds that would otherwise be available for our operations and future business opportunities; o A substantial decrease in our net operating cash flows could make it difficult for us to meet our debt service requirements and force us to modify our operations; o We may be more highly leveraged than our competitors, which may place us at a competitive disadvantage; and o We may be more vulnerable to a downturn in our business or the economy generally. If we are unable to service our debt or obtain additional financing, as needed, our business and financial condition would be materially adversely affected. WE MAY NOT BE ABLE TO SERVICE OR REFINANCE OUR DEBT. Our ability to pay principal and interest on the notes and to satisfy our other obligations will depend upon: o Our future financial and operating performance, which performance will be affected by prevailing economic conditions and financial, business and other factors, some of which are beyond our control; and o The future availability of revolving credit borrowings under our credit facility or any successor facility, the availability of which is dependent or may depend on, among other things, our complying with covenants and meeting specified borrowing base prerequisites. See "Description of Other Debt -- The Credit Facility." 11 Based on our current and expected levels of operations, we expect that our operating cash flow and borrowings under our credit facility should be sufficient for us to meet our operating expenses, to make necessary capital expenditures and to service our debt requirements as they become due. However, our operating results and borrowings under our credit facility may not be sufficient to service our debt, including the notes. If we cannot service our debt, we will be forced to take actions such as reducing or delaying acquisitions and/or capital expenditures, selling assets, restructuring or refinancing our debt, including the notes, or seeking additional equity capital or bankruptcy protection. We cannot assure you that any of these remedies can be effected on satisfactory terms, if at all. RESTRICTIVE DEBT COVENANTS IN OUR INDENTURES AND CREDIT FACILITY MAY ADVERSELY AFFECT US. The indenture governing the notes restricts, among other things, our ability to: o incur additional debt; o pay dividends; o redeem capital stock; o create liens, dispose of particular assets, engage in mergers; o make contributions, loans or advances; and o enter into specified transactions with affiliates. Our credit facility and the indentures governing the 1994 and the 1998 notes contain similar restrictions. If our cash flow and existing working capital are insufficient to fund our expenditures or to service our debt, including the 1999 notes, the 1994 notes, the 1998 notes and borrowings under our credit facility, we would have to raise additional funds through capital contributions from BPC Holding, or by refinancing all or a part of our debt or by a sale of assets or subsidiaries. The restrictions contained in the indentures governing the 1999 notes, the 1994 notes and the 1998 notes and the credit facility, in combination with our high level of debt, could severely limit our ability to raise such additional funds, respond to changing market and economic conditions, provide for capital expenditures or take advantage of business opportunities that may arise. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources," "Description of Other Debt" and "Description of Notes." 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 continually evaluate potential acquisition opportunities, particularly those that could be material in size and scope. Acquisitions involve a number of special risks and factors, including: o the focus of management's attention to the assimilation of the acquired companies and their employees and on the management of expanding operations; o the incorporation of acquired products into our product line; o the increasing demands on our operational systems; o adverse effects on our reported operating results; o the amortization of acquired intangible assets; and 12 o 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. In addition, the negotiation of potential acquisitions may require members of management to divert their time and resources away from our operations. THE INTEGRATION OF ACQUIRED BUSINESSES MAY RESULT IN SUBSTANTIAL COSTS, DELAYS OR OTHER PROBLEMS. We may not be able to successfully integrate our acquisitions without substantial costs, delays or other problems. We will have to continue to expend substantial managerial, operating, financial and other resources to integrate our businesses. The costs of such integration could have an adverse effect on short-term operating results. Such costs include non-recurring acquisition costs including accounting and legal fees, investment banking fees, recognition of transaction-related obligations and various other acquisition-related costs. In addition, the rapid pace of our acquisitions of other businesses may adversely affect our efforts to integrate acquisitions and manage those acquisitions profitably. We may seek to recruit additional managers to supplement the incumbent management of the acquired businesses, but we may not have the ability to recruit additional candidates with the necessary skills. Once we acquire a business, we are faced with risks, including: o the possibility that it will be difficult to integrate the operations into our other operations; o the possibility that we have acquired substantial undisclosed liabilities; o the risks of entering markets or offering services for which we have no prior experience; and o the potential loss of customers as a result of changes in management. We may not be successful in overcoming these risks. BPC HOLDING HAS EXPERIENCED CONSOLIDATED NET LOSSES, AND EXPECTS TO CONTINUE TO DO SO. BPC Holding has not generated enough revenue on a consolidated basis to make a profit. Consolidated earnings have been insufficient to cover fixed charges by $2.9 million for fiscal 1996, by $13.9 million for fiscal 1997 and by $7.0 million for fiscal 1998. In addition, BPC Holding has experienced consolidated net losses during each of such periods principally as a result of expenses and charges incurred in connection with our acquisitions. These net losses were $3.3 million for fiscal 1996, $14.4 million for fiscal 1997 and $7.6 million for fiscal 1998. BPC Holding expects that it will continue to experience consolidated net losses for the foreseeable future. BPC HOLDING RELIES ON DIVIDENDS FROM US TO MEET ITS DEBT OBLIGATIONS AND MAY NOT BE ABLE TO SATISFY ITS OBLIGATIONS UNDER ITS GUARANTEE OF THE NOTES. BPC Holding is a holding company and is entirely dependent on our paying it dividends to pay its obligations, including its obligations under its guarantee. Under the terms of our credit facility, there are severe restrictions on our ability to declare dividends to BPC Holding. In addition, the indenture governing the $105 million aggregate principal amount of BPC Holding's 1996 notes, which are 12 1/2% Senior Secured Notes due 2006 limits the ability of BPC Holding to make particular payments, including payments under its guarantee. 13 Accordingly, a refinancing of the 1996 notes or an equity offering, we do not expect BPC Holding to be able to perform under its guarantee. In addition, we anticipate that we will be unable to generate sufficient cash flow to permit a dividend to BPC Holding under the limitations placed on us by our debt indentures in an amount sufficient to meet BPC Holding's interest payment obligations under the 1996 notes. We must pay the interest obligations of the 1996 notes in cash beginning December 15, 2001. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO OUR SENIOR DEBT, WHICH BEARS INTEREST AT FLUCTUATING RATES, AND POSSIBLY OUR FUTURE INDEBTEDNESS. Under the indenture, payments on the notes will be subordinated to the prior payment of all of our senior debt, totaling $83.6 million on October 2, 1999. Our senior debt currently includes borrowings under our credit facility and our Nevada industrial revenue bonds. Our Nevada industrial revenue bonds which bear interest at a variable rate, require annual principal payments of $0.5 million on April 1, and mature in April 2007. As of October 2, 1999, subject to applicable borrowing base limitations, $23.9 million was available for borrowing under the credit facility and there was no debt subordinated to the notes. See "Description of Other Debt--The Credit Facility." The indenture permits us to incur additional senior debt under our credit facility provided that specified conditions are met. See "Description of Notes." By reason of such subordination, in the event of our insolvency, liquidation, reorganization, dissolution or winding up, or in the event that the senior debt is otherwise accelerated, holders of senior debt must be paid in full before we may pay you. In such event, there may be insufficient assets remaining to satisfy claims. In addition, we will not be permitted to make any payment with respect to the notes or our other senior subordinated debt for a substantial period of time if defaults under our credit facility or specified other senior debt exist and are continuing and some other conditions are satisfied. The 1999 notes rank equally with the 1998 notes and the 1994 notes and equally with, or senior to, all other future subordinated debt of the Company. In addition, the guarantees are subordinated to all existing and future senior debt of each guarantor, including the guarantees under our credit facility, and, in the case of BPC Holding, the 1996 notes. In addition, Berry Plastics' and the guarantors' respective obligations under our credit facility and our Nevada industrial revenue bonds bear interest at rates that may be expected to fluctuate over time. Accordingly, a substantial increase in interest rates could adversely affect our ability to service our debt obligations, including our obligations with respect to the notes. THE NOTES ARE NOT SECURED BY ANY OF OUR ASSETS. The notes and guarantees are unsecured obligations of Berry Plastics and the guarantors, respectively. The indenture will permit us to incur some secured debt, including debt under our credit facility, which is secured by a lien on substantially all of the assets of Berry Plastics and the guarantors. The holders of any secured debt will have a claim prior to the holders of the notes with respect to any assets pledged by us as security for such debt. Upon an event of default under the credit facility, the lender would be entitled to foreclose on the assets of Berry Plastics and the guarantors. In such event, the assets of Berry Plastics and the guarantors remaining after repayment of such secured debt may be insufficient to satisfy our obligations with respect to the notes. WE HAVE $125 MILLION IN PRINCIPAL AMOUNT OF NOTES OUTSTANDING THAT WILL BE PAID BEFORE THE NOTES IN THE EVENT OF SPECIFIED ASSETS SALES. The 1994 notes and the 1998 notes have a priority upon the payment of proceeds pursuant to specified asset sales. See "Description of Notes--Repurchase at the Option of Holders--Asset Sales." 14 WE DO NOT HAVE FIRM CONTRACTS WITH PLASTIC RESIN SUPPLIERS. We source plastic resin primarily from major industry suppliers, such as Dow Chemical, Chevron, Mobil and Equistar. We have long-standing relationships with some of these suppliers but have not entered into a firm supply contract with any of our resin vendors. We may not be able to arrange for other sources of resin in the event of an industry-wide general shortage of resins used by us, or a shortage or discontinuation of some types of grades of resin purchased from one or more of our suppliers. IF MARKET CONDITIONS DO NOT PERMIT US TO PASS ON THE COST OF PLASTIC RESINS TO OUR CUSTOMERS ON A TIMELY BASIS, IF AT ALL, OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS WILL SUFFER. To produce our products we use various plastic resins, which in fiscal 1998 cost us about $62 million, or 31% of our total cost of goods sold. In order for us to do well financially we must pass this cost on to our customers in a timely manner. 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. Historically, we have been able to pass on increases in resin prices to our customers over a period of time. However, we may not be able to continue to do so on a timely basis, if at all, or there could be a significant increase in resin prices, which would have a material adverse effect on our financial performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--General Economic Conditions and Inflation" and "Business--Sources and Availability of Raw Materials." WE ARE CONTROLLED BY A SMALL GROUP OF STOCKHOLDERS. Atlantic Equity Partners International II, L.P., a Delaware limited partnership, owns about 54%, on a voting common stock equivalent basis, of BPC Holding's outstanding voting capital stock. As such, subject to the terms of our stockholders agreement, Atlantic Equity Partners International II has the ability to elect all of the members of BPC Holding's Board of Directors and can determine the outcome of any corporate transaction or other matter submitted to the stockholders of BPC Holding or Berry Plastics for approval, including mergers, consolidations and the sale of Berry Plastics or all or substantially all of our assets. See "Certain Transactions--Stockholders Agreements." Atlantic Equity Associates International II, L.P., a Delaware limited partnership, is the sole general partner of Atlantic Equity Partners International II. Roberto Buaron, the Chairman and a director of Berry Plastics, is the sole shareholder of Buaron Holdings Ltd. Buaron Holdings is the sole general partner of Atlantic Equity Associates International II. Through his affiliations with Buaron Holdings and Atlantic Equity Associates International II, Mr. Buaron may be deemed to control Atlantic Equity Partners International II. Including the shares of capital stock owned by Atlantic Equity Partners International II, all executive officers and directors of Berry Plastics as a group beneficially own about 96.3% on a voting common stock equivalent basis of BPC Holding's outstanding voting capital stock. WE ARE SUBJECT TO VARIOUS ENVIRONMENTAL LAWS AND MAY BE ADVERSELY AFFECTED BY NEW ENVIRONMENTAL LAWS OR THE COSTS OF COMPLIANCE WITH ANY SUCH LAWS. 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. We are aware that some local governments have adopted ordinances prohibiting or restricting the use or disposal of some plastic products that are among the types of products that we produce. If such prohibitions or restrictions were widely adopted, they could 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. In addition, some of our operations are subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage and disposal of solid and hazardous wastes. While we have not been required historically to make significant capital expenditures in order to comply with applicable environmental laws and regulations, we cannot predict with any certainty our future capital expenditure requirements because of continually changing compliance standards and environmental 15 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 do not have insurance coverage for environmental liabilities and do not anticipate obtaining such coverage in the future. See "Business--Environmental Matters and Governmental Regulation." WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE. In the event of particular change of control events, we will be required, subject to particular conditions, to offer to purchase all outstanding 1999 notes, 1994 notes and 1998 notes at a purchase price equal to 101% of the principal amount thereof, plus accrued interest and any liquidated damages to the date of repurchase. In addition, BPC Holding will also be required, subject to particular conditions, to offer to purchase all outstanding 1996 notes at a purchase price equal to 101% of the principal amount thereof, or 101% of $105,000,000, plus accrued interest to the date of repurchase. There can be no assurance that we will have sufficient funds available to make the required purchases. Moreover, our credit facility and the indenture governing the 1996 notes restrict such a purchase and the offer would require the approval of the lender or securityholders thereunder, as the case may be. As a result of this potential lack of funds and the restrictions contained in our credit facility and the indenture governing the 1996 notes, the indenture governing the notes may offer little, if any, protection to you in the event of a change of control. If we failed to purchase notes tendered upon a change of control it would constitute an event of default under the indenture. Our credit facility provides that events similar to a change of control will constitute an event of default thereunder. Upon the occurrence of an event of default under our credit facility, all amounts outstanding thereunder may become due and payable. All debt of Berry Plastics under our credit facility is senior debt, which, as of October 2, 1999, could have been as much as $107.5 million under the borrowing base calculation. The subordination provisions contained in the indenture will prohibit us from making any payment on the notes, of the holders of senior debt issue a notice to us to such effect, until such event of default is cured or upon the expiration of 179 days unless the holders of senior debt accelerate the maturity of the senior debt. We could, in the future enter into transactions, including acquisitions, refinancings or other recapitalizations or highly leveraged transactions, that would not result in a change of control but would increase the amount of debt outstanding or otherwise affect our capital structure or credit ratings or otherwise adversely affect holders of the notes. See "Description of Other Debt" and "Description of Notes--Repurchase at the Option of Holders--Change of Control." WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY. We face intense competition in the sale of our products. We compete with several companies, including divisions or subsidiaries of larger companies, on the basis of price, service, quality and the ability to supply products to customers in a timely manner. Many of our competitors have financial and other resources that are substantially greater than ours. Our customers may opt to purchase a different production type of product, such as those made by thermoforming. 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. UNDER SPECIFIC CIRCUMSTANCES, THE NOTES AND GUARANTEES MAY BE VOIDED. Federal and state statutes allow courts, under specific circumstances, to void the notes and the guarantees and require you to return payments received from us or the guarantors. If a court of competent jurisdiction in a suit by an unpaid creditor or a representative of creditors, such as a trustee in bankruptcy or a debtor-in-possession, were to find that, at the time of the incurrence of the debt represented by the notes and the guarantees, Berry Plastics or a guarantor: o was insolvent or was rendered insolvent by reason of such incurrence; o was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; 16 o intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured; o intended to hinder, delay or defraud its creditors; or o incurred the debt for less than reasonably equivalent value or fair consideration; then such court could, among other things: o void all or a portion of our or such guarantor's obligations to the holders of the notes, the effect of which could be that you might not be repaid in full; and/or o subordinate our or such guarantor's obligations to the holders of the notes to other existing and future debt of Berry Plastics or such guarantor, as the case may be, the effect of which would be to entitle such other creditors to be paid in full before any payment could be made to you. The measure of insolvency for purposes of the foregoing will vary depending upon the law applied in such case. Generally, however, we would be considered insolvent if: o the sum of our debts, including contingent liabilities, was greater than all of our assets at a fair valuation or if the present fair saleable value of our assets was less than the amount that would be required to pay the probable liabilities on our existing debts, including contingent liabilities, as they become absolute and matured; or o we could not pay our debts as they became due. THERE IS NO PUBLIC MARKET FOR THE EXCHANGE NOTES. The exchange notes will be new securities for which currently there is no trading market. We do not intend to list the exchange notes on any national securities exchange or to seek the admission thereof to trading in the Nasdaq National Market. The outstanding notes are designated for trading in the PORTAL market. We have been advised by the initial purchasers that they currently intend to make a market. The initial purchasers are not obligated to do so, however, and any market-making activities with respect to the exchange notes may be discontinued at any time without notice. In addition, such market-making activity will be subject to the limits imposed by the Securities Act and the Exchange Act, and may be limited during the exchange offer and while any shelf registration statement is pending. Accordingly, we cannot assure you that an active public or other market or liquidity will develop for the exchange notes. If a trading market does not develop or is not maintained, you may experience difficulty in reselling the exchange notes or may be unable to sell them at all. If a market develops for the exchange notes, future trading prices of the exchange notes will depend on many factors, including among other things: o our financial performance or prospects; o prevailing interest rates; o the overall market for high yield securities; o the prospects for companies in our industry generally; and o the number of holders of the exchange notes. Depending on those and other factors, the exchange notes may trade at a discount from their principal amount. Historically, the market for non-investment grade debt has been subject to disruptions that have caused 17 substantial volatility in the prices of securities similar to the exchange notes. We cannot assure you that the market for the exchange notes, if any, will not be subject to similar disruptions. Any such disruptions may adversely affect you as a holder of the exchange notes. YOUR ABILITY TO RESELL YOUR NOTES WILL REMAIN RESTRICTED IF YOU FAIL TO EXCHANGE THEM IN THE EXCHANGE OFFER. If you do not exchange the outstanding notes for exchange notes pursuant to the exchange offer you will continue to be subject to the restrictions on transfer of the outstanding notes as set forth in the legend thereon as a consequence of the issuance of the outstanding notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the outstanding notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not currently anticipate that we will register the outstanding notes under the Securities Act. In addition, any trading market for the outstanding notes not exchanged for exchange notes will be adversely affected to the extent that outstanding notes are tendered and accepted in the exchange offer. Based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, we believe that the exchange notes issued pursuant to the exchange offer in exchange for outstanding notes may be offered for resale, resold or otherwise transferred by any holder thereof, other than any such holder that is an "affiliate" of Berry Plastics within the meaning of Rule 405 promulgated under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, PROVIDED that the exchange notes are acquired in the ordinary course of the holder's business, the holder has no arrangement with any person to participate in the distribution of such exchange notes and neither the holder nor any such other person is engaging in or intends to engage in a distribution of the exchange notes. Notwithstanding the foregoing, each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with any resale of exchange notes received in exchange for outstanding notes where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities and were not acquired directly from Berry Plastics. Berry Plastics and the guarantors have agreed that, for a period of one year from the date of this prospectus, they will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." However, your ability to resell the exchange notes is subject to applicable state securities laws as described in "Risk Factors -- There are state securities laws restrictions on the resale of exchange notes." TO PARTICIPATE IN THE EXCHANGE OFFER YOU MUST COMPLY WITH THE PROCEDURES DISCUSSED IN THIS PROSPECTUS. To participate in the exchange offer, and to avoid the restrictions on transfer of the outstanding notes, holders of outstanding notes must transmit a properly completed letter of transmittal or an agent's message, including all other documents required by the letter of transmittal, to the exchange agent at one of the addresses set forth below under "The Exchange Offer -- Exchange Agent" on or prior to the expiration date. In addition, either (1) certificates for the outstanding notes must be received by the exchange agent along with the letter of transmittal; (2) a timely confirmation of a book-entry transfer of such outstanding notes, if such procedure is available, into the exchange agent's account at The Depository Trust Company pursuant to the procedure for book-entry transfer described herein, must be received by the exchange agent prior to the expiration date; or (3) you must comply with the guaranteed delivery procedures described in this prospectus. The method of delivery of the outstanding notes and the letter of transmittal and all other required documents to the exchange agent is at your election and risk. Neither Berry Plastics, the exchange agent nor any 18 other person shall incur any liability for failure to notify you of defects or irregularities with respect to tenders of outstanding notes. See "The Exchange Offer." THERE ARE STATE SECURITIES LAWS RESTRICTIONS ON THE RESALE OF EXCHANGE NOTES. In order to comply with the securities laws of some jurisdictions, the exchange notes may not be offered or resold by you unless they have been registered or qualified for sale in such jurisdictions or an exemption from registration or qualification is available and the requirements of such exemption have been satisfied. We do not currently intend to register or qualify the resale of the exchange notes in any such jurisdictions. However, an exemption is generally available for sales to registered broker-dealers and some institutional buyers. Other exemptions under applicable state securities laws may also be available. 19 WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-4 under the Securities Act of 1933 with respect to the exchange notes. This prospectus, which is a part of that registration statement, does not contain all of the information set forth in the registration statement. For further information about us and the exchange notes, you should refer to the registration statement. This prospectus summarizes material provisions of contracts and other documents to which we refer you. Since this prospectus may not contain all of the information that you may find important, you should review the full text of these documents. We have included copies of these documents as exhibits to our registration statement. We are subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith will file reports and other information with the SEC. You may inspect any such material, without charge, at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices located at Seven World Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may also be obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition we will file electronic versions of these documents with the SEC through the SEC's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The SEC maintains a World Wide Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act including, in particular, the statements about our plans, strategies, and prospects under the headings "Prospectus Summary", and "Management's Discussion and Analysis of Financial Condition and Results of Operations and Business." Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this prospectus are set forth in this prospectus, including under the heading "Risk Factors." All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this prospectus. 20 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The outstanding notes were sold by Berry Plastics on July 6, 1999 to the initial purchasers, who placed the outstanding notes with institutional investors. In connection therewith, Berry Plastics, the guarantors and the initial purchasers entered into the registration rights agreement, pursuant to which Berry Plastics and the guarantors agreed, for the benefit of the holders of the outstanding notes, that Berry Plastics and the guarantors would, at their sole cost, among other things: o within 45 days following the original issuance of the outstanding notes, file with the Commission the registration statement of which this prospectus is a part under the Securities Act with respect to an issue of a series of new notes of Berry Plastics identical in all material respects to the series of outstanding notes. Such exchange notes would not contain terms with respect to transfer restrictions; and o cause such registration statement to be declared effective under the Securities Act within 210 days following the original issuance of the outstanding notes. Upon the effectiveness of the registration statement, Berry Plastics will offer, pursuant to this prospectus, to the holders of transfer restricted securities who are able to make specific representations, the opportunity to exchange their transfer restricted securities for a like principal amount of exchange notes, to be issued without a restrictive legend and which may, generally, be reoffered and resold by the holder without restrictions or limitations under the Securities Act. The term "holder" with respect to the exchange offer means any person in whose name outstanding notes are registered on the books of Berry Plastics or any other person who has obtained a properly completed bond power from the registered holder. Berry Plastics has not requested, and does not intend to request, an interpretation by the staff of the Commission with respect to whether the exchange notes issued pursuant to the exchange offer in exchange for the transfer restricted securities may be offered for sale, resold or otherwise transferred by any holder without compliance with the registration and prospectus delivery provisions of the Securities Act. Instead, based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, Berry Plastics believes that exchange notes issued pursuant to the exchange offer in exchange for transfer restricted securities may be offered for resale, resold and otherwise transferred by any holder of the exchange notes, other than any such holder that is an "affiliate" of Berry Plastics within the meaning of Rule 405 promulgated under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, PROVIDED that the exchange notes are acquired in the ordinary course of such holder's business, such holder has no arrangement or understanding with any person to participate in the distribution of such exchange notes and neither such holder nor any other such person is engaging in or intends to engage in a distribution of the exchange notes. Since the Commission has not considered the exchange offer in the context of a no-action letter, there can be no assurance that the staff of the Commission would make a similar determination with respect to the exchange offer. Any holder who is an affiliate of Berry Plastics or who tenders in the exchange offer for the purpose of participating in a distribution of the exchange notes cannot rely on such interpretations by the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale transaction. Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for transfer restricted securities where such transfer restricted securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, other than transfer restricted Securities acquired directly from Berry Plastics. Berry Plastics and the guarantors have agreed that, for a period of 21 one year after the date of this prospectus, they will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." If (1) Berry Plastics and the guarantors are not permitted to consummate the exchange offer because the exchange offer is not permitted by applicable law or Commission policy, or (2) any holder of transfer restricted securities notifies Berry Plastics prior to the 20th day following consummation of the exchange offer that: (a) it is prohibited by law or Commission policy from participating in the exchange offer; (b) that it may not resell the exchange notes acquired by it in the exchange offer to the public without delivering a prospectus and this prospectus is not appropriate or available for such resales; or (c) that it is a broker-dealer and owns notes acquired directly from Berry Plastics or an affiliate of Berry Plastics, then Berry Plastics and the guarantors will file with the Commission a shelf registration statement to cover resales of the notes by the holders thereof who satisfy specific conditions relating to the provision of information in connection with the shelf registration statement. Berry Plastics and the guarantors will use their best efforts to cause the applicable registration statement to be declared effective as promptly as possible by the Commission. For purposes of the foregoing, "transfer restricted securities" means each outstanding note and any related note guarantees until: o the date on which the outstanding note has been exchanged by a person other than a broker-dealer for an exchange note in the exchange offer, o following the exchange by a broker-dealer in the exchange offer of an outstanding note for an exchange note, the date on which the exchange note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of this prospectus, o the date on which the outstanding note has been effectively registered under the Securities Act and disposed of in accordance with the shelf registration statement, or o the date on which the outstanding note is distributed to the public pursuant to Rule 144 under the Securities Act. The registration rights agreement provides that: o Berry Plastics and the guarantors will file the registration statement with the Commission on or prior to 45 days after the original issuance of the outstanding notes, o Berry Plastics will use its best efforts to have the registration statement declared effective by the Commission on or prior to 210 days after the original issuance of the outstanding notes, o unless the exchange offer would not be permitted by applicable law or Commission policy, Berry Plastics and the guarantors will commence the exchange offer and use their best efforts to issue, on or prior to 30 business days after the date on which the registration statement was declared effective by the Commission, exchange notes in exchange for all outstanding notes tendered prior thereto in the exchange offer, and o if obligated to file the shelf registration statement, Berry Plastics and the guarantors will use their best efforts to file the shelf registration statement with the Commission on or prior to 45 days after 22 such filing obligation arises and to cause the shelf registration statement to be declared effective by the Commission on or prior to 90 days after such obligation arises. If either: (1) Berry Plastics and the guarantors fail to file any of the registration statements required by the registration rights agreement on or before the date specified for such filing, (2) any of such registration statements is not declared effective by the Commission on or prior to the date specified for such effectiveness, or (3) Berry Plastics and the guarantors fail to consummate the exchange offer within 60 business days of the date specified for such effectiveness with respect to the registration statement, or (4) the shelf registration statement or the registration statement is declared effective but thereafter ceases to be effective or usable in connection with resales of transfer restricted securities during the periods specified in the registration rights agreement (each such event referred to in clauses (1) through (4) above a "registration default"), then Berry Plastics and the guarantors will pay liquidated damages to each holder of outstanding notes with respect to the first 90-day period immediately following the occurrence of the first registration default in an amount equal to $.05 per week per $1,000 principal amount of outstanding notes held by such holder. The amount of the liquidated damages will increase by an additional $.05 per week per $1,000 principal amount of outstanding notes with respect to each subsequent 90-day period until all registration defaults have been cured, up to a maximum amount of liquidated damages for all registration defaults of $.50 per week per $1,000 principal amount of outstanding notes. All accrued liquidated damages will be paid by Berry Plastics and the guarantors on each damages payment date to the global note holder by wire transfer of immediately available funds or by Federal funds check and to holders of certificated securities by wire transfer to the accounts specified by them or by mailing checks to their registered addresses if no such accounts have been specified. Following the cure of all registration defaults, the accrual of liquidated damages will cease. Holders of outstanding notes will be required to make representations to Berry Plastics and the guarantors in order to participate in the exchange offer and will be required to deliver information to be used in connection with the shelf registration statement and to provide comments on the shelf registration statement within the time periods set forth in the registration rights agreement in order to have their outstanding notes included in the shelf registration statement and benefit from the provisions regarding liquidated damages set forth above. The summary herein of some of the provisions of the registration rights agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the registration rights agreement, a copy of which has been filed as an exhibit to the registration statement of which this prospectus forms a part. The outstanding notes are designated for trading in the PORTAL market. To the extent outstanding notes are tendered and accepted in the exchange offer, the principal amount of outstanding notes will decrease with a resulting decrease in the liquidity in the market therefor. Following the consummation of the exchange offer, holders of outstanding notes who were eligible to participate in the exchange offer but who did not tender their outstanding notes will not be entitled to specified rights under the registration rights agreement and those outstanding notes will continue to be subject to restrictions on transfer. Accordingly, the liquidity of the market for the outstanding notes could be adversely affected. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, Berry Plastics will accept any and all outstanding notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. Berry Plastics will issue $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of outstanding notes accepted in the exchange offer. 23 Holders may tender some or all of their outstanding notes pursuant to the exchange offer. However, outstanding notes may be tendered only in integral multiples of $1,000. The form and terms of the exchange notes will be identical in all material respects to the form and terms of the outstanding notes, except that the exchange notes have been registered under the Securities Act and therefore will not bear legends restricting their transfer and will not contain provisions providing for an increase in the interest rate on the outstanding notes under some circumstances relating to the Registration Rights Agreement, which provisions will terminate upon the consummation of the exchange offer. The exchange notes will evidence the same debt as the outstanding notes and will be entitled to the benefits of the indenture under which the outstanding notes were, and the exchange notes will be, issued. As of the date of this prospectus, $75,000,000 aggregate principal amount of the outstanding notes are outstanding. Berry Plastics has fixed the close of business on January 10, 2000 as the record date for the exchange offer for purposes of determining the persons to whom this prospectus, together with the letter of transmittal, will initially be sent. As of such date, there was one registered holder of the outstanding notes. Holders of the outstanding notes do not have any appraisal or dissenters' rights under the Delaware General Corporation Law or the indenture in connection with the exchange offer. Berry Plastics intends to conduct the exchange offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder. Berry Plastics shall be deemed to have accepted validly tendered outstanding notes when, as and if Berry Plastics has given oral notice or written notice thereof to the exchange agent. An oral notice must be confirmed in writing. The exchange agent will act as agent for the tendering holders for the purpose of the exchange of outstanding notes. If any tendered outstanding notes are not accepted for exchange because of an invalid tender, the occurrence of other events set forth herein or otherwise, any such unaccepted outstanding notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the expiration date. Holders who tender outstanding notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of outstanding notes pursuant to the exchange offer. Berry Plastics will pay all charges and expenses, other than some applicable taxes, in connection with the exchange offer. See "The Exchange Offer -- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "expiration date" shall mean 5:00 p.m., New York City time, on February 25, 2000, unless Berry Plastics, in its sole discretion, extends the exchange offer, in which case the term "expiration date" shall mean the latest date and time to which the exchange offer is extended. In order to extend the exchange offer, Berry Plastics will notify the exchange agent of any extension by oral notice, confirmed in writing, or written notice and will make a public announcement thereof prior to 9:00 a.m., New York City time, on the next business day after each previously scheduled expiration date. Berry Plastics reserves the right, in its sole discretion, o to delay accepting any outstanding notes, to extend the exchange offer or, if any of the conditions set forth below under "The Exchange Offer -- Conditions" shall not have been satisfied, to terminate the exchange offer, by giving oral notice, confirmed in writing, or written notice of such delay, extension or termination to the exchange agent or o to amend the terms of the exchange offer in any manner. 24 Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by a public announcement thereof. If the exchange offer is amended in a manner determined by Berry Plastics to constitute a material change, Berry Plastics will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders, and Berry Plastics will extend the exchange offer for a period of five to 10 business days, depending upon the significance of the amendment and the manner of disclosure to the registered holders, if the exchange offer would otherwise expire during such five- to 10-business-day period. Without limiting the manner in which Berry Plastics may choose to make public announcement of any delay, extension, termination or amendment of the exchange offer, Berry Plastics shall have no obligation to publish, advertise or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. INTEREST ON THE EXCHANGE NOTES The exchange notes will bear interest from the date on which they are issued. Interest will be payable on the outstanding notes accepted for exchange to, but not including, the date on which the exchange notes are issued. PROCEDURES FOR TENDERING The tender of outstanding notes by a holder thereof pursuant to one of the procedures set forth below and the acceptance thereof by Berry Plastics will constitute a binding agreement between such holder and Berry Plastics in accordance with the terms and subject to the conditions set forth herein and in the letter of transmittal. This prospectus, together with the letter of transmittal, will first be sent on or about January 20, 2000, to all holders of outstanding notes known to Berry and the exchange agent. Only a holder of the outstanding notes may tender such outstanding notes in the exchange offer. A holder who wishes to tender any outstanding notes for exchange pursuant to the exchange offer must transmit a properly completed and duly executed letter of transmittal, or a facsimile thereof, or an agent's message, including any other required documents, to the exchange agent prior to 5:00 p.m., New York City time, on the expiration date. In addition, either (1) the certificates for such outstanding notes must be received by the exchange agent along with the letter of transmittal or (2) a timely confirmation of a book-entry transfer of such outstanding notes, if such procedure is available, into the exchange agent's account at DTC pursuant to the procedure for book-entry transfer described below, must be received by the exchange agent prior to the expiration date or (3) the holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the outstanding notes, letter of transmittal or agent's message and other required documents must be received by the exchange agent at the address set forth below under "Exchange Agent" prior to 5:00 p.m., New York City time, on the expiration date. The term "agent's message" means a message, transmitted by DTC and received by, the exchange agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the participant tendering outstanding notes which are the subject of such book-entry confirmation that such participant has received and agrees to be bound by the terms of the letter of transmittal, and that Berry Plastics may enforce such agreement against such participant. THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IF SENT BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED AND PROPER INSURANCE BE OBTAINED. IN ALL CASES, SUFFICIENT 25 TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTERS OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO BERRY PLASTICS. Any beneficial owner whose outstanding notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such beneficial owner's own behalf, such beneficial owner must, prior to completing and executing the letter of transmittal or delivering an agent's message and delivering such beneficial owner's outstanding notes, either make appropriate arrangements to register ownership of the outstanding notes in such beneficial owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an eligible institution unless the outstanding notes tendered pursuant thereto are tendered (1) by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the letter of transmittal or (2) for the account of an eligible institution. An eligible institution means a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 promulgated under the Exchange Act. If the letter of transmittal is signed by a person other than the registered holder of any outstanding notes listed therein, such outstanding notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such outstanding notes. If the letter of transmittal or any outstanding notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by Berry Plastics, evidence satisfactory Berry Plastics of their authority to so act must be submitted with the letter of transmittal. All questions as to the validity, form, eligibility, including time of receipt, acceptance and withdrawal of tendered outstanding notes will be determined by Berry Plastics in its sole discretion, which determination will be final and binding. Berry Plastics reserves the absolute right to reject any and all outstanding notes not properly tendered or any acceptance of which would, in the opinion of counsel for Berry Plastics, be unlawful. Berry Plastics also reserves the right to waive any defects, irregularities or conditions of tender as to particular outstanding notes. Berry's interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of outstanding notes must be cured within such time as Berry Plastics shall determine. Although Berry Plastics intends to notify holders of defects or irregularities with respect to tenders of outstanding notes, neither Berry Plastics, the exchange agent nor any other person shall incur any liability for failure to give such notification. Tenders of outstanding notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any outstanding notes received by the exchange agent that Berry Plastics determines are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. By tendering, each holder will represent to Berry Plastics, among other things, that: (1) the exchange notes acquired by the holder and any beneficial owners of outstanding notes pursuant to the exchange offer are being obtained in the ordinary course of business of the persons receiving such exchange notes, 26 (2) neither the holder nor such beneficial owner has an arrangement with any person to participate in the distribution of such exchange notes, (3) neither the holder nor such beneficial owner nor any such other person is engaging in or intends to engage in a distribution of such exchange notes, and (4) neither the holder nor any such other person is an "affiliate," as defined under Rule 405 promulgated under the Securities Act, of Berry Plastics. Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes, where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities and were not acquired directly from Berry Plastics, may participate in the exchange offer but may be deemed an "underwriter" under the Securities Act and, therefore, must acknowledge in the letter of transmittal that it will deliver a prospectus in connection with any resale of such exchange notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "Plan of Distribution." BOOK-ENTRY TRANSFER The exchange agent will make a request to establish an account with respect to the outstanding notes at DTC for purposes of the exchange offer within two business days after the date of this prospectus, and any financial institution that is a participant in DTC's system may make book-entry delivery of outstanding notes by causing the DTC to transfer such outstanding notes into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. However, although delivery of outstanding notes may be effected through book-entry transfer at DTC, the letter of transmittal or facsimile thereof, or an agent's message, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the exchange agent at one of the addresses set forth below under "The Exchange Offer -- Exchange Agent" on or prior to the expiration date or the guaranteed delivery procedures described below must be complied with. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their outstanding notes and o whose outstanding notes are not immediately available; or o who cannot deliver their outstanding notes, the letter of transmittal or any other required documents to the exchange agent prior to the expiration date may effect a tender if: (1) the tender is made through an eligible institution; (2) prior to the expiration date, the exchange agent receives from such eligible institution a properly completed and duly executed notice of guaranteed delivery by facsimile transmission, mail or hand delivery, setting forth the name and address of the holder, the certificate number(s) of such outstanding notes and the principal amount of outstanding notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal or facsimile thereof or an agent's message, together with the certificate(s) representing the outstanding notes, or a book-entry confirmation, and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and (3) such properly completed and executed letter of transmittal or facsimile thereof or an agent's message, as well as the certificate(s) representing all tendered outstanding notes in proper form for transfer, or a book-entry confirmation, as the case may be, and all other document 27 required by the letter of transmittal are received by the exchange agent within three New York Stock Exchange trading days after the expiration date. Upon request to the exchange agent, a notice of guaranteed delivery will be sent to holders who wish to tender their outstanding notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS To withdraw a tender of outstanding notes in the exchange offer, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth herein prior to 5:00 p.m., New York City time, on the expiration date. Any such notice of withdrawal must (1) specify the name of the person having deposited the outstanding notes to be withdrawn, (2) identify the outstanding notes to be withdrawn, including the certificate number or numbers and principal amount of such outstanding notes, (3) be signed by the holder in the same manner as the original signature on the letter of transmittal by which such outstanding notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee with respect to the outstanding notes register the transfer of such outstanding notes into the name of the persons withdrawing the tender, and (4) specify the name in which any such outstanding notes are to be registered, if different from that of the depositor. If certificates for outstanding notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an eligible institution unless such holder is an eligible institution. If outstanding notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn outstanding notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility, including time of receipt, of such notices will be determined by Berry Plastics in its sole discretion, which determination shall be final and binding on all parties. Any outstanding notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer and no exchange notes will be issued with respect thereto unless the outstanding notes so withdrawn are validly rendered. Properly withdrawn outstanding notes may be rendered by following one of the procedures described above under "The Exchange Offer -- Procedures for Tendering" at any time prior to the expiration date. Any outstanding notes which have been tendered but which are not accepted for payment due to withdrawal, rejection of tender or termination of the exchange offer will be returned as soon as practicable to the holder thereof without cost to such holder, or, in the case of outstanding notes tendered by book-entry transfer into the exchange agent's account at DTC pursuant to the book-entry transfer procedures described above, such outstanding notes will be credited to an account maintained with DTC for the outstanding notes. CONDITIONS Notwithstanding any other term of the exchange offer, Berry Plastics shall not be required to accept for exchange, or exchange notes for, any outstanding notes, and may terminate the exchange offer as provided herein before the acceptance of such outstanding notes, if: (1) the exchange offer shall violate applicable law or any applicable interpretation of the staff of the Commission; 28 (2) any action or proceeding is instituted or threatened in any court or by any governmental agency that might materially impair the ability of Berry Plastics to proceed with the exchange offer or any material adverse development has occurred in any existing action or proceeding with respect to Berry Plastics; or (3) any governmental approval has not been obtained, which approval Berry Plastics shall deem necessary for the consummation of the exchange offer. If Berry Plastics determines in its sole discretion that any of the conditions are not satisfied, Berry Plastics may: (1) refuse to accept any outstanding notes and return all tendered outstanding notes to the tendering holders or, in the case of outstanding notes tendered by book-entry transfer into the exchange agent's account at DTC pursuant to the book-entry transfer procedures described above, such outstanding notes will be credited to an account maintained with DTC, (2) extend the exchange offer and retain all outstanding notes tendered prior to the expiration of the exchange offer, subject, however, to the rights of holders to withdraw such outstanding notes, or (3) waive such unsatisfied conditions with respect to the exchange offer and accept all properly tendered outstanding notes which have not been withdrawn. If such waiver constitutes a material change to the exchange offer, Berry Plastics will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered holders, and Berry Plastics will extend the exchange offer for a period of five-to-10 business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the exchange offer would otherwise expire during such five-to-10 business day period. EXCHANGE AGENT The United States Trust Company of New York has been appointed as exchange agent for the exchange offer. Questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent addressed as follows: To: United States Trust Company of New York, as Exchange Agent
BY REGISTERED OR CERTIFIED MAIL: BY FACSIMILE: BY HAND BEFORE 4:30 P.M. United States Trust Company of (212)420-6211 United States Trust Company of New York Attention: Customer New York Cooper Station Service 111 Broadway P.O. Box 843 New York, New York 10006 New York, New York 10276 Attention: Lower Level Corporate Trust Attention: Corporate Trust Services Window CONFIRM BY TELEPHONE BY OVERNIGHT COURIER AND BY HAND AFTER TO: 4:30 P.M. ON THE EXPIRATION DATE: (800)548-6565 United States Trust Company of New York 770 Broadway New York, New York 10003
29 FEES AND EXPENSES The expenses of soliciting tenders will be borne by Berry Plastics. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of Berry Plastics and our affiliates. Berry Plastics has not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. Berry Plastics, however, will pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the exchange offer will be paid by Berry Plastics. Such expenses include fees and expenses of the exchange agent and trustee, accounting and legal fees and printing costs, among others. Berry Plastics will pay all transfer taxes, if any, applicable to the exchange of outstanding notes pursuant to the exchange offer. If, however, certificates representing exchange notes or outstanding notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the outstanding notes tendered, or if tendered outstanding notes are registered in the name of any person other than the person signing the letter of transmittal, or if a transfer tax is imposed for any reason other than the exchange of outstanding notes pursuant to the exchange offer, then the amount of any such transfer taxes, whether imposed on the registered holder or any other person, will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. ACCOUNTING TREATMENT The exchange notes will be recorded at the same carrying value as the outstanding notes as reflected in Berry Plastic's accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized. The expenses of the exchange offer and the unamortized expenses related to the issuance of the outstanding notes will be amortized over the term of the exchange notes. 30 CAPITALIZATION The following table sets forth the consolidated capitalization of BPC Holding and its subsidiaries at October 2, 1999. You should read the information in the table below in conjunction with the historical consolidated financial statements of BPC Holding and the related notes included elsewhere in this prospectus. AT OCTOBER 2, 1999 HISTORICAL --------------------- (DOLLARS IN THOUSANDS) Long-term debt, including current portion: BERRY PLASTICS CORPORATION: Revolving credit facility........................... $ 22,768 Term loans.......................................... 56,819 Nevada industrial revenue bonds..................... 4,000 Capital lease obligations........................... 640 1994 notes.......................................... 100,000 1998 notes.......................................... 25,000 1999 notes.......................................... 75,000 Debt premium........................................ 721 -------- Total Berry Plastics long-term debt, including current portion................................ 284,948 BPC HOLDING: 1996 notes.......................................... 105,000 -------- Total consolidated long-term debt, including 389,948 Total stockholders' equity (deficit)................... (125,854) -------- Total capitalization................................ $264,094 ======== 31 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma condensed consolidated statements of operations of BPC Holding give effect to: o the issuance of the notes, o the offering of our 1998 notes and the applications of the proceeds therefrom, and o our acquisitions of Cardinal, Knight and Norwich, as if the transactions had occurred as of the beginning of the respective period for the statement of operations data and other data. Fiscal year data reflect Cardinal's financial data for its fiscal year ended November 30, 1998. Thirty-nine week period data reflect Cardinal's financial data for its period ended May 31, 1999. The pro forma statements do not purport to represent what BPC Holding's consolidated financial position or results of operations would actually have been if such transactions had in fact occurred on such dates or to project BPC Holding's consolidated financial position or results of operations for any future date or period. The pro forma adjustments are based on information and upon assumptions that management believes to be reasonable. The pro forma statements and accompanying notes should be read in conjunction with the historical consolidated financial statements and other financial information pertaining to BPC Holding and related notes thereto included elsewhere in this prospectus. BPC HOLDING PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FISCAL YEAR ENDED JANUARY 2, 1999
PRO FORMA FOR THE BPC CARDINAL 1998 PRO FORMA ACQUISITIONS HOLDING ACQUISITION ACQUISITIONS FOR THE 1999 NOTES AND THE HISTORICAL ADJUSTMENTS ADJUSTMENTS ACQUISITIONS ADJUSTMENTS 1999 NOTES --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) Net sales ........... $ 271,830 $ 53,971 $ 26,869 $ 352,670 $ -- $ 352,670 Cost of goods sold .. 199,227 43,066 22,786 265,079 -- 265,079 --------- --------- --------- --------- --------- --------- Gross margin ........ 72,603 10,905 4,083 87,591 -- 87,591 Operating expenses .. 44,001 8,166(1) 3,684(6) 55,851 -- 55,851 --------- --------- --------- --------- --------- --------- Operating income .... 28,602 2,739 399 31,740 -- 31,740 Other expenses (income) ............ 1,865 (6) 2 1,861 -- 1,861 Interest expense, net 34,556 --(2) 2,423(7) 36,979 8,625(11) 45,604 --------- --------- --------- --------- --------- --------- Income (loss) before income taxes ........ (7,819) 2,745 (2,026) (7,100) (8,625) (15,725) Income taxes (benefit) ........... (249) --(3) 339(8) 90 -- 90 --------- --------- --------- --------- --------- --------- Net income (loss) ... $ (7,570) $ 2,745 $ (2,365) $ (7,190) $ (8,625) $ (15,815) ========= ========= ========= ========= ========= ========= OTHER DATA: Depreciation and amortization ........ $ 24,830 $ 5,828(4) $ 1,838(9) $ 32,496 $-- $ 32,496 BERRY PLASTICS DATA: Cash interest expense, net ........ $ 20,569 $--(5) $ 2,423(10) $ 22,993 $ 8,250 $ 31,243 Total interest expense, net ........ 21,835 -- 2,423 24,258 8,625(11) 32,883
32 BPC HOLDING PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS 39 WEEKS ENDED OCTOBER 2, 1999
PRO FORMA FOR THE BPC CARDINAL PRO FORMA FOR ACQUISITION HOLDING ACQUISITION THE CARDINAL 1999 NOTES AND THE HISTORICAL ADJUSTMENTS ACQUISITION ADJUSTMENTS 1999 NOTES --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) Net sales ....................... $ 249,957 $ 28,465 $ 278,422 -- $ 278,422 Cost of goods sold .............. 181,240 23,407 204,647 -- 204,647 --------- --------- --------- --------- --------- Gross margin .................... 68,717 5,058 73,775 -- 73,775 Operating expenses .............. 39,987 4,251(1) 44,238 -- 44,238 --------- --------- --------- --------- --------- Operating income ................ 28,730 807 29,537 -- 29,537 Other expenses .................. 1,150 -- 1,150 -- 1,150 Interest expense, net ........... 29,335 --(2) 29,335 4,314(11) 33,649 --------- --------- --------- --------- --------- Income (loss) before income taxes (1,755) 807 (948) (4,314) (5,262) Income taxes .................... 659 --(3) 659 -- 659 --------- --------- --------- --------- --------- Net income (loss) ............... $ (2,414) $ 807 $ (1,607) $ (4,314) $ (5,921) ========= ========= ========= ========= ========= OTHER DATA: Depreciation and amortization ... $ 23,066 $ 3,372(4) $ 26,438 $ -- $ 26,438 BERRY PLASTICS DATA: Cash interest expense, net ...... $ 18,095 $ -- $ 18,095 $ 4,125 $ 22,220 Total interest expense, net ..... 19,124 --(5) 19,124 4,314(11) 23,438
33 BPC HOLDING NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FISCAL 39 WEEKS YEAR ENDED ENDED JANUARY 2, OCTOBER 2, 1999 1999 ------- ------- (DOLLARS IN THOUSANDS) CARDINAL ACQUISITION ADJUSTMENTS: (1) Actual operating expenses ............ $ 6,291 $ 3,119 Add amortization of goodwill resulting from the acquisition ................. 1,875 1,132 ------- ------- Adjusted operating expenses .......... $ 8,166 $ 4,251 ======= ======= (2) Actual interest expense .............. $ 3,384 $ 1,400 Deduct interest on extinguished debt . (3,384) (1,400) ------- ------- Adjusted interest expense ............ $ -- $ -- ======= ======= (3) Actual provision for income taxes .... $ 439 $ 202 Adjust taxes for the acquisition ..... (439) (202) ------- ------- Adjusted income tax expense .......... $ -- $ -- ======= ======= (4) Actual depreciation and amortization acquisition .......................... $ 3,953 $ 2,240 Add amortization of goodwill resulting from the acquisition ................. 1,875 1,132 ------- ------- Adjusted depreciation and amortization $ 5,828 $ 3,372 ======= ======= (5) Actual net cash interest expense ..... $ 3,170 $ 1,292 Deduct interest on extinguished debt . (3,170) 1,292 ------- ------- Adjusted net cash interest expense ... $ -- $ -- ======= ======= NORWICH AND KNIGHT ACQUISITIONS ADJUSTMENTS: (6) Actual operating expenses.................$3,350 Add amortization of goodwill resulting from the acquisitions..................... 334 ------ Adjusted operating expenses...............$3,684 ====== (7) Actual interest expense..................$ 48 Add incremental interest expense from the acquisitions............................. 2,375 ------ Adjusted interest expense................$2,423 ====== (8) Actual provision for income taxes........$ 196 Adjust taxes for the acquisitions........ 143 ------ Adjusted tax expense.....................$ 339 ====== (9) Actual depreciation and amortization....$1,504 Add amortization of goodwill resulting from the acquisitions................... 334 ------ Adjusted depreciation and amortization..$1,838 ====== 34 FISCAL 39 WEEKS YEAR ENDED ENDED JANUARY 2, OCTOBER 2, 1999 1999 ------- ------- (10) Actual net cash interest expense...... $ 48 Add incremental net cash interest expense from acquisitions........... 2,375 ------- Adjusted net cash interest expense.... $2,423 ======= OFFERING ADJUSTMENTS: (11) Adjustment of net interest expense: Interest on the 1999 Notes at 11%..... $8,250 $4,125 Amortization of deferred financing costs associated with this Offering. 375 189 -------- ------ Change in net interest expense........ $8,625 $4,314 ======== ====== 35 SELECTED HISTORICAL FINANCIAL DATA The following selected financial data of BPC Holding and its subsidiaries as of and for the five fiscal years ended January 2, 1999 are derived from the consolidated financial statements of BPC Holding that have been audited by Ernst & Young LLP, independent auditors. The following selected consolidated financial data for the 39 weeks ended September 26, 1998 and October 2, 1999 are derived from the unaudited condensed consolidated financial statements of BPC Holding and, in our opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such data. Operating results for the 39 weeks ended October 2, 1999 are not necessarily indicative of the results that may be achieved for BPC Holding's fiscal year ending January 1, 2000. You should read this selected financial data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, related notes and other financial information included in this prospectus.
FISCAL THIRTY-NINE WEEKS ENDED -------------------------------------------------------------- ----------------------- SEPTEMBER 26, OCTOBER 2, STATEMENT OF OPERATIONS DATA: 1994 1995 1996 1997 1998 1998 1999 --------- --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) Net sales ....................... $ 106,141 $ 140,681 $ 151,058 $ 226,953 $ 271,830 $ 205,116 $ 249,956 Cost of goods sold .............. 73,997 102,484 110,110 180,249 199,227 151,083 181,240 --------- --------- --------- --------- --------- --------- --------- Gross margin .................... 32,144 38,197 40,948 46,704 72,603 54,033 68,716 Operating expenses .............. 15,160 17,670 23,679 30,505 44,001 31,136 39,986 --------- --------- --------- --------- --------- --------- --------- Operating income ................ 16,984 20,527 17,269 16,199 28,602 22,897 28,730 Other expenses(1) ............... 184 127 302 226 1,865 492 1,150 Interest expense, net (2) ....... 10,972 13,389 20,075 30,246 34,556 25,691 29,335 --------- --------- --------- --------- --------- --------- --------- Income (loss) before income taxes and extraordinary charge ..... 5,828 7,011 (3,108) (14,273) (7,819) (3,286) (1,755) Income taxes (benefit) .......... 11 678 239 138 (249) 331 659 --------- --------- --------- --------- --------- --------- --------- Income (loss) before extraordinary charge ......... 5,817 6,333 (3,347) (14,411) (7,570) (3,617) (2,414) Extraordinary charge(3) ......... 3,652 -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- --------- Net income (loss) ............ $ 2,165 $ 6,333 $ (3,347) $ (14,411) $ (7,570) $ (3,617) $ (2,414) ========= ========= ========= ========= ========= ========= ========= Preferred stock dividends .... $ -- $ -- $ 1,116 $ 2,558 $ 3,551 $ 2,620 $ 2,996 Common stock dividends ....... 50,000 -- -- -- -- -- -- BALANCE SHEET DATA (AT END OF PERIOD): Working capital ................. $ 13,393 $ 13,012 $ 15,910 $ 20,863 $ 4,762 $ 5,020 $ 6,593 Fixed assets .................... 38,103 52,441 55,664 108,218 120,005 104,564 147,501 Total assets .................... 91,790 103,465 145,798 239,444 255,317 248,521 340,116 Total debt ...................... 112,287 111,676 216,046 306,335 323,298 308,391 389,948 Stockholders' equity (deficit) .. (38,838) (32,484) (97,550) (108,975) (120,357) (115,078) (125,854) OTHER DATA: Adjusted EBITDA(4) .............. $ 26,380 $ 31,569 $ 34,718 $ 40,268 $ 59,768 $ 44,802 $ 55,566 Adjusted EBITDA margin .......... 24.9% 22.4% 23.0% 17.7% 22.0% 21.8% 22.2% Cash provided by operating activities ................... 15,556 12,969 14,426 14,154 34,131 28,580 32,397 Cash used for investing activities (9,495) (25,385) (14,639) (102,102) (52,120) (25,036) (96,418) Cash provided by (used for) financing activities ......... 2,184 11,124 2,370 80,444 17,619 890 63,853 Depreciation and amortization(5) 8,176 9,536 11,331 19,026 24,830 17,949 23,066 Capital expenditures ............ 9,118 11,247 13,581 16,774 22,595 13,540 25,580 Ratio of earnings to fixed charges(6) ................... 1.5x 1.5x -- -- -- -- --
(1) Other expenses consist of loss on disposal of property and equipment for the respective periods. (2) Includes non-cash interest expense of $1,178 in fiscal 1994, $950 in fiscal 1995, $1,212 in fiscal 1996, $2,005 in fiscal 1997, $1,765 in fiscal 1998 and $1,335 and $1,404 for the thirty-nine weeks ended September 26, 1998 and October 2, 1999. (3) During 1994, an extraordinary charge of $3.7 million was recognized as a result of the retirement of debt concurrently with the issuance of the 1994 Notes. 36
FISCAL THIRTY-NINE WEEKS ENDED ----------------------------------------------------- -------- -------- SEPTEMBER 26, OCTOBER 2, 1994 1995 1996 1997 1998 1998 1999 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Operating Income ............................. $ 16,984 $ 20,527 $ 17,269 $ 16,199 $ 28,602 $ 22,897 $ 28,730 Depreciation and amortization ................ 8,176 9,536 11,331 19,026 24,830 17,949 23,066 -------- -------- -------- -------- -------- -------- -------- EBITDA ....................................... 25,160 30,063 28,600 35,225 53,432 40,846 51,796 One-time expenses related to acquisitions: 1996 transaction compensation expenses . -- -- 2,762 -- -- -- -- Acquisition integration expenses ....... 116 867 692 3,267 1,525 1,006 1,842 Plant shutdown expenses ................ -- -- 907 848 2,559 2,234 1,048 Litigation expenses related to drink cup patent ................................ -- -- 650 100 631 -- -- Corporate expenses: Non-cash compensation expenses (benefit) 358 (214) 358 -- 749 62 225 Management fees and expenses ........... 746 853 749 828 872 654 655 -------- -------- -------- -------- -------- -------- -------- Adjusted EBITDA .............................. $ 26,380 $ 31,569 $ 34,718 $ 40,268 $ 59,768 $ 44,802 $ 55,566 ======== ======== ======== ======== ======== ======== ========
(4)Adjusted EBITDA should not be considered in isolation or as an alternative to income from operations or to cash flows from operating activities, as determined in accordance with generally accepted accounting principles, and should not be construed as an indication of a company's operating performance or as a measure of liquidity. In addition, our calculation of Adjusted EBITDA differs from that presented by some other companies and thus is not necessarily comparable to similarly titled measures used by other companies. The following table reconciles operating income to EBITDA and Adjusted EBITDA for each respective period: (5)Depreciation and amortization excludes non-cash amortization of deferred financing and origination fees and debt premium/discount amortization which are included in interest expense. (6)In calculating the ratio of earnings to fixed charges, earnings consist of: o income (loss) before income taxes, plus; o fixed charges consisting of interest on debt , including amortization of deferred financing fees, plus; o that portion of lease rental expense representative of the interest factor. Earnings were inadequate to cover fixed charges by $2,883 in fiscal 1996, by $13,932 in fiscal 1997, by $7,042 in fiscal 1998 and by $3,694 and by $2,496 for the 39 weeks ended September 26, 1998 and October 2, 1999. 37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with "Selected Historical Financial Data" and the consolidated financial statements and the notes thereto included elsewhere in this prospectus. RESULTS OF OPERATIONS 39 WEEKS ENDED OCTOBER 2, 1999 COMPARED TO 39 WEEKS ENDED SEPTEMBER 26, 1998 NET SALES. Net sales increased $44.9 million, or 22%, to $250.0 million for the 39 weeks ended October 2, 1999 from $205.1 million for the 39 weeks ended September 26, 1998 with net selling prices relatively unchanged. Plastic packaging product net sales increased $41.7 million from the 39 weeks ended September 26, 1998. Within this segment, the addition of Cardinal, Norwich and Knight provided net sales for the 39 weeks ended October 2, 1999 of $14.0 million, $6.9 million and $13.7 million, respectively. In addition, overcaps sales, excluding Knight, increased $2.3 million. Custom sales increased $7.7 million from the 39 weeks ended September 26, 1998 with a large promotion in the 39 weeks ended October 2, 1999. Container sales increased $0.9 million from the 39 weeks ended September 26, 1998 despite the Company's decision to exit certain low margin business. Drink cup sales for the 39 weeks ended October 2, 1999 were $4.0 million off the 39 weeks ended September 26, 1998 due to a $3.5 million promotion during the 39 weeks ended September 26, 1998. Plastic housewares product sales for the 39 weeks ended September 26, 1998 increased $3.2 million from the 39 weeks ended October 2, 1999 due to strong internal growth including several new products. GROSS MARGIN. Gross margin increased by $14.7 million to $68.7 million, representing 27% of net sales, for the 39 weeks ended October 2, 1999 from $54.0 million, representing 26% of net sales, from the 39 weeks ended September 26, 1998. This increase of 27% includes the combined impact of the added Cardinal, Norwich and Knight sales volume, acquisition integration, and productivity improvement initiatives. A major focus continues to be the consolidation of products and business of recent acquisitions to the most efficient tooling, providing customers with improved products and customer service. As part of the integration, we closed the Anderson, South Carolina facility in the second quarter of 1998, the Arlington Heights, Illinois facility, which was acquired in the Knight acquisition, in the first quarter of 1999 and the Ontario, California location, which was acquired in the Cardinal acquisition, in the third quarter of 1999. In addition, we closed the molding operations of the Minneapolis, Minnesota facility, which was acquired in the Cardinal acquisition, and the Iowa Falls, Iowa facility in the third quarter of 1999, distributing the molding business from these facilities throughout our other facilities. Also, significant productivity improvements have been made, including the addition of state-of-the-art injection molding equipment, molds and printing equipment at several of our facilities. OPERATING EXPENSES. Selling expenses increased by $2.3 million to $13.2 million for the 39 weeks ended October 2, 1999 from $10.9 million for the 39 weeks ended September 26, 1998 principally as a result of expanded sales coverage and increased marketing expenses. General and administrative expenses increased by $3.9 million to $17.2 million for the 39 weeks ended October 2, 1999 from $13.3 million for the prior 39 weeks ended September 26, 1998. The increase is primarily attributable to the Cardinal, Norwich Moulders and Knight acquisitions and increased accrued compensation expenses. One-time transition expenses for the 39 weeks ended October 2, 1999 include $1.0 million related to facility reorganizations and $1.9 million related to acquisitions. One-time transition expenses for the 39 weeks ended September 26, 1998 were $1.0 million related to acquisitions and $2.2 million related to plant consolidation. INTEREST EXPENSE. Interest expense increased $3.0 million to $29.5 million for the 39 weeks ended October 2, 1999 compared to $26.5 million for the 39 weeks ended September 26, 1998 primarily due to additional borrowings to support the Cardinal, Norwich Moulders and Knight acquisitions. INCOME TAX. Our income tax expense was $0.7 million for the 39 weeks ended October 2, 1999. We continue to operate in a net operating loss carryforward position for Federal income tax purposes. 38 NET LOSS. Net loss of $2.4 million for the 39 weeks ended October 2, 1999 improved $1.2 million from a net loss of $3.6 million for the 39 weeks ended September 26, 1998 for the reasons discussed above. YEAR ENDED JANUARY 2, 1999 COMPARED TO YEAR ENDED DECEMBER 27, 1997 NET SALES. Net sales increased 19.8% to $271.8 million in 1998, up $44.9 million from $227.0 million in 1997, despite an approximate 2% decrease in net selling price due mainly to competitive market conditions. Container sales increased $34.5 million in 1998, primarily due to the continued market strength of base products and the acquisition of Venture. Net sales in the drink cup product line increased $2.3 million in 1998 as a result of a large promotion. Net sales for aerosol overcaps increased about $2.0 million due to the acquisition of Knight. Housewares net sales increased $4.0 million or 23% in 1998 due primarily to new products and strong market demands. The acquisition of Norwich also brought us into the U.K. market, primarily closures product sales, which provided an additional $7.3 million of net sales in 1998. Other product lines, including custom molded products and custom mold building, decreased $5.2 million due to large custom programs that occurred in 1997. GROSS MARGIN. Gross margin increased $25.9 million, or 55.5%, from $46.7 million, representing 20.6% of net sales, in 1997 to $72.6 million, representing 26.7% of net sales, in 1998. The increase in gross margin was primarily attributed to increased sales volume as described above, acquisition integration, productivity improvements and lower raw material costs. A major focus during 1998 was the consolidation of products and business of the subsidiaries that we acquired in 1997 to the most efficient tooling, providing customers with the best product and customer service. As part of the integration, we closed the Anderson, South Carolina facility, which was acquired in the acquisition of Venture, in 1998. The majority of the business was transferred to our Charlotte, North Carolina plant. Also, productivity improvements were made during the year, including the addition of state-of-the-art injection molding equipment, molds and printing equipment at several of our facilities. OPERATING EXPENSES. Operating expenses during 1998 were $44.0 million, representing 16.2% of net sales, compared with $30.5 million, representing 13.4% of net sales, for 1997. Sales related expenses, including the cost of expanded sales coverage and higher product development and marketing expenses, increased $3.5 million, almost all a result of our 1997 acquisitions. General and administrative expenses increased $7.8 million in 1998 primarily as a result of acquisitions made in 1997 and 1998, increased patent litigation expenses and increased employee profit sharing expense. Intangible amortization increased from $2.2 million in 1997 to $4.1 million for 1998, primarily as a result of the amortization of goodwill ascribed to acquired companies in 1997 and 1998. Other expense was $4.1 million for 1998 and 1997. Our 1997 acquisitions resulted in start-up related expenses of $3.2 million in 1997 and $1.3 million in 1998. The assets acquired with the acquisition of PackerWare included a facility in Reno, Nevada that was closed in 1997. Expenses related to the closing of the Reno facility were $0.5 million in 1997 and $0.2 million in 1998. Plant closing expenses related to the Winchester, Virginia facility resulted in expenses of $0.4 million for 1997. The closing of the Anderson, South Carolina facility resulted in 1998 expenses of $2.4 million. INTEREST EXPENSE AND INCOME. Net interest expense, including amortization of deferred financing costs for 1998 was $34.6 million, representing 12.7% of net sales, compared to $30.2 million, representing 13.3% of net sales, in 1997, an increase of $4.3 million. This increase is attributed to interest on borrowings related to the 1997 and 1998 acquisitions offset partially by principal reductions. Cash interest paid in 1998 was $33.2 million as compared to $29.9 million for 1997. Interest income for 1998 was $1.0 million, down from $2.0 million in 1997, which is attributable to an additional year of interest payments on the 1996 notes from the escrow account. INCOME TAXES. During fiscal 1998, we recorded a benefit of $0.2 million in federal and state income tax, primarily due to a carryback claim, compared to an expense of $0.1 million for fiscal 1997. We continue to operate in a net operating loss carryforward position for federal income tax purposes. NET LOSS. We recorded a net loss of $7.6 million in 1998 compared to a $14.4 million net loss in 1997 for the reasons stated above. 39 YEAR ENDED DECEMBER 27, 1997 COMPARED TO YEAR ENDED DECEMBER 28, 1996 NET SALES. Net sales increased 50.2% to $227.0 million in 1997, up $75.9 million from $151.1 million in 1996, which sales included an approximate 2% increase in net selling price due mainly to the impact of cyclical adjustments in the price of plastic resin. Container sales increased $30.1 million in 1997, primarily due to the continued market strength of base products and the acquisitions of Venture, Virginia Design and Container Industries. Net sales in the drink cup product line increased $23.8 million in 1997 as a result of the acquisition of PackerWare and a strong increase in existing drink cup business. Net sales of aerosol overcaps were relatively flat, decreasing about $2.6 million. The acquisition of PackerWare also brought us into the housewares product market, which provided an additional $17.5 million of net sales in 1997. Other product lines, including custom molded products and custom mold building, increased $7.1 million due to large custom programs that occurred in 1997. GROSS MARGIN. Gross margin increased $5.8 million or 14.1% from $40.9 million representing 27.1% of net sales, in 1996 to $46.7 million, representing 20.6% of net sales, in 1997. The increase in gross margin is primarily attributable to increased sales volume as described above. The gross margin as a percent of net sales derived from our 1997 acquisitions was about 10.6% compared to 23.8% for non-acquisition related sales. Significant productivity improvements were made during the year, including the addition of state-of-the-art injection molding equipment, molds and printing equipment at several of our facilities. These productivity improvements were offset by increased resin prices in 1997 and the transition expenses of our 1997 acquisitions. OPERATING EXPENSES. Operating expenses during 1997 were $30.5 million , representing 13.4% of net sales, compared with $23.7 million, representing 15.7% of net sales, for 1996. Sales related expenses, including the cost of expanded sales coverage and higher product development and marketing expenses, increased $4.4 million, $3.3 million of which was a result of the business acquisitions that we made in 1997. General and administrative expenses decreased $2.3 million in 1997 primarily as a result of the $2.8 million one-time compensation expense incurred in 1996 which related to the recapitalization of BPC Holding. Intangible amortization increased from $0.5 million in 1996 to $2.2 million for 1997, primarily as a result of the amortization of $1.6 million related to our 1997 acquisitions. Other expenses increased $2.6 million from $1.6 million for 1996 to $4.1 million in 1997. Our 1997 acquisitions resulted in a charge of $3.2 million in 1997 for start-up related expenses. The acquisition of PackerWare included a facility in Reno, Nevada, which was closed in 1997. Expenses related to the closing of the Reno facility were $0.5 million in 1997. Plant closing expenses related to the Winchester, Virginia facility resulted in expenses of $0.4 million for 1997. Included in 1996 was a charge of $0.7 million of start-up related expenses associated with the acquisition of Tri-Plas and $0.9 million related to the Winchester plant closing. INTEREST EXPENSE AND INCOME. Net interest expense, including amortization of deferred financing costs for 1997, was $30.2 million, representing 13.3% of net sales, compared to $20.1 million, representing 13.3% of net sales, in 1996, an increase of $10.1 million. This increase is due to the full year impact of the recapitalization of BPC Holding, which occurred in June 1996. The recapitalization of BPC Holding included an offering of $105.0 million aggregate principal amount of the 1996 notes, which bear interest at 12.5% annually. $35.6 million of the proceeds from the 1996 notes were placed in escrow to pay the first three years of interest on the 1996 notes. Interest is payable semi-annually on June 15 and December 15 of each year. Cash interest paid in 1997 was $29.9 million as compared to $19.7 million for 1996. Interest income for 1997 was $2.0 million, up from $1.3 million in 1996, also attributed to the full year impact of the recapitalization of BPC Holding. INCOME TAXES. During fiscal 1997, we incurred $0.1 million in federal and state income tax compared to $0.2 million for fiscal 1996. We continue to operate in a net operating loss carryforward position for federal income tax purposes. NET LOSS. We recorded a net loss of $14.4 million in 1997 compared to a $3.3 million net loss in 1996 for the reasons stated above. 40 INCOME TAX MATTERS BPC Holding has unused operating loss carryforwards of $26.0 million for federal income tax purposes which begin to expire in 2010. Alternative minimum tax credit carryforwards of about $2.8 million are available to BPC Holding indefinitely to reduce future years' federal income taxes. LIQUIDITY AND CAPITAL RESOURCES We have a credit facility with NationsBank, N.A. for a senior secured line of credit. The credit facility provides for aggregate borrowings up to a maximum of about $134.4 million as of October 2, 1999, including: o a $70.0 million revolving line of credit, subject to a borrowing base formula; o a(pound)1.5 million revolving line of credit, subject to a borrowing base; o a $51.1 million term loan facility; o a(pound)3.4 million term loan facility; and o a $5.2 million standby letter of credit facility to support our and our subsidiaries' obligations under our Nevada industrial revenue bonds. The debt under our credit facility is guaranteed by our parent, BPC Holding, and our subsidiaries. Our credit facility requires us to comply with specified financial ratios and tests, including a minimum tangible capital funds test, maximum leverage ratio, interest coverage ratio, debt service coverage ratio and a fixed charge coverage ratio. The requirements of these tests may change on a quarterly basis. At October 2, 1999, our credit facility required us to have tangible capital funds of not less than $80.0 million and a maximum leverage ratio of 4.5 to 1.0. In addition, the interest ratio could not be less than 2.0 to 1.0, the debt service ratio could not be less than 1.5 to 1.0 and the fixed charge coverage ratio could not be less than 1.0 to 1.0. The requirements of these may change on a quarterly basis. See "Description of Other Debt -- The Credit Facility". The 1994 indenture, the 1996 indenture and the 1998 indenture restrict our ability to incur additional debt and contain other provisions that could limit our liquidity. At October 2, 1999, we had unused borrowing capacity under the credit facility's borrowing base of $23.9 million, which is not considered additional indebtedness under the 1994 indenture, 1996 indenture, 1998 indenture or 1999 indenture. Any additional debt above the borrowing base requires approval from the credit facility's lenders. Net cash provided by operating activities was $34.1 million in 1998 as compared to $14.2 million in 1997. The increase was primarily the result of improved operating performance. Net cash provided by operating activities was $32.4 million for the 39 weeks ended October 2, 1999, an increase of $3.8 million from the 39 weeks ended September 26, 1998. The increase is primarily the result of improved operating performance with income before depreciation and amortization increasing $6.3 million from the 39 weeks ended September 28, 1998. Net working capital changes, defined as accounts receivable, inventories, prepaid expenses, other receivables, accounts payable and accrued expenses, decreased net cash $3.7 million from the 39 weeks ended September 26, 1998 due to our growth. Capital expenditures in 1998 were $22.6 million, an increase of $5.8 million from $16.8 million in 1997. Included in capital expenditures during 1998 was $6.2 million relating to the addition of a new warehouse, production systems and offices necessary to support production operating levels throughout Berry Plastics. Capital expenditures also included investment of $11.7 million for molds, $2.2 million for molding and printing machines, and $2.5 million for miscellaneous accessory equipment and systems. The capital expenditure budget for 1999 is expected to be $29.1 million, including about $8.1 million for building and systems which includes a major plant renovation, $12.8 million for molds, $5.2 million for molding and printing machines, and $3.0 million for miscellaneous accessory equipment. Capital expenditures for the 39 weeks ended October 2, 1999 included $9.1 41 million for molds, $5.0 million for molding and printing machines, $7.7 million for buildings and systems, and $3.8 million for accessory equipment and systems. Net cash provided by financing activities was $17.6 million in 1998 as compared to $80.4 million in 1997. The $62.8 million decrease can be attributed primarily to a $52.4 million decrease in borrowings to finance acquisitions. Net cash provided by financing activities was $63.9 million for the 39 weeks ended October 2, 1999, representing an increase of $63.0 million from the 39 weeks ended September 26, 1998. This increase can be attributed to our issuance of the 1999 notes to finance the acquisition of Cardinal in the third quarter of 1999. 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 1999 will be satisfied through a combination of funds generated from operating activities and cash on hand, together with funds available under our credit facility. Management bases such belief on historical experience and the substantial funds available under our credit facility. However, we cannot predict our future results of operations. The indentures governing the 1994 notes, the 1998 notes and the 1999 notes restrict, and our credit facility prohibits, our ability to pay any dividend or make any distribution of funds to BPC Holding to satisfy interest and other obligations on the 1996 notes. Based upon historical operating results, we anticipate that we will be unable to generate sufficient net income to permit a dividend to BPC Holding in an amount sufficient to meet BPC Holding's interest payment obligations under the 1996 notes. Interest on the 1996 notes is payable semi-annually on June 15 and December 15 of each year. However, from December 15, 1999 until June 15, 2001, BPC Holding may, at its option, pay interest, at an increased rate of 0.75% per annum, in additional 1996 notes valued at 100% of the principal amount thereof. After June 15, 2001 or in the event that BPC Holding does not pay interest in additional notes, management anticipates that such interest obligations will only be met by refinancing the 1996 notes or raising capital through equity offerings. We can not assure you that then-current market conditions would permit BPC Holding to consummate a refinancing or equity offering. At October 2, 1999, our cash balance was $2.1 million and we had unused borrowing capacity under our credit facility's borrowing base of about $23.9 million. GENERAL ECONOMIC CONDITIONS AND INFLATION We face various economic risks ranging from an economic downturn adversely impacting our primary markets to market fluctuations in plastic resin prices. In the short-term, rapid increases in the cost of resin may not be recovered through price increases to customers. Also, shortages of raw materials may occur from time to time. In the long-term, however, raw material availability and price changes generally do not have a material adverse effect on gross margin. Cost changes generally are passed through to customers over a period of time. In addition, we believe that our sensitivity to economic downturns in our primary markets is less significant due to our diverse customer base and our ability to provide a wide array of products to numerous end markets. We believe that we are not affected by inflation except to the extent that the economy in general is thereby affected. Should inflationary pressures drive costs higher, we believe that general industry competitive price increases would sustain operating results, although we can not assure you that this will be the case. IMPACT OF YEAR 2000 We have been modifying or replacing portions of our software since 1991 so that our computer systems will function properly with respect to dates in the Year 2000 and thereafter. Because we commenced this process early, the costs incurred to address this issue in any single year have not been significant. Our current business applications are Year 2000 compliant. Acquired businesses are converted to our applications for Year 2000 compliance and consistency in applications and reporting. The most recent acquired businesses, Knight and Cardinal, were converted to our applications by March 1, 1999 and January 10, 2000, respectively. 42 However, we are currently in the process of replacing our current business software with another Year 2000 compliant package. This replacement is not due to any Year 2000 issues, but is needed to accommodate the changes that we have experienced in our business due to acquisitions in recent years. The anticipated cost of this conversion is about $2.8 million of which $2.6 million has been paid through January 1, 2000. The accounting phase of this conversion was completed for all plants in January 1999. The remaining phases are scheduled to be completed by the end of 2000. We believe that we have an effective program in place to resolve all internal Year 2000 issues and that all such issues were adequately resolved prior to January 1, 2000. An inventory of computer based systems has been compiled and verified through testing and supplier verification. We replaced the voicemail system in our Lawrence plant for an approximate cost of $80,000. The computer on the palletizer in our Woodstock plant has been back-dated, which we do not expect will have any impact on our operations. We expect to upgrade this system by the end of 2000. The anticipated cost of this upgrade is about $13,000. We have not experienced any internal Year 2000 problems to date. The major Year 2000 risk that we face is the Year 2000 readiness of external suppliers of goods and services. We could have material disruption in our ability to produce and deliver product should there be major disruptions in the economy or failure of key suppliers. While it is impossible to account for the effectiveness of every supplier's Year 2000 efforts, the following steps have been completed: o We identified key suppliers, which include suppliers of raw material, banking, transportation, service, and utility providers and surveying these suppliers as to their Year 2000 status; o We identified which suppliers are not compliant or at risk; and o We engaged in risk assessment and contingency planning for these key suppliers. We have completed a survey of 304 "key suppliers" to determine their Year 2000 status. We did not identify any suppliers who were not Year 2000 compliant or at risk. We do not currently have any contingency plans in place. We have not experienced any Year 2000 problems with any of our suppliers to date. We believe we have effectively resolved any potential Year 2000 problems, have not experienced any Year 2000 problems to date and do not currently expect to incur any additional costs for Year 2000 compliance. However, we may not have identified and remediated all Year 2000 problems. If any Year 2000 issues arise, any remediation efforts could involve significant time and expense and may have a material adverse effect on our business. 43 BUSINESS We believe that we are the nation's leading manufacturer and supplier of plastic injection-molded aerosol overcaps, drink cups and rigid thinwall open-top containers for a wide variety of end-use markets. Based on discussions with our customers, sales representatives and external sales brokers, we believe that we are also a leading manufacturer and supplier of plastic injection-molded semi-disposable housewares. In addition, with sales of over two billion aerosol overcaps in fiscal 1998 and based on discussions with our customers, sales representatives and external sales brokers we believe that we are the largest supplier of plastic aerosol overcaps in the world. In our plastic packaging business, we focus primarily on three markets: aerosol overcaps, rigid thinwall open-top containers and drink cups. Our housewares business produces home products such as dinnerware, tumblers and garden items. We concentrate on manufacturing high-quality items sold to image-conscious marketers of consumer and industrial products. With over 1,000 proprietary molds, superior color matching capabilities, sophisticated multi- color printing techniques and nationwide plant locations, we consistently produce and deliver mass quantities of high-quality products on a cost-efficient basis. Our total net sales among our product categories is as follows: FISCAL ------------------------------------------ 1994 1995 1996 1997 1998 ------ ------ ------ ------ ------ PLASTIC PACKAGING PRODUCTS: (DOLLARS IN MILLIONS) Aerosol overcaps .............. $ 38.0 $ 43.6 $ 49.7 $ 47.1 $ 49.1 Rigid open-top containers ..... 61.6 71.1 80.8 111.5 145.9 Drink cups .................... 17.3 14.1 37.6 39.9 Other ......................... 6.5 8.7 6.5 13.3 15.3 PLASTIC HOUSEWARES PRODUCTS ....... 17.5 21.6 ------ ------ ------ ------ ------ Total net sales ................... $106.1 $140.7 $151.1 $227.0 $271.8 ====== ====== ====== ====== ====== We supply aerosol overcaps to a wide variety of customers and for a wide variety of products. Similarly, our containers are used for packaging a broad spectrum of consumer and commercial products. Our drink cups are sold to fast food and family-dining restaurants, convenience stores, stadiums and retail stores. Our housewares products are primarily seasonal, semi-disposable housewares and lawn and garden items such as plates, bowls, pitchers, tumblers and flower pots. Our largest housewares customer, Wal-Mart, named us their housewares "Supplier of the Year" for 1998. COMPETITIVE STRENGTHS We believe that we are a strong competitor in our industry for the following reasons: o SUCCESSFUL INTEGRATION OF NUMEROUS STRATEGIC ACQUISITIONS. We have historically acquired businesses that we believe will improve our financial performance in the long-term and, in some cases, provide us with a new or complementary product line. We have successfully closed ten acquisitions since 1992. Our acquired businesses had aggregate pre-acquisition revenues of about $239 million. We believe that our acquisitions have strengthened our core businesses, as well as opened up new product lines and markets for us. Moreover, we believe that we have materially reduced the manufacturing and overhead costs of the companies that we acquired by introducing high technology manufacturing processes, closing excess facilities and taking advantage of economies of scale. The rapid pace of our acquisitions of other businesses may adversely affect our efforts to integrate acquisitions and manage those acquisitions profitably. Also, costs of integration could have an adverse affect on short term operating results. o HIGH-CAPACITY, STATE-OF-THE-ART PRODUCTION CAPABILITIES. We operate over 300 injection molding machines in 12 locations in the United States and one location in Europe. These machines, many of 44 which are high-speed, specialized machines, range in clamp tonnage from 80 to 825 tons. Our wide range of state-of-the-art molding machines and national distribution system allow us to economically mass produce high-quality products. In addition, our modern and extensive post-molding capabilities include printing, labeling, assembly, packing and distribution. o FULL PRODUCT LINES AND STRONG MARKET POSITION. A substantial majority of our sales are in product categories in which we are the nation's largest supplier. We use over 1,000 active molds, providing our customers with a wide range of products from which to choose. We believe that our extensive product lines, market experience, product quality and focus on customer satisfaction allow us to maintain our strong position in our key markets. o LARGE, DIRECT SALES FORCE. Our sales force is comprised of over 40 dedicated professionals and is focused on working both with customers and with our internal production and product design personnel to develop customized packaging. We believe that the size of our sales force allows us to maintain close working relationships with our customers. o IN-HOUSE PRODUCT DESIGN AND GRAPHIC ARTS CAPABILITIES. We have an in-house staff of 16 product development engineers and 22 graphic artists. These professionals work closely with customers to develop new products and designs. We also believe that our customized designs often help our customers differentiate their products in the marketplace and improve their product's performance. We believe that these capabilities have given us a significant competitive advantage in particular high-margin niche container product markets where the ability to produce sophisticated and colorful graphics is crucial to a product's success. o DEDICATION TO SERVICE AND QUALITY. As a result of our dedication to service and quality, we have received several awards from our top ten customers including, in 1998, Wal-Mart's "Supplier of the Year" award in its housewares division and SC Johnson Wax's "Supplier Quality Achievement Award." In addition, four of our plants are ISO 9000 certified. Our remaining nine facilities are working to obtain their ISO 9000 certification. ISO 9000 certification is only given to companies that meet the requirements of a quality management system established by the International Standardization Organization. o LARGE, DIVERSE CUSTOMER BASE. We sell our plastic packaging and housewares products to over 7,000 customers who are engaged in a variety of businesses. We believe that this provides us with a stable client base that is not materially affected by particular end-use market fluctuations. We also believe that we are the single-source or largest supplier of plastic aerosol overcaps, containers and drink cups to a majority of our customers. Our top ten customers represented only about 18% of our fiscal 1998 net sales on a pro forma basis. Our largest customer represented only about 4% of our fiscal 1998 net sales on a pro forma basis. However, intense 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 operation. GROWTH STRATEGY Our goal is to maintain and enhance our market position and leverage our core strengths to increase profitability. Our strategy to achieve this goal includes the following elements: o PURSUE STRATEGIC ACQUISITIONS IN OUR CORE BUSINESSES. We have successfully closed ten acquisitions since 1992. We will continue to pursue strategic acquisitions that we believe will provide added value to our core businesses. This acquisition strategy poses several risks, such as the possibility that it will be difficult to integrate new operations into an existing operation and the risks of entering markets or offering services for which we have no prior experience. o DESIGN AND INTRODUCE INNOVATIVE NEW PRODUCTS TO PENETRATE NEW MARKETS. We intend to grow our product lines and increase market share by producing new products. For example, we recently developed a 45 complete line of pool chemical containers specifically designed for Arch. We also introduced a 16 oz. insulated coffee mug and lid, with enhanced functionality and styling, in 1999 and a single-serve soft ice cream dispensing container that was recently accepted for use by Healthy Choice. This strategy may prove unsuccessful if we are unable to successfully develop new products or penetrate our targeted markets. o EMPHASIZE OUTSTANDING PRODUCT QUALITY AND CUSTOMER SERVICE. Through our dedication to product quality and service, we intend to grow our base business through growth in the marketplace and by gaining business from our competitors. Our field sales, production, and support staff meet with customers to understand their needs and improve our product offerings and services. Each of our customers has designated sales and customer service representatives responsible for their individual needs. Sophisticated technology is an ongoing part of our traditional quality assurance activities. We extensively test parts for size, color, strength and material quality using statistical process control techniques. PLASTIC PACKAGING PRODUCTS AEROSOL OVERCAPS Based on discussions with our customers, sales representatives and external sales brokers, we believe that we are the worldwide leader in the production of aerosol overcaps. About 20% of the U.S. market consists of marketers who produce overcaps for use on their own products. We believe that a portion of these in-house producers will outsource the manufacture of aerosol overcaps in order to reduce their inventory of manufacturing assets and to focus on their core businesses. We believe that these companies will look to outsource the manufacture of overcaps to high technology, low cost manufacturers, such as Berry Plastics. The aerosol overcaps that we produce 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 and contract fillers of aerosol products purchase some portion of their needs from us. In fiscal 1998, no single aerosol overcap customer accounted for more than 3% of our total net sales. We believe that, over the years, Berry Plastics has developed several significant competitive advantages including the following: o a reputation for outstanding quality; o short lead-time requirements to fill customer orders; o long-standing relationships with major customers; o the ability to quickly and accurately reproduce over 3,500 colors; o proprietary packing technology that minimizes freight cost and warehouse space; o high-speed, low-cost molding and decorating capability; and o a broad product line of proprietary molds. We received a "Supplier Quality Achievement Award" in 1998 from SC Johnson Wax. We continue to develop new products in the plastic aerosol overcap market, including the "spray-thru" line of aerosol overcaps, such as that used for Pledge furniture polish. Major competitors in this market include Dubuque Plastics, Cobra and Transcontainer. In addition, a number of companies, including several of our customers (e.g., S.C. Johnson and Reckitt & Colman), currently produce plastic aerosol overcaps for their own use. RIGID OPEN-TOP CONTAINERS We produce six different types of containers, classified as follows: 46 o thinwall; o child-resistant; o pry-off; o dairy; o polypropylene; and o industrial. We believe that we are the leading U.S. manufacturer in thinwall, child- resistant, pry-off and frozen dessert containers. We consider industrial containers to be a market with little differentiation between products and an absence of higher margin niches. The following table describes each of our six container product lines:
- ------------------- ----------------------------------------------- ---------------------- --------------------------------------- PRODUCT LINE DESCRIPTION SIZE OF CONTAINER USES OF PRODUCT Thinwall Thinwalled, multi-purpose containers with or 6 oz. to 2 gallons Food, promotional products, toys without handles and lids and a wide variety of other uses Child-resistant Containers that meet Consumer Product Safety 2 lbs. to 2 gallons Pool and other chemicals Commission standards for child safety Pry-off Containers having a tight lid-fit and requiring 4 oz. to 2 gallons Building products, adhesives, other an opening device industrial uses Dairy Thinwall containers in traditional dairy market 6 oz. to 1.25 gallons, Cultured dairy products including sizes and styles Multi-pack yogurt, cottage cheese, sour cream and dips, frozen desserts Polypropylene Usually clear containers in round, oblong or 6 oz. to 5 lbs. Food, deli, sauces, salads rectangular shapes Industrial Thick-walled, larger pails designed to 2.5 to 5 gallons Building products, chemicals, accommodate heavy loads paints, other industrial uses - ------------------- ----------------------------------------------- ---------------------- ---------------------------------------
The largest uses for our containers are for food products, building products, chemicals and dairy products. We have a diverse customer base for our container lines, and no single container customer exceeded 3% of our total net sales in fiscal 1998. We believe that we offer the broadest product line among U.S.-based injection-molded plastic container manufacturers. Our container capacities range from 4 ounces to 5 gallons and are offered in various styles with accompanying lids, bails and handles, as well as a wide array of decorating options. In addition to a complete product line, we offer sophisticated printing capabilities, an in-house graphic arts department, low cost manufacturing capability with 12 plants strategically located throughout the U.S. and a dedication to high-quality products and customer service. Our product engineers, located in most of our facilities, work with customers to design and commercialize new containers. We seek to develop niche container products and new applications for our products by taking advantage of our state-of-the-art decorating and graphic arts capabilities and dedication to service and quality. We believe that these capabilities have given us a significant competitive advantage in particular high-margin niche container product markets where the ability to produce sophisticated and colorful graphics is crucial to the product's success. Examples of these products are popcorn containers for new movie promotions and professional and college sporting and entertainment events. In order to identify new applications for existing products, we rely extensively on our national sales force. Once opportunities are identified, the sales force works with our product design engineers to satisfy customers' needs. 47 In the non-industrial container market, our strongest competitors include Airlite, Sweetheart, Landis and Polytainers. We also produce industrial pails for a market that is dominated by large volume competitors such as Letlea, Plastican, NAMPAC and Ropak. We do not participate heavily in this market due to its generally lower margins. We intend to selectively participate in the industrial container market when higher margin opportunities, equipment utilization or customer requirements make participation an attractive option. DRINK CUPS We believe that we are the leading provider of injection-molded plastic drink cups in the United States. As beverage producers, convenience stores and fast food restaurants increase their marketing efforts for larger sized drinks, we believe that the plastic drink cup market will expand because of plastic's desirability over paper for larger drink cups. We produce injection-molded plastic cups that range in size from 12 to 64 ounces. Our primary markets are fast food and family-dining restaurants, convenience stores, stadiums, and retail stores. Virtually all of our cups are decorated, often as promotional items, and we are known in the industry for our innovative, state-of-the-art graphics capability. We have historically supplied a full line of traditional straight-sided and drive-through style drink cups from 12 to 64 ounces with disposable and reusable lids primarily to fast food and convenience store chains. With the acquisition of PackerWare, we expanded our presence in this market while diversifying into the stadium and family-dining restaurant markets. The 64 ounce cup, which has been highly successful with convenience stores, is one of our fastest growing drink cups. Our major competitors in the drink cup market include Packaging Resources Incorporated, Pescor Plastics and WNA (formerly Cups Illustrated). CUSTOM MOLDED PRODUCTS AND CLOSURES PRODUCTS We also make custom molded products by using molds provided by our customers as the model. Typically, the low cost of entry in the custom molded products market creates an open marketplace in which many companies can compete. Rather than pursue the overall custom molded products market, we focus our custom molding efforts on those customers who value our mold and product design expertise, superior color matching abilities and sophisticated multi-color printing capabilities. The majority of our custom business requires specialized equipment and expertise. We entered the closures market as a result of our acquisition of Norwich in July 1998. We only sell closure products in the United Kingdom. The primary closure product that we sell is a foil sealed milk cap. Demand for this product has increased in recent years as the U.K.'s milk market is using more plastic containers. Through Norwich, we offer a broad product line that includes dispensing, tamper evident and custom molded closures. PLASTIC HOUSEWARES PRODUCTS Our participation in the multi-billion dollar plastic housewares market is focused on producing and selling seasonal (spring and summer) semi-disposable plastic housewares and plastic lawn and garden products. Examples of our semi-disposable plastic housewares are plates, bowls, pitchers and tumblers. We sell virtually all of our products in this market through major national retail marketers and national chain stores including Wal-Mart and Target. PackerWare is a recognized brand name in these markets and our PackerWare branded products are often co-branded by our customers. Historically, our PackerWare subsidiary has provided high-quality products to consumers at a relatively modest price that is consistent with the pricing targets of our retail marketers. We believe that outstanding service and ability to deliver products with timely combination of color and design further enhance our position in this market. We received an award as the "Supplier of the Year" in 1998 by Wal-Mart in its housewares division. 48 MARKETING AND SALES We reach our large and diversified base of over 7,000 customers primarily through our direct field sales force of over 40 professionals. These field sales representatives are focused on individual product lines, but are encouraged to sell all of our products to serve the needs of our customers. We believe that a direct field sales force is able to focus on target markets and customers, with the added benefit of permitting us to control pricing decisions centrally. We also use the services of manufacturing representatives to assist our direct sales force. We believe that we produce a high level of customer satisfaction. Highly skilled customer service representatives are located in each of our facilities to support the national field sales force. In addition, telemarketing representatives, marketing managers and sales/marketing executives oversee 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. Additional marketing and sales techniques include promoting the benefits that our graphic arts department with computer-assisted graphic design capabilities and in-house production of photopolymer printing plates can offer our customers. Our centralized color matching and materials blending department uses a computerized spectrophotometer to ensure that colors produced match those requested by customers. MANUFACTURING GENERAL We manufacture our products using a plastic injection molding process. In this process, plastic resin, in the form of small pellets, is fed into an injection molding machine. The injection molding machine melts the plastic resin and injects it into a multi-cavity steel mold, which forces the plastic resin to take the final shape of the product. After they solidify, which generally takes between five and 25 seconds, the plastic parts are ejected from the mold into automated handling systems from which they are packed in corrugated containers for further processing or shipment. After molding, the product may be either decorated (printing, silk-screening, labeling) or assembled (e.g., bail handles fitted to containers). We believe that our molding and decorating capabilities are among the best in the industry. Our overall manufacturing philosophy is to be a low-cost producer by using high-speed molding machines, modern multi-cavity hot runner, cold runner and insulated runner molds, extensive material handling automation and sophisticated printing technology. We package large volume products using state-of-the-art robotic packaging processes. This technology enables us to deliver a higher quality product, due to reduced breakage and through more efficient use of space, lowers warehousing and shipping costs. At each of our plants we have complete tooling maintenance capability to support our molding and decorating operations. We historically have made, and intend to continue to make, significant capital investments in plant and equipment because of our objectives to grow, to improve productivity, to maintain competitive advantages, and to maintain the large base of equipment and other assets necessary for our business. PRODUCT DEVELOPMENT Our full-time product engineers use three-dimensional computer-aided- design technology to design and modify new products and prepare mold drawings. Engineers use an in-house model shop that includes a thermoforming machine to produce prototypes and sample parts. They simulate the molding environment by running prototype molds in a small injection molding machine dedicated to the research and development of new products. Production molds are then designed and outsourced for production by various companies in the U.S. and Canada with whom we have extensive experience and established relationships. Our engineers oversee the mold-building process from start to finish. 49 QUALITY ASSURANCE Each of our plants uses total quality management philosophies. These philosophies include the use of statistical process control and extensive involvement of employees to increase productivity. This team approach to problem- solving increases employee participation and provides necessary training at all levels. Four of our plants have ISO 9000 certification, which certifies compliance by a company in meeting the requirements of a quality management system established by the International Standardization Organization. Our Evansville plant was certified in 1994, our Henderson plant was certified in 1995, our Iowa Falls plant was certified in 1996 and our Lawrence plant was certified in 1998. We are pursuing ISO certification in all of our other 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 traditional quality assurance activities. SYSTEMS We use a fully integrated computer software system at our plants that is capable of producing complete financial and operational reports. This accounting and control system may be expanded to add new features and/or locations as we grow. In addition, we have a sophisticated quality assurance system based on ISO 9000 certification, a bar code based material management system and an integrated manufacturing system. SOURCES AND AVAILABILITY OF RAW MATERIALS Plastic resin is the most important raw material that we purchase. We purchased about $62 million of resin in fiscal 1998, of which 70% was high density polyethylene, 12% linear low density polyethylene and 18% polypropylene. The above figures do not incorporate purchases of specialty resins. Our purchasing strategy is to buy from only high-quality, dependable suppliers, such as Dow, Union Carbide, Chevron, Phillips, Equistar, and Mobil. Although we do not have any supply contracts with our key suppliers, we believe that we have maintained outstanding relationships with these key suppliers over the past several years 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, but we cannot assure you of that. See "Risk Factors--We do not have firm contracts with plastic resin suppliers." EMPLOYEES We have about 2,800 employees. None of our employees are covered by collective bargaining agreements. On February 5, 1998, the employees in Monroeville, Ohio voted to decertify the union in the facility. This facility was acquired as a result of the acquisition of Venture and was our only plant with a collective bargaining agreement during 1998. PATENTS AND TRADEMARKS We have numerous patents and trademarks on our products. None of the patents or trademarks are considered by management to be material to our business. See "Legal Proceedings" below. ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION Our past and present operations and the past and present ownership and operations of real property by Berry Plastics are subject to extensive and changing federal, state and local 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 whether we will incur liability in the future under environmental statutes and regulations with respect to non-compliance with environmental laws, contamination of sites formerly or currently owned or operated by us or the off-site disposal of hazardous substances. 50 Based upon a May 1998 compliance inspection, the Ohio Environmental Protection Agency issued a Notice of Violation dated June 23, 1998 to Venture alleging that its Monroeville, Ohio facility failed to file some reports required pursuant to the Federal Emergency Planning and Community Right-To-Know Act of 1986 (also known as "SARA Title III") for the reporting years 1994 and 1995. This matter has since been closed by the Ohio Environmental Protection Agency. No fines or penalties were assessed. Like any manufacturer, we may receive notices of potential liability, pursuant to CERCLA or analogous state laws, for cleanup costs associated with offsite waste recycling or disposal facilities at which wastes associated with its operations have allegedly come to be located. Liability under CERCLA is strict, retroactive and joint and several. No such notices are currently pending. The Food and Drug Administration regulates the material content of direct- contact food containers and packages, including thinwall containers that we manufacture. We use approved resins and pigments in our direct contact food products and believe we are in material compliance with all such applicable FDA regulations. The plastics industry, including Berry Plastics, also is subject to existing and potential federal, state, local and foreign legislation designed to reduce solid wastes by requiring, among other things, plastics to be degradable in landfills, minimum levels of recycled content, various recycling requirements, disposal fees and limits on the use of plastic products. In addition, various consumer and special interest groups have lobbied from time to time for the implementation of these and other similar measures. The principal resin used in our products, high-density polyethylene, is recyclable, and, accordingly, we believe that the legislation promulgated to date and such initiatives to date have not affected us negatively. It is possible that any future legislative or regulatory efforts or future initiatives may affect us adversely. Beginning January 1, 1995, legislation in Oregon, California and Wisconsin requires products packaged in rigid plastic containers to comply with standards intended to encourage recycling and to increase the use of recycled materials. Although the regulations vary by state, the principal requirement is typically the use of recycled plastic as an ingredient in containers sold for non-food uses. Additionally, Oregon and California allow lightweighting of the container or concentrating the product sold in the container as options for compliance. Oregon and California provide for an exemption from all these regulations if statewide recycling reaches or exceeds 25% of rigid plastic containers. In September 1996, California passed a new bill permanently exempting food and cosmetics containers from this requirement. However, non-food containers are still required to comply. In December 1996, the Department of Environmental Quality estimated that based on 1996 data Oregon had met its recycling goal of 25% for 1997, and accordingly, was in compliance for the 1997 calendar year. However, in January 1998, California formally approved a 23.2% recycling rate for the state during 1996, and since this falls below the required 25% rate for exemption of non-food containers, the state can now begin enforcing its recycled content mandate on any non-food plastic containers from 8 oz. to 5 gallons. In order to facilitate individual customer compliance with these regulations, we provide our customers with the option to purchase containers that are lower weight. 51 PROPERTIES The following table sets forth our principal facilities:
LOCATION ACRES SQUARE FOOTAGE USE OWNED/LEASED - ------------------------------- -------------- -------------- ------------------------------------- ---------------- Lawrence, KS................... 19.3 423,000 Manufacturing Owned Evansville, IN................. 13.4 420,000 Headquarters and Manufacturing Owned Leased (expires Ontario, CA.................... 10.0 200,000 Manufacturing August 2003) Henderson, NV.................. 12.0 168,000 Manufacturing Owned Charlotte, NC.................. 32.0 148,000 Manufacturing Owned Streetsboro, OH................ 12.0 140,000 Manufacturing Owned Monroeville, OH................ 19.0 112,000 Manufacturing Owned Leased (expires Minneapolis, MN................ 3.0 110,000 Manufacturing December 2002) Suffolk, VA.................... 14.0 102,000 Manufacturing Owned Iowa Falls, IA................. 14.0 101,000 Manufacturing Owned Woodstock, IL.................. 11.7 98,000 Manufacturing Owned Norwich, England............... 5.0 44,000 Manufacturing Owned Leased (expires York, PA....................... 10.0 40,000 Manufacturing December 2001)
We believe that our property and equipment are well-maintained, in good operating condition and adequate for our present needs. 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. Berry Plastics and/or our subsidiary Berry Sterling have been litigating two lawsuits that involve United States Patent No. Des. 362,368. This patent claims an ornamental design for a cup that fits an automobile cup holder. On September 21, 1995, Berry Sterling filed suit in United States District Court, Eastern District of Virginia, against Pescor Plastics, Inc. for infringement of this patent. Pescor Plastics filed counterclaims seeking a declaratory judgment of invalidity and non-infringement, and damages under the Lanham Act. On December 28, 1995, Berry Sterling filed suit against Packaging Resources Incorporated in United States District Court, Southern District of New York, for infringement of this patent and seeking, among other equitable relief, damages in an unspecified amount. Packaging Resources has filed counterclaims against Berry Sterling alleging violation of the Lanham Act, tortious interference with Packaging Resources' prospective business advantage, consumer fraud and requesting a declaratory judgment that its "Drive-N-Go" cup does not infringe this patent. Packaging Resources has not specified the amount of damages sought. On February 25, 1998, after trial, a jury rendered a verdict in Berry Sterling's action against Pescor Plastics. The jury found the patent to be invalid on the grounds of functionality and obviousness and awarded Pescor $150,000 on its counterclaim. The jury also found that Pescor willfully infringed the patent and awarded Berry Sterling damages of $1.2 million, but this award was not included in the judgment because of the finding of the invalidity of the patent. On March 11, 1998, Berry Sterling filed a motion with the Court to set aside the verdict of invalidity and the award on the counterclaim, which was subsequently denied by the Court. On 52 April 29, 1998, Berry Sterling filed a Notice of Appeal of the Court's judgment and the denial of its motion to set aside the jury's verdict. Oral argument for the appeal took place on January 5, 1999. On August 30, 1999, the United States Court of Appeals for the Federal Circuit decided Berry Sterling's appeal in the Pescor Plastics case. The Federal Circuit affirmed the jury's finding that the patent owned by Berry Sterling was invalid. The Federal Circuit also affirmed in part and reversed in part the jury's finding of a Lanham Act violation, reducing the amount of the damages award against Berry Sterling from $150,000 to $7,490. The stipulated final judgment against Berry Sterling in the Pescor case is $24,171.26, including costs and applicable interest. Pursuant to the terms of a Stipulation and Order executed by Berry Sterling and Packaging Resources Incorporated, the Packaging Resources case will be taken off the suspense calendar and restored to the Court's active docket. Based on the invalidity of the patent, Packaging Resources is seeking to dismiss Berry Sterling's patent infringement claim in that case. Packaging Resources also currently intends to pursue its counterclaim's against Berry Sterling alleging violation of the Lanham Act, tortious interference with Packaging Resource's prospective business advantage and consumer fraud. 53 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth information with respect to the executive officers, directors and key personnel of our parent, BPC Holding and its subsidiaries:
NAME AGE TITLE ENTITY ---- --- ----- ------ Roberto Buaron(1)(4)........ 52 Chairman and Director Berry Plastics and BPC Holding Martin R. Imbler(1)(4).... 51 President, Chief Executive Officer and Director Berry Plastics President and Director BPC Holding Ira G. Boots................ 45 Executive Vice President- Operations and Director Berry Plastics James M. Kratochvil......... 42 Executive Vice President, Berry Plastics Chief Financial Officer, Treasurer and Secretary BPC Holding R. Brent Beeler............. 46 Executive Vice President, Berry Plastics Sales and Marketing Randy Hobson................ 32 Vice President - Sales and Marketing Berry Plastics Ruth Richmond............... 36 Vice President - Planning Berry Plastics and Administration and Assistant Secretary David Weaver................ 36 Vice President and Plant Manager - Lawrence Berry Plastics Fredrick A. Heseman......... 46 Vice President and Plant Manager - Evansville Berry Plastics Bruce J. Sims............... 49 Vice President - Sales and Marketing, Housewares Berry Plastics George A. Willbrandt........ 54 Vice President - Sales and Marketing Berry Plastics Lawrence G. Graev(2)(3)..... 54 Director Berry Plastics and BPC Holding Joseph S. Levy(2)(3)........ 31 Vice President, Assistant Secretary and Director Berry Plastics and BPC Holding Donald J. Hofmann, 41 Director Berry Plastics and BPC Holding Mathew J. Lori.............. 35 Director Berry Plastics and BPC Holding David M. Clarke............. 48 Director Berry Plastics and BPC Holding
- --------------------------------- (1) Member of the Stock Option Committee of BPC Holding. (2) Member of the Audit Committee of BPC Holding. (3) Member of the Audit Committee of Berry Plastics. (4) Member of the Compensation Committee of Berry Plastics. ROBERTO BUARON has been Chairman and a Director of Berry Plastics since it was organized in December 1990. He has also served as Chairman and a Director of BPC Holding since 1990. He is the Chairman and Chief Executive Officer of First Atlantic Capital, Ltd., which he founded in 1989. From 1987 to 1989, he was an Executive Vice President with Overseas Partners, Inc., an investment management firm. From 1983 to 1986, he was First Vice President of Smith Barney, Inc., and a General Partner of First Century Partnership, its venture capital 54 affiliate. Prior to 1983, he was a Principal at McKinsey & Company. Mr. Buaron is also a director of CFP Holdings, Inc., a processed meat company. MARTIN R. IMBLER has been President, Chief Executive Officer and a Director of Berry Plastics since January 1991. He has also served as a Director of BPC Holding since January 1991, and as President of BPC Holding since May 1996. From June 1987 to December 1990, he was President and Chief Executive Officer of Risdon Corporation, a cosmetic packaging company. Mr. Imbler was employed by American Can Company from 1981 to 1987, as Vice President and General Manager of the East/South Region Food and General Line Packaging business from 1985 to 1987 and as Vice President-Marketing, from 1981 to 1985. IRA G. BOOTS has been Executive Vice President-Operations, and a Director of Berry Plastics since April 1992. Prior to that, Mr. Boots was Vice President of Operations, Engineering and Product Development of the Company from December 1990 to April 1992. Mr. Boots was employed by Berry Plastics, Inc. from 1984 to December 1990 as Vice President-Operations. JAMES M. KRATOCHVIL was promoted to Executive Vice President, Chief Financial Officer, Secretary and Treasurer of Berry Plastics in December 1997. He formerly served as Vice President, Chief Financial Officer and Secretary of Berry Plastics since 1991, and as Treasurer of Berry Plastics since May 1996. He was also promoted to Executive Vice President, Chief Financial Officer and Secretary of BPC Holding in December 1997. He formerly served as Vice President, Chief Financial Officer and Secretary of BPC Holding since 1991. Mr. Kratochvil was employed by Berry Plastics, Inc. from 1985 to 1991 as Controller. R. BRENT BEELER was promoted to Executive Vice President-Sales and Marketing in February 1996. He formerly served as Vice President, Sales and Marketing of Berry Plastics since December 1990. Mr. Beeler was employed by Berry Plastics, Inc. from October 1988 to December 1990 as Vice President, Sales and Marketing. RANDY HOBSON has been Vice President-Sales and Marketing of Berry Plastics since June 1998. Mr. Hobson was Marketing Manager-Containers for Berry Plastics from November 1997 to June 1998. Prior to that, he was a Regional Sales Manager from 1992 to November 1997. Mr. Hobson joined Berry Plastics, Inc. in 1988. RUTH RICHMOND has been Assistant Secretary of BPC Holding and Berry Plastics since April 1998. Ms. Richmond has been Vice President-Planning and Administration of Berry Plastics since January 1995. From January 1994 to December 1994, Ms. Richmond was Vice President and Plant Manager-Henderson. Ms. Richmond was Plant Manager-Henderson from February 1993 to January 1994 and Assistant General Manager-Henderson from February 1991 to February 1993. Ms. Richmond joined the accounting department of Berry Plastics, Inc. in 1986. DAVID WEAVER has been Vice President and Plant Manager-Lawrence of Berry Plastics since January 1997. From January 1993 to January 1997, he was Vice President and Plant Manager-Iowa Falls. From February 1992 to January 1993, Mr. Weaver was Plant Manager-Iowa Falls and, prior to that, he was Maintenance Engineering Supervisor from July 1990 to February 1992. Mr. Weaver was a Project Engineer from January 1989 to July 1990 for Berry Plastics, Inc. FREDRICK A. HESEMAN was promoted to Vice President and Plant Manager-Evansville of Berry Plastics in December 1997. From October 1996 to December 1997, Mr. Heseman was Plant Manager-Evansville, and prior to that, he was Engineering Manager from December 1990 to October 1996. Mr. Heseman was employed by Berry Plastics, Inc. from June 1987 to December 1990 as Engineering Manager. BRUCE J. SIMS has been Vice President-Sales and Marketing, Housewares of Berry Plastics since January 1997. Prior to the acquisition of PackerWare, Mr. Sims served as President of PackerWare from March 1996 to January 1997 and as Vice President from October 1994 to March 1996. From January 1990 to October 1994 he was Vice President of the Miner Container Corporation, a national injection molder. Mr. Sims was Executive Vice President of MKM Distribution Company from 1985 to 1990. 55 GEORGE A. WILLBRANDT was promoted to Vice President-Sales and Marketing of Berry Plastics in April 1997. He formerly served as Vice President, Sales and Marketing of Berry Sterling since 1995. Prior to that he was President and co-owner of Sterling Products, which he founded in 1983. LAWRENCE G. GRAEV has been a Director of Berry Plastics and BPC Holding since August 1995. Mr. Graev has been a partner of the law firm of O'Sullivan Graev & Karabell, LLP of New York since 1974. Mr. Graev is also a Director of First Atlantic. JOSEPH S. LEVY has been Vice President and Assistant Secretary of Berry Plastics and BPC Holding since April 1995. Mr. Levy has been a Director of BPC Holding and the Company since April 1998. Mr. Levy has been a Vice President of First Atlantic Capital, Ltd. since December 1994. From 1991 to December 1994, Mr. Levy was an Associate at First Atlantic. DONALD J. HOFMANN, JR. has been a Director of BPC Holding and Berry Plastics since June 1996. Mr. Hofmann has been a General Partner of Chase Capital Partners since 1992. Prior to that, he was head of MH Capital Partners Inc., the equity investment arm of Manufacturers Hanover. Mr. Hofmann is also a director of Advanced Accessory Systems, LLC, a manufacturer of towing and rack systems and related accessories for automobiles. MATHEW J. LORI has been a Director of BPC Holding and Berry Plastics since October 1996. Mr. Lori has been a Principal with Chase Capital Partners since January 1998, and prior to that, Mr. Lori had been an Associate since April 1996. From September 1993 to March 1996, he was an Associate in the Merchant Banking Group of The Chase Manhattan Bank, N.A. DAVID M. CLARKE has been a Director of BPC Holding and Berry Plastics since June 1996. Mr. Clarke is a Managing Director with Aetna, Inc., a private equity investment group and, prior to that, he had been a Vice President in the Investment Group of Aetna Life Insurance Company from 1988 to 1996. A stockholders agreement contains provisions regarding the election of directors. See "Certain Transactions--Stockholders Agreements." BOARD COMMITTEES The Board of Directors of BPC Holding has an Audit Committee and a Stock Option Committee, and the Board of Directors of Berry Plastics has an Audit Committee and a Compensation Committee. In each case, the Audit Committees oversee the activities of the independent auditors and internal controls. The Stock Option Committee administers the BPC Holding 1996 Stock Option Plan. The Compensation Committee makes recommendations to the Board of Directors of Berry Plastics concerning salaries and incentive compensation for our officers and employees. 56 EXECUTIVE COMPENSATION The following table sets forth a summary of the compensation paid by Berry Plastics to our Chief Executive Officer and our four other most highly compensated executive officers for services rendered in all capacities to Berry Plastics during fiscal 1999, 1998 and 1997. SUMMARY COMPENSATION TABLE
ANNUAL LONG TERM COMPENSATION COMPENSATION --------------- SECURITIES FISCAL UNDERLYING OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION(1) --------------------------- ---- ------ ----- ---------- ------------ Martin R. Imbler............. 1999 $362,940 $121,201 - $1,620 President and Chief Executive 1998 327,397 46,697 - 1,650 Officer 1997 307,396 87,623 - 1,520 Ira G. Boots................. 1999 251,162 95,486 - 1,620 Executive Vice President - 1998 176,631 39,024 - 1,650 Operations 1997 151,691 72,868 - 1,520 James M. Kratochvil.......... Executive Vice President, 1999 200,894 80,083 - 1,620 Chief Financial Officer, 1998 142,483 30,413 - 1,650 Treasurer and Secretary 1997 119,459 56,307 - 1,520 R. Brent Beeler............... 1999 226,504 79,350 - 1,620 Executive Vice President - 1998 145,218 32,621 - 1,650 Sales and Marketing 1997 125,973 60,554 - 1,520 George A. Willbrandt.......... 1999 187,981 95,486 - 1,620 Vice President - Sales and 1998 182,823 39,024 - 1,650 Marketing 1997 214,788 -- - 11,303
- -------------------------------- (1) Amounts shown reflect contributions by us under our 401(k) plan and payments made under a one-time deferred bonus award plan. See "Certain Transactions-- Management." " The following table provides information on the number of exercisable and unexercisable management stock options held by the executive officers named in the summary compensation table at January 2, 1999. FISCAL YEAR-END OPTION VALUES(1 ) NUMBER OF UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT YEAR-END FISCAL YEAR-END NAME EXERCISABLE/UNEXERCISABLE (#)EXERCISABLE/UNEXERCISABLE(2) ---- ------------------------- ------------------------------- Martin R. Imbler...... 5,083/3,389 $355,810/237,230 Ira G. Boots.......... 3,128/2,086 218,960/146,020 James M. Kratochvil... 1,955/1,304 136,850/91,280 R. Brent Beeler....... 1,955/1,304 136,850/91,280 George A. Willbrandt.. 780/520 54,600/36,400 - -------------------------------- (1) None of BPC Holding's capital stock is currently publicly traded. The reflect management's estimate of the fair market value of the Class B Nonvoting Common Stock of BPC Holding at January 2, 1999. (2) All options granted to management of Berry Plastics are excercisable for shares of Class B Nonvoting Common Stock, par value $.01 per share, of BPC Holding. 57 DIRECTOR COMPENSATION Directors receive no cash consideration for serving on the Board of Directors of BPC Holding or Berry Plastics, but directors are reimbursed for out-of-pocket expenses incurred in connection with their duties as directors. EMPLOYMENT AGREEMENTS We have an employment agreement with Mr. Imbler that expires on June 30, 2001. Base compensation under the agreement for fiscal 1999 was $362,940. The agreement also provides for an annual performance bonus of $50,000 to $175,000 based upon Berry Plastics' attainment of specified financial targets. We may terminate Mr. Imbler's employment for "cause" or upon a "disability", as such terms are defined in the agreement. If we terminate Mr. Imbler "without cause" as defined in the agreement, Mr. Imbler is entitled to receive, among other things, the greater of one year's salary or 1/12 of one year's salary for each year, not to exceed 24 years in the aggregate, of employment with Berry Plastics. The agreement also contains customary noncompetition, nondisclosure and nonsolicitation provisions. We also have employment agreements with each of Messrs. Boots, Kratochvil, Beeler and Willbrandt each of which expires on June 30, 2001. The agreements provided for fiscal 1999 base compensation of $251,162 for Mr. Boots, $200,894 for Mr. Kratochvil, $226,504 for Mr. Beeler and $187,981 for Mr. Willbrandt. Salaries are subject in each case to annual adjustment at the discretion of the Compensation Committee of our Board of Directors. The agreements entitle each executive to participate in all other incentive compensation plans established for executive officers of Berry Plastics. We may terminate each agreement for "cause" or a "disability" as such terms are defined in the agreements. If we terminate an executive's employment without "cause" as defined in the agreements, the agreements require that we pay specified amounts to the terminated executive, including (1) the greater of (A) one year's salary or (B) 1/12 of one year's salary for each year, not to exceed 24 years in the aggregate, of employment with Berry Plastics, other than Mr. Willbrandt, who would receive one year's salary, and (2) particular benefits under applicable incentive compensation plans. Each agreement also includes customary noncompetition, nondisclosure and nonsolicitation provisions. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION We established the Compensation Committee comprised of Messrs. Buaron, Imbler and Hofmann, in October 1996. The annual salary and bonus paid to Messrs. Imbler, Boots, Kratochvil, Beeler and Willbrandt for fiscal 1999 were determined by the Compensation Committee in accordance with their respective employment agreements. All other compensation decisions with respect to officers of Berry Plastics are made by Mr. Imbler pursuant to policies established in consultation with the Compensation Committee. We are party to an amended and restated management agreement with First Atlantic Capital, Ltd. pursuant to which First Atlantic Capital provides 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 Capital fees and expenses of $835,000 for fiscal 1998, $771,200 for fiscal 1997, and $787,600 for fiscal 1996. In connection with the recapitalization of BPC Holding in 1996, the management agreement was amended to provide for a fee for services rendered in connection with some transactions equal to the lesser of (1) 1% of the total transaction value and 58 (2) $1,250,000 for any such transaction consummated plus out-of-pocket expenses in respect of such transaction, whether or not consummated. Also in connection with the recapitalization of BPC Holding in 1996, BPC Holding paid a fee of $1,250,000 plus reimbursement for out-of-pocket expenses to First Atlantic Capital for advisory services, including originating, structuring and negotiating the transaction. In January 1997, First Atlantic Capital received advisory fees of about $287,500 for originating, structuring and negotiating the acquisition of PackerWare and about $28,700 for providing similar services in connection with the acquisition of Container Industries. In May 1997, First Atlantic Capital received advisory fees of about $117,900 for originating, structuring and negotiating the acquisition of Virginia Design. In August 1997, First Atlantic Capital received advisory fees of about $531,600 for providing services in the acquisition of Venture. First Atlantic Capital received advisory fees of about $140,000 in July 1998 for originating, structuring and negotiating the acquisition of Norwich. In October 1998, First Atlantic Capital received advisory fees of about $180,000 for providing services in the acquisition of Knight. Upon completion of the Cardinal acquisition, First Atlantic received advisory fees of about $695,000 for services provided with respect to the acquisition. See "Certain Transactions." Mr. Buaron, the Chairman and a director of BPC Holding and Berry Plastics, is the Chairman and Chief Executive Officer of First Atlantic Capital. Mr. Graev is a director of First Atlantic Capital. As an officer and the sole stockholder of First Atlantic Capital, Mr. Buaron is entitled to receive any bonuses paid and any dividends declared by First Atlantic Capital on its capital stock, including any bonuses paid as a result of, and any dividends paid out of, the $1,250,000 fee paid by BPC Holding to First Atlantic Capital in connection with the recapitalization of BPC Holding or any of the fees paid with respect to the acquisitions described above. First Atlantic Capital is engaged by Atlantic Equity Partners International II to provide financial and management consulting services for which it receives annual fees. First Atlantic Capital and Atlantic Equity Partners International II have completely distinct ownership and equity structures. See "Certain Transactions." Atlantic Equity Partners, L.P., a stockholder of BPC Holding prior to the consummation of the recapitalization of BPC Holding in 1996, received about $67.6 million from the sale of its common stock in BPC Holding and warrants to purchase common stock. First Atlantic is engaged by Atlantic Equity Partners to provide financial and management consulting services for which it receives annual fees. First Atlantic and Atlantic Equity Partners have completely distinct ownership and equity structures. Atlantic Equity Associates, L.P., a Delaware limited partnership, is the sole general partner of Atlantic Equity Partners. Mr. Buaron is the sole shareholder of Buaron Capital Corporation. Buaron Capital is the managing and sole general partner of Atlantic Equity Associates. By virtue of their direct and indirect ownership interests in Atlantic Equity Partners, Mr. Levy is entitled to receive $178,000 and Buaron Capital is entitled to receive $4,672,000 from the proceeds from the sale of equity interests in BPC Holding. See "Certain Transactions." In connection with the recapitalization of BPC Holding in 1996, Mr. Imbler, a director of Berry Plastics and BPC Holding, received about $5.9 million, Douglas E. Bell, a former director of Berry Plastics, received about $2.5 million, Mr. Boots, a director of Berry Plastics, received about $2.4 million, and Messrs. Beeler and Kratochvil, officers of Berry Plastics, each received about $1.3 million from their sale of equity interests in BPC Holding. In connection with the offering in April 1994 of the 1994 notes, we paid a $50.0 million dividend on our common stock to BPC Holding, and BPC Holding distributed that amount to its holders of equity interests. In connection therewith, BPC Holding agreed to pay cash bonuses, upon the occurrence of particular events, to the members of management who held options under BPC Holding's 1991 stock option plan in amounts equal to the amounts they would have been entitled to had the shares of common stock underlying their unvested options been outstanding at the time of the declaration of the $50.0 million dividend by BPC Holding. As a result of the recapitalization of BPC Holding, such bonuses were paid to Messrs. Imbler, Bell, and Boots. Mr. Imbler received a bonus in the amount of $594,000. Messrs. Bell and Boots each received bonuses of $238,000. See "Certain Transactions." In connection with the recapitalization of BPC Holding in 1996, Chase Securities Inc., an affiliate of Chase Venture Capital Associates and Messrs. Hofmann and Lori, received a fee of $500,000 for arranging the sale of $15.0 million of BPC Holding's Common Stock to Atlantic Equity Partners International II, Chase Venture Capital Associates and other equity investors and the sale of $15.0 million of BPC Holding's Preferred Stock to Chase Venture Capital Associates. Chase Manhattan Investment Holdings, Inc., an affiliate of Chase Securities and 59 Messrs. Hofmann and Lori, received about $13.6 million from the sale of equity interests of BPC Holding in the 1996 transaction. STOCK OPTION PLAN Employees, directors and some independent consultants of Berry Plastics and its subsidiaries are entitled to participate in the BPC Holding 1996 stock option plan. This stock option plan provides for the grant of both "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and stock options that are non-qualified under the Code. The total number of shares of Class B Nonvoting Common Stock of BPC Holding for which options may be granted pursuant to the stock option plan is 51,620. The stock option plan will terminate on October 3, 2003 or such earlier date on which the Board of Directors of BPC Holding, in its sole discretion, determines. The Stock Option Committee of the Board of Directors of BPC Holding administers all aspects of the stock option plan. The Stock Option Committee selects which of Berry Plastics' directors, employees and independent consultants will receive options, the time when options are granted, whether the options are incentive stock options or non-qualified stock options, the manner and timing for vesting of such options, the terms of such options, the exercise date of any options and the number of shares subject to such options. Directors who are also employees are eligible to receive options under the stock option plan. The exercise price of incentive stock options granted by BPC Holding under the stock option plan may not be less than 100% of the fair market value of the Class B Nonvoting Common Stock at the time of grant and the term of any option may not exceed seven years. With respect to any employee who owns stock representing more than 10% of the voting power of the outstanding capital stock of BPC Holding, the exercise price of any incentive stock option may not be less than 110% of the fair market value of such shares at the time of grant and the term of such option may not exceed five years. The exercise price of a non-qualified stock option is determined by the Stock Option Committee on the date the option is granted. However, the exercise price of a non-qualified stock option may not be less than 100% of the fair market value of Class B Nonvoting Common Stock if the option is granted at any time after the initial public offering of such stock. Options granted under the stock option plan are nontransferable except by will and the laws of descent and distribution. Options granted under the stock option plan typically expire after seven years and vest over a five-year period based on timing as well as achieving financial performance targets. Under the stock option plan, as of July 3, 1999, there were outstanding options to purchase an aggregate of 50,354 shares of Class B Nonvoting Common Stock to 67 employees of Berry Plastics, at an exercise price between $100 and $122 per share. Of that amount, options to purchase an aggregate of 21,504 shares have been issued to the executive officers named in the summary compensation table in October 1996, at an exercise price of $100 per share, including 8,472 to Mr. Imbler, 5,214 to each of Messrs. Bell and Boots, 3,259 to each of Messrs. Beeler and Kratochvil, and 1,300 to Mr. Willbrandt. 60 PRINCIPAL STOCKHOLDERS All of our outstanding capital stock is owned by BPC Holding. The following table sets forth information regarding the ownership of the capital stock of BPC Holding with respect to the following: o each person known by BPC Holding to own beneficially more than 5% of the outstanding shares of any class of its voting capital stock; o each of BPC Holding's directors; o the executive officers named in the summary compensation table; and o all directors and officers 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.
Shares of Shares of Percentage of Voting Nonvoting All Classes of Common Stock(1) Percentage of Common Stock(1) Common Stock Name and Address of -------------------- Voting ----------------------------------- Beneficial Owner Class A Class B Common Stock Class A Class B Class C (Fully-Diluted) - ---------------------------- ------- ------- ------------- -------- ------- ------- --------------- Atlantic Equity Partners International II, L.P.(2) -- 128,142 54.4% -- 3,385 11,470 22.3% Chase Venture Capital Associates, L.P.(3)..... 52,000 5,623 (4) 23.9 148,000 17,837 (4) -- 34.8 BPC Equity, LLC(5)......... 31,200 -- 13.2 88,800 -- -- 18.7 Roberto Buaron(6).......... -- 128,142 54.4 -- 3,385 11,470 22.3 Martin R. Imbler........... -- 3,629 1.5 -- 15,390(7) 664 3.1 Joseph S. Levy(8).......... -- 42 * -- 118 14 * Lawrence G. Graev(9)....... -- -- -- -- -- -- -- Donald J. Hofmann, Jr..(10) 52,000 5,623 (4) 23.9 148,000 17,837 (4) -- 34.8 Mathew J. Lori(11)......... 52,000 5,623 (4) 23.8 148,000 17,837 (4) -- 34.8 David M. Clarke(12)........ 31,200 -- 13.2 88,800 -- -- 18.7 Ira G. Boots............... -- 1,718 * -- 5,446(13) -- 1.1 James M. Kratochvil........ -- 1,196 * -- 5,359(14) 391 1.1 R. Brent Beeler............ -- 1,196 * -- 5,359(15) 391 1.1 George A. Willbrandt....... -- 520 * -- 2,260(16) 170 * All officers and directors as a group (16 persons)..... 83,200 143,644 96.3 236,800 63,330 13,616 84.1
- ---------------------------- * Less than one percent. (1) Included in the amounts of common stock presented in this chart are warrants to purchase shares of common stock of BPC Holding. The authorized capital stock of BPC Holding consists of 3,500,000 shares of capital stock, including 2,500,000 shares of common stock, $.01 par value, and 1,000,000 shares of preferred stock, $.01 par value. Of the 2,500,000 shares of common stock of BPC Holding, 500,000 shares are designated Class A Voting Common Stock, 500,000 shares are designated Class A Nonvoting Common Stock, 500,000 shares are designated Class B Voting Common Stock, 500,000 shares are designated Class B Nonvoting Common Stock, and 500,000 shares are designated Class C Nonvoting Common Stock. Of the 1,000,000 shares of preferred stock of BPC Holding, 800,000 shares are designated Series A Senior Cumulative Exchangeable Preferred Stock, and 200,000 shares are designated Series B Cumulative Preferred Stock. (2) Address is P. O. Box 847, One Capital Place, Fourth Floor, Grand Cayman, Cayman Islands, British West Indies. Atlantic Equity Associates International II, L.P., a Delaware limited partnership, is the sole general partner of Atlantic Equity Partners International II and as such exercises voting and/or investment power over shares of capital stock owned by Atlantic Equity Partners International II, including the shares of common stock of BPC Holding held by Atlantic Equity Partners International 61 II. Mr. Buaron is the sole shareholder of Buaron Holdings Ltd. Buaron Holdings is the sole general partner of Atlantic Equity Associates International II. As the general partner of Atlantic Equity Associates International II, Buaron Holdings may be deemed to beneficially own the shares of common stock of BPC Holding held by Atlantic Equity Partners International II. Buaron Holdings disclaims any beneficial ownership of any shares of capital stock owned by Atlantic Equity Partners International II, including the shares of common stock of BPC Holding held by Atlantic Equity Partners International II. Through his affiliation with Buaron Holdings and Atlantic Equity Associates International II, Mr. Buaron controls the sole general partner of Atlantic Equity Partners International II and therefore has the authority to control voting and/or investment power over, and may be deemed to beneficially own, the shares of common stock of BPC Holding owned by Atlantic Equity Partners International II. Mr. Buaron disclaims any beneficial ownership of any of these shares. (3) Address is 380 Madison Avenue, 12th Floor, New York, New York 10017. (4) Represents warrants to purchase such shares of common stock held by Chase Venture Capital Associates that are currently exercisable. (5) Address is c/o Aetna Life Insurance Company, Private Equity Group, IG6U, 151 Farmington Avenue, Hartford, Connecticut 06156. Aetna Life Insurance Company exercises voting and/or investment power over shares of capital stock owned by BPC Equity, LLC, including shares of common stock of BPC Holding held by BPC Equity. (6) Address is c/o First Atlantic Capital, Ltd., 135 East 57th Street, New York, New York 10022. Represents shares of common stock of BPC Holding owned by Atlantic Equity Partners International II. Mr. Buaron is the sole shareholder of Buaron Holdings. Buaron Holdings is the sole general partner of Atlantic Equity Associates International II. Atlantic Equity Associates International II is the sole general partner of Atlantic Equity Partners International II and as such, exercises voting and/or investment power over shares of capital stock owned by Atlantic Equity Partners International II, including the shares of common stock of BPC Holding held by Atlantic Equity Partners International II. Mr. Buaron, as the sole shareholder and Chief Executive Officer of Buaron Holdings, controls the sole general partner of Atlantic Equity Partners International II and therefore has voting and/or investment power over, and may be deemed to beneficially own, the shares of common stock of BPC Holding held by Atlantic Equity Partners International II. Mr. Buaron disclaims any beneficial ownership of the such shares. (7) Includes 5,083 options granted to Mr. Imbler, which are presently exercisable. (8) Address is c/o First Atlantic Capital, Ltd., 135 East 57th Street, New York, New York 10022. (9) Address is c/o O'Sullivan Graev & Karabell, LLP, 30 Rockefeller Plaza, New York, New York 10112. (10) Address is c/o Chase Capital Partners, 380 Madison Avenue, 12th Floor, New York, New York 10017. Represents shares owned by Chase Venture Capital Associates. Mr. Hofmann is a General Partner of Chase Capital Partners, which is the private equity investment arm of Chase Manhattan Corporation, which is an affiliate of Chase Venture Capital Associates. Mr. Hofmann disclaims any beneficial ownership of the shares of common stock of BPC Holding held by Chase Venture Capital Associates. (11) Address is c/o Chase Capital Partners, 380 Madison Avenue, 12th Floor, New York, New York 10017. Represents shares owned by Chase Venture Capital Associates. Mr. Lori is a Principal of Chase Capital Partners, which is the private equity investment arm of Chase Manhattan Corporation, which is an affiliate of Chase Venture Capital Associates. Mr. Lori disclaims any beneficial ownership of the shares of common stock of BPC Holding held by Chase Venture Capital Associates. (12) Address is c/o Aetna Life Insurance Company, Private Equity Group, IG6U, 151 Farmington Avenue, Hartford, Connecticut 06156. Represents shares owned by BPC Equity. Mr. Clarke is a Managing Director of Aetna, Inc., an affiliate of Aetna Life Insurance Company, which is a member of BPC Equity. Mr. Clarke disclaims any beneficial ownership of the shares of common stock of BPC Holding held by BPC Equity. (13) Includes 3,128 options granted to Mr. Boots, which are currently exercisable. (14) Includes 1,955 options granted to Mr. Kratochvil, which are currently exercisable. (15) Includes 1,955 options granted to Mr. Beeler, which are currently exercisable. (16) Includes 780 options granted to Mr. Willbrandt, which are currently exercisable. 62 CERTAIN TRANSACTIONS FIRST ATLANTIC Pursuant to the management agreement between us and First Atlantic Capital, First Atlantic Capital provides 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. We paid First Atlantic fees and expenses of about $835,000 for fiscal 1998, $771,200 for fiscal 1997 and $787,600 for fiscal 1996 for these services. The management agreement also provides for a fee for services rendered in connection with transactions equal to the lesser of 1% of the total transaction value and $1,250,000 for any such transaction consummated plus out-of-pocket expenses, whether or not consummated. In connection with the recapitalization of BPC Holding in 1996, BPC Holding paid a fee of about $1,250,000 plus reimbursement for out-of-pocket expenses to First Atlantic Capital for advisory services. These services included originating, structuring and negotiating the recapitalization of BPC Holding. First Atlantic Capital received advisory fees of about $287,500 for originating, structuring and negotiating the acquisition of PackerWare and about $28,700 for providing similar services in connection with the acquisition of Container Industries. In May 1997, First Atlantic Capital received advisory fees of about $117,900 for originating, structuring and negotiating the acquisition of Virginia Design. In August 1997, First Atlantic Capital received advisory fees of about $531,600 for providing services with respect to the acquisition of Venture. First Atlantic Capital received advisory fees of about $140,000 in July 1998 for originating, structuring and negotiating the acquisition of Norwich, and in October 1998 First Atlantic Capital received advisory fees of about $180,000 for providing services with respect to the acquisition of Knight. Upon completion of the Cardinal acquisition, First Atlantic received advisory fees of about $695,000 for services provided with respect to the acquisition. Mr. Buaron, the Chairman and a director of BPC Holding and Berry Plastics, is the Chairman and Chief Executive Officer of First Atlantic Capital. As an officer and the sole stockholder of First Atlantic Capital, Mr. Buaron is entitled to receive any bonuses paid and any dividends declared by First Atlantic Capital on its capital stock, including any bonuses paid as a result of, and any dividends paid out of, the $1,250,000 fee paid by BPC Holding to First Atlantic Capital in connection with the recapitalization of BPC Holding in 1996 or any of the fees paid with respect to the acquisitions described above. Mr. Graev is also a director of First Atlantic Capital, and Mr. Levy is an officer of First Atlantic Capital. First Atlantic Capital is engaged by Atlantic Equity Partners International II to provide financial and management consulting services for which it receives annual fees. First Atlantic Capital and Atlantic Equity Partners International II have completely distinct ownership and equity structures. Atlantic Equity Partners, L.P., a stockholder of BPC Holding prior to the consummation of the recapitalization of BPC Holding in 1996, received about $67.6 million from the sale of its common stock in BPC Holding and warrants to purchase common stock. First Atlantic is engaged by Atlantic Equity Partners to provide financial and management consulting services for which it receives annual fees. First Atlantic and Atlantic Equity Partners have completely distinct ownership and equity structures. Atlantic Equity Associates, L.P., is the sole general partner of Atlantic Equity Partners. Mr. Buaron is the sole shareholder of Buaron Capital, and Buaron Capital is the managing and sole general partner of Atlantic Equity Associates. By virtue of their direct and indirect ownership interests in Atlantic Equity Partners, Mr. Levy is entitled to receive $178,000 and Buaron Capital is entitled to receive $4,672,000 from the proceeds from the sale of equity interests in BPC Holding. THE 1996 TRANSACTION On June 18, 1996, our parent, BPC Holding, consummated the transaction described below. BPC Mergerco, Inc. was organized by Atlantic Equity Partners International II, Chase Venture Capital Associates, L.P., and other institutional investors to acquire a majority of the outstanding capital stock of BPC Holding. Pursuant to a stock purchase and recapitalization agreement dated as of June 12, 1996, some of the common stock purchasers purchased shares of common stock of BPC Mergerco. In addition, pursuant to a preferred stock and warrant purchase agreement dated as of June 12, 1996, Chase Venture Capital Associates and the Northwestern Mutual Life Insurance Company purchased shares of preferred stock of BPC Mergerco and warrants to purchase shares of common stock of BPC Mergerco. Immediately after the purchase of the common stock, the preferred stock and the 63 1996 warrants of BPC Mergerco, BPC Mergerco merged with and into BPC Holding, with BPC Holding being the surviving corporation. Upon the consummation of this merger: (1) each share of Class A Common Stock, $.00005 par value, and Class B Common Stock, $.00005 par value, of BPC Holding and some previously held warrants exercisable for such Class A and Class B Common Stock were converted into the right to receive cash equal to the purchase price per share for the common stock into which such warrants were exercisable less the amount of the nominal exercise price therefor, (2) all other classes of common stock of BPC Holding, a majority of which was held by members of management, were converted into shares of common stock of the surviving corporation. These shares constituted about 19% of the post-merger common stock and the surviving corporation, and (3) the common stock, preferred stock and 1996 warrants of Mergerco were converted into common stock, preferred stock and warrants of the surviving corporation, respectively. In addition, upon the consummation of the merger, the holders of the warrants to purchase capital stock of BPC Holding that were issued in connection with the offering of the 1994 notes became entitled to receive cash equal to the purchase price per share for the common stock into which such warrants were exercisable less the amount of the exercise price therefor. The aggregate consideration paid to the sellers of the equity interests in BPC Holding, including the holders of the 1994 warrants, was about $119.6 million in cash. In order to finance the recapitalization of BPC Holding, including the payment of related fees and expenses: (1) BPC Holding issued the 1996 notes for net proceeds of about $100.2 million. Net proceeds were about $64.6 million after deducting the amount of such net proceeds used to purchase marketable securities available for payment of interest on the 1996 notes; (2) the common stock purchasers, the preferred stock purchasers and some members of management made equity and rollover investments in the aggregate amount of $70.0 million. This amount included rollover investments of about $7.1 million by certain members of management and $3.0 million by an existing institutional shareholder; and (3) BPC Holding received an aggregate of about $0.9 million in connection with the exercise of management stock options to purchase common stock of BPC Holding. In connection with the recapitalization of BPC Holding, Atlantic Equity Partners International II, Chase Venture Capital Associates, some other institutional investors and some members of management entered into a stockholders agreement pursuant to which particular stockholders, among other things: (1) were granted specific registration rights and (2) under specific circumstances, have the right to force a sale of BPC Holding. MANAGEMENT In connection with the recapitalization of BPC Holding in 1996, Mr. Imbler received about $5.9 million, Mr. Bell received about $2.5 million, Mr. Boots received about $2.4 million, and Messrs. Kratochvil and Beeler each received about $1.3 million from their sale of equity interests in BPC Holding. In connection with the 1994 transaction, we paid a $50.0 million dividend on our common stock to BPC Holding, and BPC Holding distributed that amount to its holders of equity interests. In connection therewith, BPC Holding agreed to pay cash bonuses, upon the occurrence of particular events, to the members of management who held options under BPC Holding's 1991 stock option plan in amounts equal to the amounts they would have been entitled to had the shares of common stock underlying their unvested options been outstanding at the time of the declaration of the $50.0 million dividend by BPC Holding. As a result of the recapitalization of BPC Holding in 1996, bonuses were paid to Mr. Imbler in the 64 amount of about $594,000, to Mr. Bell in the amount of about $238,000, to Mr. Boots in the amount of about $238,000, to Mr. Kratochvil in the amount of about $119,000 and to Mr. Beeler in the amount of about $119,000. STOCKHOLDERS AGREEMENTS In connection with the recapitalization of BPC Holding, BPC Holding entered into a stockholders agreement dated as of June 18, 1996 with the common stock purchasers, certain management stockholders and, for limited purposes thereunder, the preferred stock purchasers. The stockholders agreement grants the common stock purchasers rights and obligations, including the following: (1) until the occurrence of events specified in the stockholders agreement, to designate the members of a seven person Board of Directors as follows: (A) one director will be Roberto Buaron or his designee; (B) Atlantic Equity Partners International II will have the right to designate three directors. Currently these three directors are Messrs. Graev, Imbler and Levy; (C) Chase Venture Capital Associates will have the right to designate two directors, who are currently Messrs. Hofmann and Lori; and (D) the institutional holders, excluding Atlantic Equity Partners International II and Chase Venture Capital Associates, will have the right to designate one director. Currently this director is Mr. Clarke; (2) in the case of some common stock purchasers, to subscribe for a proportional share of future equity issuances by BPC Holding; (3) under some circumstances and in the case of Atlantic Equity Partners International II or Chase Venture Capital Associates, to cause the initial public offering of equity securities of BPC Holding or a sale of BPC Holding subsequent to the fifth anniversary of the closing of the recapitalization of BPC Holding and (4) under some circumstances and in the case of a majority in interest of the institutional holders, to cause the initial public offering of equity securities of BPC Holding or a sale of BPC Holding subsequent to the sixth anniversary of the closing of the recapitalization of BPC Holding. Provisions under the stockholders agreement also (A) prohibit BPC Holding from taking specific actions without the consent of holders of a majority of voting stock held by Chase Venture Capital Associates and the institutional holders other than Atlantic Equity Partners International II or, following the occurrence of particular events, the consent of Atlantic Equity Partners International II, including particular transactions between BPC Holding and any subsidiary, on the one hand, and First Atlantic Capital or any of its affiliates, on the other hand; (B) obligates BPC Holding to provide some common stock purchasers with financial and other information regarding BPC Holding and to provide access and inspection rights to all common stock purchasers; and (C) restricts transfers of equity by the common stock purchasers, subject to some exceptions, including transfers of up to 10% of the equity, including warrants to purchase equity, held by each common stock purchaser on the date of the stockholders agreement. Pursuant to the stockholders agreement, under some circumstances the preferred stock purchasers and their transferees have tag-along rights with respect to the 1996 warrants and the common stock of BPC Holding issuable upon exercise of the 1996 warrants. Under specified 65 circumstances and subject to some exceptions, the preferred stock purchasers and their transferees are entitled to include a pro rata share of their preferred stock in a transaction or series of related transactions involving the transfer by Atlantic Equity Partners International II, Chase Venture Capital Associates and the specified institutional holders of more than 50% of the aggregate amount of securities held by them immediately following the closing of the 1996 transaction. The stockholders agreement grants specified registration rights to the common stock purchasers. Atlantic Equity Partners International II and Chase Venture Capital Associates each have the right, on three occasions, to demand registration, at BPC Holding's expense, of their shares of common stock of BPC Holding. Under some circumstances, a majority in interest of the institutional holders, excluding Atlantic Equity Partners International II and Chase Venture Capital Associates, have the right, on one occasion, to demand registration, at BPC Holding's expense, of their shares of common stock of BPC Holding. The stockholders agreement provides that if BPC Holding proposes to register any of its securities, either for its own account or for the account of other stockholders, BPC Holding will be required to notify all common stock purchasers and to include in such registration the shares of common stock of BPC Holding requested to be included by them. All shares of common stock of BPC Holding owned by the common stock purchasers requested to be included in a registration will be subject to cutbacks under specified circumstances in connection with an underwritten public offering. The provisions of the stockholders agreement regarding voting rights, negative covenants, information/inspection rights, the right to force a sale of BPC Holding, preemptive rights and transfer restrictions generally will expire on the earlier to occur of: o the fifth anniversary of the closing of the recapitalization of BPC Holding in 1996, if an underwritten public offering of equity securities of BPC Holding resulting in gross proceeds of at least $20.0 million occurs prior to such fifth anniversary; o the occurrence of such underwritten public offering that occurs subsequent to such fifth anniversary of the closing of the recapitalization of BPC Holding in 1996; o the twentieth anniversary of the closing of the recapitalization of BPC Holding in 1996; and o a sale of BPC Holding. In addition, the stockholders agreement provides that rights of a common stock purchaser, to the extent such rights apply to such common stock purchaser, to designate members of the Board of Directors of BPC Holding and/or to approve particular actions by BPC Holding will terminate under specific circumstances. BPC Holding is also party to an amended and restated stockholders agreement dated June 18, 1996, with Atlantic Equity Partners International II and all management stockholders including, among others, Messrs. Imbler, Boots, Kratochvil, Beeler, and Willbrandt. The management stockholders agreement contains provisions that: o limit transfers of equity by the management stockholders; o require the management stockholders to sell their shares as designated by BPC Holding or Atlantic Equity Partners II upon the consummation of particular transactions; o grant the management stockholders particular rights of co-sale in connection with sales by Atlantic Equity Partners International II; o grant BPC Holding rights to repurchase capital stock from the management stockholders upon the occurrence of particular events; and o require the management stockholders to offer shares to BPC Holding prior to any permitted transfer. 66 CHASE SECURITIES INC. In connection with the recapitalization of BPC Holding in 1996, Chase Securities, an affiliate of Chase Venture Capital Associates and Messrs. Hofmann and Lori, who are members of the Board of Directors of BPC Holding and Berry Plastics, received a fee of $500,000 for arranging the sale of $15.0 million of BPC Holding's Common Stock to some of the common stock purchasers and the sale of $15.0 million of BPC Holding preferred stock to Chase Venture Capital Associates. Chase Manhattan Investment Holdings, Inc., an affiliate of Chase Securities and Messrs. Hofmann and Lori, received about $13.6 million from the sale of equity interests of BPC Holding in the recapitalization of BPC Holding. LEGAL SERVICES Mr. Graev is a partner of the law firm of O'Sullivan Graev & Karabell, LLP, New York, New York. O'Sullivan Graev & Karabell, LLP provides legal services to us and to BPC Holding in connection with particular matters, principally relating to transactional, securities law, general corporate and litigation matters. TRANSACTIONS WITH AFFILIATES The indentures governing the 1994 notes, the 1996 notes, the 1998 notes and the 1999 notes, the stockholders agreement, and our credit facility restrict our and our affiliates' ability to enter into transactions with affiliates, including officers, directors and principal stockholders. 67 DESCRIPTION OF OTHER DEBT BPC HOLDING 1996 NOTES On June 18, 1996, BPC Holding, as part of a recapitalization, issued 12.50% Senior Secured Notes due 2006 for net proceeds, after expenses, of about $100.2 million. Net proceeds were about $64.6 million after deducting the amount of such net proceeds used to purchase marketable securities available for payment of interest on the notes. These notes were exchanged in October 1996 for the 12.50% Series B Senior Secured Notes due 2006. Interest on the 1996 notes is payable semi-annually on June 15 and December 15 of each year. In addition, from December 15, 1999 until June 15, 2001, BPC Holding may, at its option, pay interest, at an increased rate of 0.75% per annum, in additional 1996 notes valued at 100% of the principal amount thereof. In connection with the 1996 notes, $35.6 million was placed in escrow to pay three years' interest on the notes. The escrow account was depleted on June 15, 1999. The 1996 notes rank senior in right of payment to all existing and future subordinated debt of BPC Holding and all other obligations of Berry Plastics, including BPC Holding's subordinated guarantee of the 1994 notes, the 1998 notes and the 1999 notes and PARI PASSU in right of payment with all senior debt of BPC Holding. The 1996 notes are structurally subordinated to all existing and future senior debt of Berry Plastics, including borrowings under the credit facility and our Nevada industrial revenue bonds. BERRY PLASTICS 1994 NOTES AND 1998 NOTES On April 21, 1994, Berry Plastics completed an offering of 100,000 units consisting of $100.0 million aggregate principal amount of 12.25% Berry Plastics Corporation Senior Subordinated notes due 2004 and 100,000 warrants to purchase 1.13237 shares of Class A Common Stock, $.00005 par value, of BPC Holding. The 1994 notes mature on April 15, 2004 and interest is payable semi-annually on October 15 and April 15 of each year and commenced on October 15, 1994. The 1994 notes are unconditionally guaranteed on a senior subordinated basis by the guarantors. The net proceeds to Berry Plastics from the sale of the 1994 notes, after expenses, were $93.0 million. On August 24, 1998, Berry Plastics issued $25 million aggregate principal amount of 12.25% Berry Plastics Corporation Series B Senior Subordinated notes due 2004. The 1998 notes mature on April 15, 2004 and interest is payable semi-annually on October 15 and April 15 of each year and commenced on October 15, 1998. The 1998 notes are unconditionally guaranteed on a senior subordinated basis by BPC Holding and each of Berry Plastics' subsidiaries. The net proceeds to Berry Plastics from the sale of the 1998 notes, after expenses, were $25.2 million. Berry Plastics is not required to make mandatory redemption or sinking fund payments with respect to the 1994 notes or 1998 notes. The 1994 notes and 1998 notes may be redeemed at the option of Berry Plastics, in whole or in part, at redemption prices ranging from 106.125% beginning on April 15, 1999 and par after April 15, 2002. Upon a change of control, as defined in the indentures governing the 1994 notes and 1998 notes, each holder of 1994 notes and 1998 notes will have the right to require Berry Plastics to repurchase all or any part of such holder's notes at a repurchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued interest. The 1994 notes and 1998 notes rank PARI PASSU with the notes and PARI passu with or senior in right of payment to all existing and future subordinated debt of Berry Plastics. The 1994 notes and 1998 notes rank junior in right of payment to all existing and future senior debt of Berry Plastics, including borrowings under our credit facility and our Nevada industrial revenue bonds. The indentures governing the 1994 notes and 1998 notes contain certain covenants which, among other things, limit Berry Plastics and its subsidiaries' ability to incur debt, merge or consolidate, sell, lease or transfer assets, make dividend payments and engage in transactions with affiliates. 68 The terms of the 1998 notes are identical in all material respects to the terms of the 1994 notes, except that the 1994 notes have a priority upon the payment of proceeds pursuant to an asset sale. In addition, since the 1998 notes are issued pursuant to a separate indenture from the 1994 notes, holders of the 1998 notes vote as a separate class from holders of the 1994 notes. THE CREDIT FACILITY Our credit facility with NationsBank, N.A. provides for aggregate borrowing up to a maximum of about $134.4 million including: o a $70.0 million revolving line of credit, subject to a borrowing base formula. At October 2, 1999, we had unused borrowing capacity under our credit facility's revolving line of credit of about $23.9 million; o a(pound)1.5 million revolving line of credit, subject to a borrowing base; o a $51.1 million term loan facility; o a(pound)3.4 million term loan facility; and o a $5.2 million standby letter of credit facility to support our and our subsidiaries' obligations under our Nevada industrial revenue bonds. The debt under our credit facility is guaranteed by BPC Holding and substantially all of our subsidiaries. The credit facility matures on January 21, 2002 unless previously terminated by us or by the lenders upon an event of default as defined in the credit agreement. The term loan facilities require periodic principal payments, varying in amount through the maturity of the facility. Such periodic payments will aggregate about $19.0 million for fiscal 1999 and about $19.9 million for fiscal 2000. Interest on borrowings under the credit facility is based on either: o the lender's base rate, which is the higher of the lender's prime rate and the federal funds rate plus 0.50%, plus an applicable margin of 0.50%; or o LIBOR (adjusted for reserves) plus an applicable margin of 2.0%, at our option. Following receipt of the quarterly financial statements, the agent under our credit facility has the option to change the applicable interest rate margin on loans, other than under the UK revolver and UK term loan, once per quarter to a specified margin determined by the ratio of funded debt to EBITDA of Berry Plastics and our subsidiaries. Notwithstanding the foregoing, interest on borrowings under the UK revolver and the UK term loan is based on LIBOR (adjusted for reserves) plus 2.50%. The credit facility contains various covenants which include, among other things: o maintenance of particular financial ratios and compliance with particular financial tests and limitations; (a)Tangible capital funds must be greater than the following amounts as of the end of the respective fiscal quarter: 3rd 1999 $80.0 million 4th 1999 $80.0 million 1st 2000 $91.5 million 69 2nd 2000 $91.5 million 3rd 2000 $91.5 million 4th 2000 $93.0 million 1st 2001 $93.0 million 2nd 2001 $116.5 million all thereafter $130.0 million (b)On a rolling four quarter basis, the Company's leverage rates cannot exceed the following as of the respective fiscal quarter: 3rd 1999 4.5 to 1.0 4th 1999 4.25 to 1.0 1st 2000 4.25 to 1.0 2nd 2000 3.75 to 1.0 3rd 2000 3.75 to 1.0 4th 2000 3.75 to 1.0 1st 2001 3.75 to 1.0 all thereafter 3.5 to 1.0 (c)On a rolling four quarter basis, the Company's interest coverage ratio must exceed the following as of the respective fiscal quarter: 3rd 1999 2.0 to 1.0 all thereafter 2.5 to 1.0 (d)On a fiscal year basis, the Company must maintain a fixed charge ratio of at least 1.0 to 1.0. (e)The Company must maintain a debt service ratio of at least 1.5 to 1.0 on a quarterly basis beginning in the 3rd quarter of fiscal 1999. o limitations on the issuance of additional debt; and o limitations on capital expenditures. NEVADA INDUSTRIAL REVENUE BONDS We are party to a financing agreement with the City of Henderson, Nevada Public Improvement Trust, pursuant to which we have agreed to pay amounts sufficient to pay principal, interest and any premium on the Nevada industrial revenue bonds. The Nevada industrial revenue bonds bear interest at a variable rate, require annual principal payments of $0.5 million on each April 1 until maturity, are collateralized by irrevocable letters of credit issued by NationsBank under our credit facility and mature in April 2007. The interest rate of the bonds was 3.0% at January 2, 1999 and 4.6% at December 27, 1997. 70 DESCRIPTION OF NOTES You can find the definitions of certain terms used in this description under the subheading "Certain Definitions." In this description, the word "Company" refers only to Berry Plastics Corporation and not to any of its subsidiaries and the word "Holding" refers to BPC Holding Corporation and not to any of its subsidiaries. The Company issued the outstanding notes and will issue the exchange notes under an indenture among itself, the guarantors and United States Trust Company of New York, as trustee. The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended. The following description is a summary of certain provisions of the indenture and the registration rights agreement. It does not restate those agreements in their entirety. We urge you to read the indenture and the registration rights agreement because they, and not this description, define your rights as holders of the notes. Copies of the indenture and the registration rights agreement will be made available to prospective investors as set forth below under "--Additional Information." Certain defined terms used in this description but not defined below under "--Certain Definitions" have the meanings assigned to them in the indenture. As of the date of the indenture, all of our subsidiaries will be "Restricted Subsidiaries." However, under the circumstances described below under the subheading "--Certain Covenants--Designation of Restricted and Unrestricted Subsidiaries," we will be permitted to designate certain of our subsidiaries as "Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the indenture. Unrestricted Subsidiaries will not guarantee these notes. BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES THE NOTES The notes: o are general unsecured obligations of the Company; o are junior in right of payment to all existing and future Senior Indebtedness of the Company, including borrowings under the Credit Facility and the Nevada Bonds; o are PARI PASSU in right of payment with the 1994 notes and the 1998 notes and PARI PASSU with or senior in right of payment to all existing and future subordinated Indebtedness of the Company; and o are unconditionally guaranteed by the Guarantors. THE GUARANTEES The notes are guaranteed by all of the Guarantors. Each note guarantee: o is a general unsecured obligation of the Guarantor; o is junior in right of payment to all existing and future Senior Indebtedness of the Guarantor, including the Guarantor's guarantee of borrowings under the Credit Facility and the Nevada Bonds; and 71 o is PARI PASSU in right of payment with the Guarantor's guarantee of the 1994 notes and the 1998 notes and PARI PASSU with or senior in right of payment with any existing and future subordinated Indebtedness of the Guarantor. PRINCIPAL, MATURITY AND INTEREST Notes with a maximum aggregate principal amount of $75.0 million will be issued in this offering. The Company may issue additional notes from time to time after this offering. Any offering of additional notes is subject to the covenant described below under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock." The notes and any additional notes subsequently issued under the indenture would be treated as a single class for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. The Company will issue notes in denominations of $1,000 and integral multiples of $1,000. The notes will mature on July 15, 2007. Interest on the notes will accrue at the rate of 11% per annum and will be payable semi-annually in arrears on January 15 and July 15, commencing on January 15, 2000. The Company will make each interest payment to the holders of record on the immediately preceding January 1 and July 1. Interest on the notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. METHODS OF RECEIVING PAYMENTS ON THE NOTES The Company will pay all principal, interest and premium and liquidated damages, if any, on the notes at the office or agency of the paying agent and registrar within the City and State of New York unless the Company elects to make interest and liquidated damages, if any, payments by check mailed to the holders of the notes at their respective addresses set forth in the register of holders of notes. PAYING AGENT AND REGISTRAR FOR THE NOTES The trustee will initially act as paying agent and registrar. The Company may change the paying agent or registrar without prior notice to the holders, and the Company or any of its Subsidiaries may act as paying agent or registrar. TRANSFER AND EXCHANGE A holder may transfer or exchange notes in accordance with the indenture. 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 and fees required by law or permitted by the indenture. The Company is not required to transfer or exchange any note selected for redemption. Also, the Company is not required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed. The registered holder of a note will be treated as the owner of it for all purposes. OPTIONAL REDEMPTION At any time prior to July 15, 2002, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of notes issued under the indenture at a redemption price of 111% of the principal amount thereof, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date, with the net cash proceeds of a public offering of common stock of the Company or a capital contribution to the Company's common equity made with the net cash proceeds of an Initial Public Offering; PROVIDED that: 72 (1) at least 65% of the aggregate principal amount of notes issued under the indenture remains outstanding immediately after the occurrence of such redemption, excluding notes held by the Company and its Subsidiaries; and (2) the redemption must occur within 45 days of the date of the closing of such public offering or the making of such capital contribution. Except pursuant to the preceding paragraph, the notes will not be redeemable at the Company's option prior to July 15, 2003. After July 15, 2003, the Company may redeem all or a part of the notes upon not less than 30 nor more than 60 days' notice, at the redemption prices, expressed as percentages of principal amount, set forth below plus accrued and unpaid interest and liquidated damages, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on July 15 of the years indicated below: YEAR PERCENTAGE - ---- ---------- 2003.......................................................... 105.500% 2004.......................................................... 103.667% 2005.......................................................... 101.833% 2006 and thereafter........................................... 100.000% MANDATORY REDEMPTION The Company is not required to make mandatory redemption or sinking fund payments with respect to the notes. REPURCHASE AT THE OPTION OF HOLDERS CHANGE OF CONTROL Upon the occurrence of a Change of Control, each holder of notes will have the right to require the Company to repurchase all or any part which is equal to $1,000 or an integral multiple thereof of that holder's notes pursuant to the offer described below at an offer price in cash equal to 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest and liquidated damages, if any, thereon, to the date of purchase. Within 10 days following any Change of Control, the Company will mail a notice to each holder stating: (1) that the Change of Control offer is being made pursuant to the covenant entitled "Change of Control" and that all notes tendered will be accepted for payment; (2) the purchase price and the purchase date, which will be no earlier than 30 days nor later than 60 days from the date the notice is mailed; (3) that any note not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control payment, all notes accepted for payment pursuant to the Change of Control offer will cease to accrue interest after the Change of Control payment date; (5) that holders electing to have any notes purchased pursuant to a Change of Control offer will be required to surrender the notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the notes completed, to the paying agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control payment date; 73 (6) that holders will be entitled to withdraw their election if the paying agent receives, not later than the close of business on the second Business Day preceding the Change of Control payment date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of notes delivered for purchase, and a statement that such holder is withdrawing his election to have such notes purchased; and (7) that holders whose notes are being purchased only in part will be issued new notes equal in principal amount to the unpurchased portion of the notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the notes in connection with a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions 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 Change of Control provisions of the indenture by virtue of such conflict. On the Change of Control payment date, the Company will, to the extent lawful: (1) accept for payment notes or portions thereof tendered pursuant to the Change of Control offer; (2) deposit with the paying agent an amount equal to the Change of Control payment in respect of all notes or portions thereof so tendered; and (3) deliver or cause to be delivered to the trustee the notes so accepted together with an Officers' Certificate stating the aggregate principal amount of notes or portions thereof tendered to the Company. The paying agent will promptly mail to each holder of notes so accepted the Change of Control payment for such notes, and the trustee will promptly authenticate and mail, or cause to be transferred by book entry, to each holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; PROVIDED that each such new note will be in a principal amount of $1,000 or an integral multiple thereof. Prior to making the Change of Control payment, but in any event within 90 days following a Change of Control, the Company will either repay all outstanding Designated Senior Indebtedness or obtain the requisite consents, if any, under all agreements governing outstanding Designated Senior Indebtedness to permit the repurchase of notes required by this covenant. The Company will publicly announce the results of the Change of Control offer on or as soon as practicable after the Change of Control payment date. One of the events that constitutes a Change of Control is a sale, lease or transfer of all or substantially all of Holding's or the Company's assets. The indenture will be governed by New York law, and there is no established quantitative definition under New York law of "substantially all" of the assets of a corporation. Accordingly, if Holding or the Company were to engage in a transaction in which it disposed of less than all of their respective assets, a question of interpretation could arise as to whether such disposition was "substantially all" of their respective assets and whether the Company was required to make a Change of Control offer. In such cases, the Company might not be required to make a Change of Control offer and would be permitted, subject to the restrictions contained in the indenture, including the covenant described below under the caption "--Certain Covenants--Restricted Payments," to find alternative uses for the proceeds of that sale. Pursuant to the terms of the indenture, however, the Company could be required to make an Asset Sale offer in those circumstances. Neither the Board of Directors of Holding nor the trustee may waive the operation of the Change of Control covenant. The Credit Facility provides that certain change of control events will constitute an event of default thereunder. Upon the occurrence of an event of default under the Credit Facility, all amounts outstanding thereunder 74 may become due and payable. All indebtedness of the Company under the Credit Facility is Senior Indebtedness. Accordingly, in the event of an event of default under the Credit Facility, including with respect to an event similar to a Change of Control, the subordination provisions contained in the indenture will prohibit the Company, if the holders of Senior Indebtedness issue a notice to the Company to such effect, from making any payment on the notes until such event of default is cured or upon the expiration of 179 days, unless the holders of Senior Indebtedness accelerate the maturity of the Senior Indebtedness. See "--Subordination." Except as described above with respect to a Change of Control, the indenture does not contain provisions that permit the holders of notes to require that the Company repurchase the notes in the event of a highly leveraged transaction or certain transactions with Holding's management or affiliates, including a reorganization, restructuring, merger or similar transaction, including, in certain circumstances, an acquisition of Holding by its management or affiliates, involving Holding that may adversely affect holders of notes. A transaction involving Holding's management or affiliates, or a transaction involving a recapitalization of Holding, may result in a Change of Control if it is the type of transaction specified by such definition. The Change of Control purchase feature of the notes may in certain circumstances make more difficult or discourage a takeover of Holding, and, thus, the removal of incumbent management. The Change of Control purchase feature, however, is not the result of management's knowledge of any specific effort to accumulate Holding's stock or to obtain control of Holding by means of a merger, tender offer, solicitation or otherwise, or part of a plan by management to adopt a series of anti-takeover provisions. Instead, the Change of Control purchase feature is a result of negotiations between the Company and the initial purchasers. Management has no present intention to engage in a transaction involving a Change of Control, although it is possible that Holding would decide to do so in the future. Subject to the limitations discussed below, Holding could, in the future, enter into certain transactions including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect Holding's capital structure or credit ratings. 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 ndenture 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. ASSET SALES The Company will not, and will not permit any of its Restricted Subsidiaries to, conduct an Asset Sale unless: (1) the Company, or the Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of; (2) such fair market value is determined by the Company's Board of Directors and evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the trustee no later than immediately prior to the consummation of such proposed Asset Sale with respect to any Asset Sale involving aggregate payments in excess of $2.0 million; and (3) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash. For purposes of this provision, each of the following shall be deemed to be cash: (a) any liabilities, as shown on the Company's or such Restricted Subsidiary's most recent balance sheet or in the notes thereto, of the Company or any Restricted Subsidiary, other than liabilities that are by their terms subordinated to the notes or any note guarantee, that are assumed by the transferee of any such assets; and 75 (b) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are immediately converted by the Company or such Restricted Subsidiary into cash, to the extent of the cash received. Within 180 days after any Asset Sale, the Company may apply the Net Proceeds from such Asset Sale to either: (1) permanently reduce Senior Indebtedness; or (2) make an investment in another business, make a capital expenditure or acquire other long-term tangible assets, in each case, in the same or a similar line of business as the Company or any Restricted Subsidiary was engaged in on the date of the indenture. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Bank Indebtedness or otherwise invest such Net Proceeds in Cash Equivalents. Any Net Proceeds from the Asset Sale that are not applied or invested as provided in the preceding paragraph will constitute "excess proceeds." If the aggregate amount of excess proceeds exceeds $5.0 million, upon completion of the Asset Sale offers required under the 1994 indenture and the 1998 indenture, the Company will make an Asset Sale offer to all holders of notes and all holders of other Indebtedness that is PARI PASSU with the notes containing provisions similar to those set forth in the indenture with respect to offers to purchase or redeem with the proceeds of sales of assets to purchase the maximum principal amount of notes and such other PARI PASSU Indebtedness, that is in an integral multiple of $1,000, that may be purchased out of the excess proceeds, if any, remaining upon completion of the Asset Sale offers required under the 1994 indenture and the 1998 indenture. The offer price in any Asset Sale offer will be equal to 100% of the principal amount thereof plus accrued and unpaid interest and liquidated damages, if any, to the date of purchase, and will be payable in cash. If the aggregate amount of notes and such other PARI PASSU Indebtedness tendered pursuant to an Asset Sale offer is less than the excess proceeds, the Company may use such deficiency for general corporate purposes. If the aggregate principal amount of notes and such other PARI PASSU Indebtedness surrendered by holders into such Asset Sale offer exceeds the amount of excess proceeds, the trustee shall select the notes and such other PARI PASSU Indebtedness to be purchased in the manner described under the caption "--Selection and Notice" below. Upon completion of each Asset Sale offer, the amount of excess proceeds shall be reset to zero. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions 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 Asset Sale provisions of the indenture by virtue of such conflict. The Credit Facility restricts the Company from purchasing any notes prior to the termination thereof and provides that certain change of control events with respect to Holding and asset sales would constitute a default thereunder. Any future credit agreements or other agreements relating to Senior Indebtedness to which the Company becomes a party may contain similar or more restrictive provisions. In the event a Change of Control or Asset Sale occurs at a time when the Company is prohibited from purchasing notes, the Company could seek the consent of its lenders to the purchase of notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing notes. In such case, the Company's failure to purchase tendered notes would constitute an Event of Default under the indenture which would, in turn, constitute a default under the Credit Facility. In such circumstances, the subordination provisions in the indenture would likely restrict payments to the holders of notes. SELECTION AND NOTICE If less than all of the notes are to be purchased in an Asset Sale offer or redeemed at any time, the trustee will select notes for purchase or redemption as follows: 76 (1) if the notes are listed, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or (2) if the notes are not so listed, on a pro rata basis, by lot or by such method as the trustee shall deem fair and appropriate. No notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the purchase or redemption date to each holder of notes to be purchased or redeemed at its registered address. Notices of purchase or redemption may not be conditional. If any note is to be purchased or redeemed in part only, the notice of redemption that relates to that note shall state the portion of the principal amount thereof to be purchased or redeemed. A new note in principal amount equal to the unpurchased or unredeemed portion of the original note will be issued in the name of the holder thereof upon cancellation of the original note. Notes called for purchase or redemption become due on the date fixed for purchase or redemption. On and after the purchase or redemption date, interest ceases to accrue on notes or portions of them called for redemption. NOTE GUARANTEES The Guarantors will jointly and severally guarantee the Company's obligations under the notes. Each note guarantee will be subordinated to the prior payment in full of all Senior Indebtedness of that Guarantor. The obligations of each Guarantor under its note guarantee will be limited as necessary to prevent that note guarantee from constituting a fraudulent conveyance under applicable law. See "Risk Factors--Under specific circumstances, the notes and guarantees of the notes may be voided." A Guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into, whether or not such Guarantor is the surviving Person, another Person, other than the Company or another Guarantor, unless subject to the provisions of the following paragraph and certain other provisions of the indenture: (1) immediately after giving effect to that transaction, no Default or Event of Default exists; and (2) in the case of any Guarantor other than Holding, the Person acquiring the property in such sale or disposition or the Person formed by or surviving any such consolidation or merger will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "--Incurrence of Indebtedness and Issuance of Disqualified Stock." The guarantee of a Guarantor will be released: (1) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor, other than Holding, by way of merger or consolidation or otherwise, to a Person that is not, either before or after giving effect to such transaction, a Subsidiary of the Company, if the Guarantor applies the Net Proceeds of that sale or other disposition in accordance with the "Asset Sale" provisions of the indenture; (2) in connection with the sale or other disposition of all of the Capital Stock of any Guarantor to a Person that is not, either before or after giving effect to such transaction, a Subsidiary of the Company, if the Company applies the Net Proceeds of that sale or other disposition in accordance with the "Asset Sale" provisions of the indenture; or 77 (3) if the Company properly designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary in accordance with the provisions described below under "--Certain Covenants--Designation of Restricted Subsidiaries and Unrestricted Subsidiaries." See "--Repurchase at the Option of Holders--Asset Sales." SUBORDINATION The payment of principal of, premium, if any, interest and liquidated damages, if any, on the notes will be subordinated in right of payment to the prior payment in full of all Senior Indebtedness of the Company, including Senior Indebtedness of the Company incurred after the date of the indenture. The holders of Senior Indebtedness of the Company will be entitled to receive payment in full of all Obligations due in respect of Senior Indebtedness, including interest after the commencement of any bankruptcy proceeding at the rate specified in the applicable Senior Indebtedness of the Company, whether or not such interest was an allowed claim, before the holders of notes will be entitled to receive any payment with respect to the notes, except that holders of notes may receive and retain Permitted Junior Securities and payments made from the trust described under "--Legal Defeasance and Covenant Defeasance", in the event of any distribution to creditors of the Company: (1) in a liquidation or dissolution of the Company; (2) in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property; (3) in an assignment for the benefit of creditors; or (4) in any marshaling of the Company's assets and liabilities. The Company also may not make any payment in respect of the notes, except in Permitted Junior Securities or from the trust described under "--Legal Defeasance and Covenant Defeasance", if: (1) a default in the payment, when due, whether upon acceleration or otherwise, of the principal, premium, if any, or interest on any Senior Indebtedness of the Company occurs and is continuing; or (2) any other default occurs and is continuing on any series of Designated Senior Indebtedness and the trustee receives a notice of such default from the Company or from, or on behalf of, the holders of any Designated Senior Indebtedness. Payments on the notes may and shall be resumed: (1) in the case of a payment default, upon the date on which such default is cured or waived; and (2) in the case of a nonpayment default, on the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable payment blockage notice is received, unless the maturity of any such Designated Senior Indebtedness has been accelerated. No new period of payment blockage may be commenced within 365 days after the receipt by the trustee of any prior payment blockage notice. If the trustee or any holder of the notes receives a payment in respect of the notes, except in Permitted Junior Securities or from the trust described under "--Legal Defeasance and Covenant Defeasance", when: (1) the payment is prohibited by these subordination provisions; and 78 (2) the trustee or the holder has actual knowledge that the payment is prohibited; the trustee or the holder, as the case may be, shall hold the payment in trust for the benefit of the holders of Senior Indebtedness. Upon the proper written request of the holders of Senior Indebtedness, the trustee or the holder, as the case may be, shall deliver the amounts in trust to the holders of Senior Indebtedness or their proper representative. The Company must promptly notify each representative of holders of Senior Indebtedness of the Company if payment of the notes is accelerated because of an Event of Default. As a result of the subordination provisions described above, in the event of a bankruptcy, liquidation or reorganization of the Company, holders of notes may recover less, ratably, than creditors of the Company who are holders of Senior Indebtedness or of other indebtedness which is not subordinated to the notes. See "Risk Factors." Holders of Senior Indebtedness are third party beneficiaries of the subordination provisions of the indenture and no amendment thereof shall be effected without the prior written consent of the holders of a majority of the outstanding principal amount of Senior Indebtedness. CERTAIN COVENANTS RESTRICTED PAYMENTS The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests, other than dividends or distributions payable in Equity Interests of the Person making such dividend or distribution, other than Disqualified Stock; or dividends or distributions payable to the Company or any Wholly Owned Restricted Subsidiary of the Company that is a Guarantor; (2) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Restricted Subsidiary or other Affiliate of the Company, other than any such Equity Interests owned by the Company or any Wholly Owned Restricted Subsidiary of the Company that is a Guarantor; (3) purchase, redeem or otherwise acquire or retire for value any Indebtedness that is subordinated to the notes or the note guarantees, except a payment of interest or principal at the Stated Maturity, other than intercompany Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries that is a Guarantor; (4) directly or indirectly make any loan or advance to, or make any other payment to, Holding; or (5) make any Restricted Investment (all such payments and other actions set forth in clauses (1) through (5) above being collectively referred to as "Restricted Payments"), unless, at the time of such Restricted Payment: (1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (2) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant described below under the caption "--Incurrence of Indebtedness and Issuance of Disqualified Stock;" and 79 (3) such restricted payment, together with the aggregate amount of all other restricted payments made by the Company and its Restricted Subsidiaries after the date of the indenture, excluding restricted payments permitted by clauses (2), (3), (5), (6) and (7) of the next succeeding paragraph, is less than the sum, without duplication, of: (a) 50% of the Consolidated Net Income and Consolidated Step-Up Depreciation and Amortization of the Company for the period, taken as one accounting period, from the beginning of the first fiscal quarter commencing after the date of the indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment, or, if such Consolidated Net Income plus Consolidated Step-Up Depreciation and Amortization for such period is a deficit, less 100% of such deficit; PLUS (b) 100% of the aggregate net cash proceeds received by the Company since the date of the indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company, other than Disqualified Stock, or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests, other than Equity Interests or Disqualified Stock or debt securities sold to a Subsidiary of the Company; PLUS (c) to the extent that any Restricted Investment that was made after the date of the indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment, less the cost of disposition, if any and (ii) the initial amount of such Restricted Investment. The preceding provisions will not prohibit: (1) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the indenture; (2) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness of the Company or any Guarantor or of any Equity Interests of the Company in exchange for, or out of the net cash proceeds of, the substantially concurrent sale, other than to a Restricted Subsidiary of the Company, of other Equity Interests of the Company, other than Disqualified Stock; PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (3) (b) of the preceding paragraph; (3) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of the Company or any Guarantor in a Permitted Refinancing; (4) a Restricted Payment to Holding pursuant to the Tax Sharing Agreement as the same may be amended from time to time in a manner that is not materially adverse to the Company; (5) a Restricted Payment to Holding to pay its operating and administrative expenses including, without limitation, directors fees, legal and audit expenses, Commission compliance expenses and corporate franchise and other taxes, in an aggregate amount not to exceed $500,000 in any fiscal year; (6) a Restricted Payment to Holding to pay management fees in an aggregate amount not to exceed $750,000 in any fiscal year of the Company; 80 (7) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; (8) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of Holding from any current or former employee of Holding, the Company or any Subsidiary of the Company; PROVIDED, HOWEVER, that (a) the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $1.0 million in any fiscal year, net of cash proceeds received from the sale of Equity Interests to employees and (b) no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (9) Investments by the Company in joint ventures or similar projects in a business similar to that conducted by the Company and its Restricted Subsidiaries on the date of the indenture in an aggregate amount not to exceed $5.0 million; (10)a Restricted Payment to Holding to pay cash interest payments on Holding's 12 1/2% Senior Secured Notes due 2006 and on any Refinancing Indebtedness incurred to refund, refinance or replace Holding's 12 1/2% Senior Secured Notes due 2006 in a Permitted Refinancing; and (11)other Restricted Payments in an aggregate amount not to exceed $5.0 million since the date of the indenture. The amount of all Restricted Payments other than cash shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued to or by the Company or its 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 shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the trustee if the fair market value exceeds $1.0 million. The Board of Directors' determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $5.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant entitled "Restricted Payments" were computed, which calculations may be based upon the Company's latest available financial statements. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to (collectively, "incur" and correlatively, an "incurrence" of) any Indebtedness, including Acquired Debt, and the Company will not issue any, and will not permit any of its Subsidiaries to issue any, shares of Disqualified Stock; PROVIDED, HOWEVER, that the Company and its Subsidiaries may incur Indebtedness, including Acquired Debt, or issue Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.25 to 1, determined on a pro forma basis, including a pro forma application of the net proceeds therefrom and including the pro forma earnings of any business acquired by the Company or any of its Subsidiaries with the proceeds therefrom, as if the additional Indebtedness had been incurred or Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): 81 (1) the incurrence by the Company and its Restricted Subsidiaries of term Indebtedness, revolving credit Indebtedness and letters of credit under the Credit Facility in an aggregate principal amount at any one time outstanding under this clause (1) not to exceed the greater of: (a) $150.0 million in principal amount, with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company thereunder, less the aggregate amount of all Net Proceeds of Asset Sales that have been applied by the Company or any of its Restricted Subsidiaries since the date of the indenture to repay any term Indebtedness under a Credit Facility pursuant to the covenant described above under the caption "--Repurchase at the Option of Holders--Asset Sales;" and (b) the Borrowing Base; (2) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (3) the incurrence by the Company and the Guarantors of Indebtedness represented by the notes and the guarantees thereof issued on the date of the indenture and the exchange notes and the guarantees thereof to be issued pursuant to the registration rights agreement; (4) the incurrence by the Company or any Restricted Subsidiary of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, including all Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (4) in a Permitted Refinancing, not to exceed $10.0 million at any time outstanding; (5) the incurrence by the Company or any of its Restricted Subsidiaries of Refinancing Indebtedness; PROVIDED, HOWEVER, that such Refinancing Indebtedness is a Permitted Refinancing; (6) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries that is a Guarantor; PROVIDED, HOWEVER, that: (a) if the Company or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the notes, in the case of the Company, or the note guarantee, in the case of a Guarantor; and (b) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary thereof and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary that is a Guarantor thereof; shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); (7) the incurrence by the Company of Indebtedness between the Company and Holding; PROVIDED that the advances evidenced by such Indebtedness are permitted under the covenant described above under the caption "--Restricted Payments;" (8) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of the indenture to be outstanding; and 82 (9) the guarantee by the Company or any of the Guarantors of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; (10)the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Debt; PROVIDED, HOWEVER, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (10). (11)the accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; PROVIDED, in each such case, that the amount thereof is included in Fixed Charges of the Company as accrued; and (12)the incurrence by the Company or its Restricted Subsidiaries of Indebtedness, in addition to Indebtedness permitted by any other clause of this paragraph, in an aggregate principal amount, including all Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (12) in a Permitted Refinancing, not to exceed the sum of $25.0 million at any time outstanding. The Company will not incur any Indebtedness, including Permitted Debt, that is contractually subordinated in right of payment to any other Indebtedness of the Company unless such Indebtedness is also contractually subordinated in right of payment to the notes on substantially identical terms; PROVIDED, however, that no Indebtedness of the Company shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company solely by virtue of being unsecured. For purposes of determining compliance with this "Incurrence of Indebtedness and Disqualified Stock" covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (12) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this covenant. LIENS The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any Lien of any kind securing Indebtedness or trade payables on any asset now owned or hereafter acquired, except Permitted Liens. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Restricted Subsidiaries; (2) make loans or advances to the Company or any of its Restricted Subsidiaries; or (3) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. 83 However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reasons of: (1) Existing Indebtedness as in effect on the date of the indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, PROVIDED that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive with respect to such dividend and other payment restrictions than those contained in such Existing Indebtedness, as in effect on the date of the indenture; (2) the indenture governing the 1994 notes, the 1994 notes and the guarantees thereof, the indenture governing the 1998 notes, the 1998 notes and the guarantees thereof; (3) the indenture governing the 1999 notes, the 1999 notes and the guarantees thereof; (4) applicable law; (5) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition, except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, PROVIDED that the Consolidated Cash Flow of such Person, to the extent of such restriction, is not taken into account in determining whether such acquisition was permitted by the terms of the indenture; (6) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices; (7) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the property so acquired of the nature described in clause (3) of the preceding paragraph; and (8) Refinancing Indebtedness that is a Permitted Refinancing, PROVIDED that the restrictions contained in the agreements governing such Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. MERGER, CONSOLIDATION OR SALE OF ASSETS The Company may not: (1) consolidate or merge with or into another Person, whether or not the Company is the surviving corporation; or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless, in each case: (a) the Company is the surviving corporation; or the Person formed by or surviving any such consolidation or merger, if other than the Company, or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; 84 (b) the Person formed by or surviving any such consolidation or merger, if other than the Company, or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company pursuant to agreements reasonably satisfactory to the trustee, under the notes, the indenture and the registration rights agreement; (c) immediately after such transaction no Default or Event of Default exists; and (d) the Company or any Person formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "--Incurrence of Indebtedness and Issuance of Disqualified Stock." TRANSACTIONS WITH AFFILIATES The Company will not, and will not permit any of its Restricted Subsidiaries to sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (1) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with a Person who was not an Affiliate; and (2) the Company delivers to the trustee: (a) with respect to any Affiliate Transaction involving aggregate payments in excess of $2.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction is approved by a majority of the Board of Directors; and (b) with respect to any Affiliate Transaction involving aggregate payments in excess of $5.0 million, an opinion as to the fairness to the holders from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: (1) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary; (2) transactions between or among Holding, the Company and/or its Restricted Subsidiaries; (3) payment of reasonable directors fees to Persons who are not otherwise Affiliates of the Company; (4) Restricted Payments that are permitted by the provisions of the indenture described above under the caption "--Restricted Payments;" and (5) the payment of annual fees and expenses to First Atlantic, PROVIDED that such payment is permitted by the provisions of the indenture described above under the caption "--Restricted Payments". 85 NO SENIOR SUBORDINATED INDEBTEDNESS The Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Indebtedness of the Company and senior in any respect in right of payment to the notes. No Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to its Senior Indebtedness and senior in any respect in right of payment to its note guarantee. ADDITIONAL NOTE GUARANTEES If the Company or any of its Subsidiaries transfers or causes to be transferred, in one or a series of related transactions, other than a transaction or series of related transactions constituting a Restricted Payment permitted by the provisions of the covenant described above under the caption "--Restricted Payments," any assets, businesses, divisions, real property or equipment having a book value in excess of $1.0 million to any Subsidiary that is not a Guarantor or if the Company or any of its Subsidiaries shall acquire another Domestic Restricted Subsidiary having total assets with a book value in excess of $1.0 million or Consolidated Cash Flow in excess of $1.0 million, then such transferee or acquired Subsidiary, if other than a Subsidiary that has been properly designated as an Unrestricted Subsidiary in accordance with the terms of the indenture, shall execute a note guarantee and deliver an opinion of counsel as to the enforceability of such note guarantee, in accordance with the terms of the indenture. DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary so designated will be deemed to be an Investment made as of the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of the covenant described above under the caption "--Restricted Payments" or Permitted Investments, as applicable. That designation will only be permitted if such Restricted Payment would be permitted at that time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a Default. REPORTS Whether or not required by the rules and regulations of the Commission, so long as any notes are outstanding, the Company will furnish to the trustee and to all holders of notes, within the time periods specified in the Commission's rules and regulations all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report on the annual financial statements by the Company's certified independent accountants. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and any other information required by Section 13 or 15(d) of the Exchange Act with the Commission for public availability within the time periods specified in the Commission's rules and regulations, unless the Commission will not accept such a filing, and file such information with the trustee and make such information available to investors who request it in writing. Notwithstanding the foregoing, to the extent permitted under the rules and regulations of the Commission, the Company may instead supply such information with respect to Holding. In addition, the Company and the Guarantors have agreed that, for so long as any notes remain outstanding, they will furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraphs shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and 86 Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. EVENTS OF DEFAULT AND REMEDIES Each of the following is an Event of Default: (1) default for 30 days in the payment when due of interest and liquidated damages, if any, on the notes, whether or not prohibited by the subordination provisions of the indenture; (2) default in payment when due of the principal of, or premium, if any, on the notes, whether or not prohibited by the subordination provisions of the indenture; (3) failure by the Company to comply with the provisions described under the captions "--Repurchase at the Option of Holders--Change of Control," "--Repurchase at the Option of Holders--Asset Sales," "--Certain Covenants--Restricted Payments" and "--Certain Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock;" (4) failure by the Company or the Guarantors for 60 days after notice to comply with any of the other agreements in the indenture or the notes; (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company, Holding or any of their respective Subsidiaries, or the payment of which is guaranteed by the Company, Holding or any of their respective Subsidiaries, whether such Indebtedness or guarantee now exists, or is created after the date of the indenture, if that default: (a) is caused by a failure to pay principal of, premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness; or (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates $2.0 million or more (6) failure by the Company, Holding or any of their respective Subsidiaries to pay final judgments aggregating in excess of $2.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (7) except as permitted by the indenture, any note guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or its successors or assigns, or any Person acting on behalf of any Guarantor or its successors or assigns, shall deny or disaffirm its obligations or shall fail to comply with any obligations under its note guarantee; and (8) certain events of bankruptcy or insolvency with respect to the Company, Holding or any of their respective Subsidiaries. In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, Holding or any of their respective Subsidiaries, all outstanding notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the then outstanding notes may declare all the notes to be due and 87 payable immediately; PROVIDED, HOWEVER, that if any Indebtedness is outstanding pursuant to the Credit Facility, upon a declaration of acceleration, the principal and interest on the notes shall be payable upon the earlier of: o the day which is five business days after notice of acceleration is given to the Company and the lender under the Credit Facility; or o the date of acceleration of the Indebtedness under the Credit Facility. Under certain circumstances, the holders of at least a majority in aggregate principal amount of the outstanding notes may rescind any acceleration with respect to the notes and its consequences. holders of the notes may not enforce the indenture or the notes except as provided in the indenture. Subject to certain limitations, holders of a majority in principal amount of the then outstanding notes may direct the trustee in its exercise of any trust or power. The trustee may withhold from holders of the notes notice of any continuing Default or Event of Default, except a Default or Event of Default relating to the payment of principal or interest or liquidated damages, if it determines that withholding notice is in their interest. The holders of not less than a majority in aggregate principal amount of the notes then outstanding by notice to the trustee may on behalf of the holders of all of the notes waive any existing Default or Event of Default and its consequences under the indenture except a continuing Default or Event of Default in the payment of interest or liquidated damages on, or the principal of, any note held by a non-consenting holder. In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the notes pursuant to the optional redemption provisions of the indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the notes. If an Event of Default occurs prior to July 15, 2003, by reason of any willful action taken or not taken by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the notes prior to July 15, 2003, then the premium specified in the indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the notes. The Company is required to deliver to the trustee annually a statement regarding compliance with the indenture. Upon becoming aware of any Default or Event of Default, the Company is required to deliver to the trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the notes, the indenture, the note guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of notes by accepting a note and the note guarantees waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes and the note guarantees. The waiver may not be effective to waive liabilities under the federal securities laws. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding notes and all obligations of the Guarantors discharged with respect to their note guarantees except for: (1) the rights of holders of outstanding notes to receive payments in respect of the principal of, and premium, if any, interest and liquidated damages, if any, on such notes when such payments are due; 88 (2) the Company's and the Guarantors' obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust; (3) the rights, powers, trusts, duties and immunities of the trustee, and the Company's and the Guarantors' obligations in connection therewith; and (4) the legal defeasance provisions of the indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and the Guarantors released with respect to certain covenants that are described in the indenture and thereafter any omission to comply with those covenants shall not constitute a Default or Event of Default with respect to the notes. In the event covenant defeasance occurs, certain events, not including nonpayment, bankruptcy, receivership, rehabilitation and insolvency events, described under "--Events of Default and Remedies" will no longer constitute an Event of Default with respect to the notes. In order to exercise either legal defeasance or covenant defeasance: (1) the Company must irrevocably deposit with the trustee, in trust, for the benefit of the holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, and premium, if any, interest and liquidated damages, if any, on the outstanding notes on the stated maturity or on the applicable redemption date, as the case may be, of such principal or installment of principal of, or premium, if any, interest or liquidated damages, if any on the outstanding notes; (2) in the case of legal defeasance, the Company shall have delivered to the trustee an Opinion of Counsel reasonably acceptable to the trustee confirming that (d) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (e) since the date of the indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the holders of the outstanding notes will not recognize income, gain or loss for Federal income tax purposes as a result of such legal defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred; (3) in the case of covenant defeasance, the Company shall have delivered to the trustee an Opinion of Counsel reasonably acceptable to the trustee confirming that the holders of the outstanding notes will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (4) no Default or Event of Default shall have occurred and be continuing either (a) on the date of such deposit, other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the notes pursuant to the terms of the indenture concurrently with such incurrence; or 89 (b) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the day on which all applicable preference periods have run; (5) such legal defeasance or covenant defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument, other than the indenture, to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (6) the Company shall have delivered to the trustee an Opinion of Counsel to the effect that, assuming no intervening bankruptcy of the Company or any Guarantor between the date of deposit and the day on which all applicable preferences have run and assuming that no holder is an "insider" of the Company under applicable bankruptcy law, after the day on which all applicable preferences have run, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (7) the Company shall have delivered to the trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the holders of notes over the other creditors of the Company or the Guarantors with the intent of defeating, hindering, delaying or defrauding creditors of the Company or the Guarantors; and (8) the Company shall have delivered to the trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the legal defeasance or the covenant defeasance have been complied with. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next succeeding paragraphs, the indenture or the notes may be amended or supplemented with the consent of the holders of at least a majority in principal amount of the notes then outstanding, including consents obtained in connection with a tender offer or exchange offer for notes, and any existing Default or compliance with any provision of the indenture or the notes may be waived with the consent of the holders of at least a majority in principal amount of the then outstanding notes, including consents obtained in connection with a tender offer or exchange offer for notes. Without the consent of each holder affected, an amendment or waiver may not, with respect to any notes held by a non-consenting holder of notes: (1) reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any note or alter or waive the provisions with respect to the redemption of the notes; (3) reduce the rate of or change the time for payment of interest on any note; (4) waive a Default or Event of Default in the payment of principal of, or premium, if any, interest or liquidated damages, if any, on the notes, except a rescission of acceleration of the notes by the holders of at least a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration; (5) make any note payable in money other than that stated in the notes; (6) make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of holders of notes to receive payments of principal of, or premium, if any, interest or liquidated damages, if any, on the notes; 90 (7) waive a redemption payment with respect to any note; (8) make any change to the subordination provisions of the indenture that adversely affects holders; (9) release any Guarantor from any of its obligations under its note guarantee or the indenture, except in accordance with the terms of the indenture or change any note guarantee in any manner that would adversely affect holders; or (10) make any change in the foregoing amendment and waiver provisions. Notwithstanding the foregoing, without the consent of any holder of notes, the Company, the Guarantors and the trustee may amend or supplement the indenture or the notes: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated notes in addition to or in place of certificated notes; (3) to provide for the assumption of the Company's or any Guarantor's obligations to holders of the notes in the case of a merger or consolidation or sale of all or substantially all of the Company's assets; (4) to make any change that would provide any additional rights or benefits to the holders of the notes, including providing for additional note guarantees pursuant to the provisions described above under the caption "--Certain Covenants--Additional Note Guarantees," or that does not adversely affect the legal rights under the indenture of any such holder; (5) to provide for the issuance of additional notes in accordance with the provisions of the indenture; or (6) to comply with requirements of the Commission in order to effect or maintain the qualification of the indenture under the Trust Indenture Act. CONCERNING THE TRUSTEE If the trustee becomes a creditor of the Company, the Guarantors or any Affiliate of the Company or the Guarantors, the indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The holders of a majority in principal amount of the then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the trustee, subject to certain exceptions. The indenture provides that in case an Event of Default shall occur and be continuing, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any holder of notes, unless such holder shall have offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense. ADDITIONAL INFORMATION Anyone who receives this prospectus may obtain a copy of the indenture and registration rights agreement without charge by writing to Berry Plastics Corporation, 101 Oakley Street, Evansville, Indiana 47710, Attention: Corporate Secretary. 91 BOOK-ENTRY; DELIVERY AND FORM The exchange notes will initially be represented by one or more permanent global notes in definitive, fully registered book-entry form, without interest coupons that will be deposited with, or on behalf of, the Depository Trust Company and registered in the name of DTC or its nominee, on behalf of the acquirers of exchange notes represented thereby for credit to the respective accounts of the acquirers, or to such other accounts as they may direct, at DTC, or Morgan Guaranty Trust Company of New York, Brussels Office, as operator of the Euroclear System, or Cedel Bank, societe anonyme. See "The Exchange Offer--Book Entry Transfer". Except as set forth below, the global notes may be transferred, in whole and not in part, solely to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the global notes may not be exchanged for notes in physical, certificated form except in the limited circumstances described below. All interests in the global notes, including those held through Euroclear or Cedel, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Cedel may also be subject to the procedures and requirements of such systems. DEPOSITORY PROCEDURES The following description of the operations and procedures of DTC, Euroclear and Cedel are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. The Company takes no responsibility for these operations and procedures and urges investors to contact the system or their participants directly to discuss these matters. DTC has advised the Company that DTC is a limited-purpose trust company created to hold securities for its participating organizations and to facilitate the clearance and settlement of transactions in those securities between participants through electronic book-entry changes in accounts of its participants. The participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly. Persons who are not participants may beneficially own securities held by or on behalf of DTC only through the participants or the indirect participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the participants and indirect participants. DTC has also advised the Company that, pursuant to procedures established by it: o upon deposit of the global notes, DTC will credit the accounts of participants designated by the trustee with portions of the principal amount of the global notes; and o ownership of these interests in the global notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC, with respect to the participants, or by the participants and the indirect participants, with respect to other owners of beneficial interest in the global notes. All interests in a global note, including those held through Euroclear or Cedel, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Cedel may also be subject to the procedures and requirements of such systems. The laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a global note to such Persons will be limited to that extent. Because DTC can act only on behalf of participants, which in turn act on behalf of indirect participants, the ability of a Person having beneficial interests in a global note to pledge such interests to Persons that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. 92 EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR "HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE. Payments in respect of the principal of, and interest and premium and liquidated damages, if any, on a global note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered holder under the indenture. Under the terms of the indenture, the Company and the trustee will treat the Persons in whose names the notes, including the global notes, are registered as the owners thereof for the purpose of receiving payments and for all other purposes. Consequently, neither the Company, the trustee nor any agent of the Company or the trustee has or will have any responsibility or liability for: (1) any aspect of DTC's records or any participant's or indirect participant's records relating to or payments made on account of beneficial ownership interest in the global notes or for maintaining, supervising or reviewing any of DTC's records or any participant's or indirect participant's records relating to the beneficial ownership interests in the global notes; or (2) any other matter relating to the actions and practices of DTC or any of its participants or indirect participants. DTC has advised the Company that its current practice, upon receipt of any payment in respect of securities such as the notes, including principal and interest, is to credit the accounts of the relevant participants with the payment on the payment date unless DTC has reason to believe it will not receive payment on such payment date. Each relevant participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the participants and the indirect participants to the beneficial owners of notes will be governed by standing instructions and customary practices and will be the responsibility of the participants or the indirect participants and will not be the responsibility of DTC, the trustee or the Company. Neither the Company nor the trustee will be liable for any delay by DTC or any of its participants in identifying the beneficial owners of the notes, and the Company and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes. Transfers between participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds, and transfers between participants in Euroclear and Cedel will be effected in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the notes described herein, cross-market transfers between the participants in DTC, on the one hand, and Euroclear or Cedel participants, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case may be, by its respective depositary; however, such cross- market transactions will require delivery of instructions to Euroclear or Cedel, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Cedel, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant global note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Cedel participants may not deliver instructions directly to the depositories for Euroclear or Cedel. DTC has advised the Company that it will take any action permitted to be taken by a holder of notes only at the direction of one or more participants to whose account DTC has credited the interests in the global notes and only in respect of such portion of the aggregate principal amount of the notes as to which such participant or participants has or have given such direction. however, if there is an Event of Default under the notes, DTC reserves the right to exchange the global notes for legended notes in certificated form, and to distribute such notes to its participants. Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to facilitate transfers of interests in the global notes among participants in DTC, Euroclear and Cedel, they are under no obligation to perform or to continue to perform such procedures, and may discontinue such procedures at any time. Neither the 93 Company nor the trustee nor any of their respective agents will have any responsibility for the performance by DTC, Euroclear or Cedel or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES A global note is exchangeable for definitive notes in registered certificated form if: (1) DTC notifies the Company that it is unwilling or unable to continue as depositary for the global notes and the Company fails to appoint a successor depositary or DTC has ceased to be a clearing agency registered under the Exchange Act; (2) the Company, at its option, notifies the trustee in writing that it elects to cause the issuance of the certificated notes; or (3) there shall have occurred and be continuing a Default or Event of Default with respect to the notes. in addition, beneficial interests in a global note may be exchanged for certificated notes upon prior written notice given to the trustee by or on behalf of DTC in accordance with the indenture. in all cases, certificated notes delivered in exchange for any global note or beneficial interests in global notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary, in accordance with its customary procedures. REGISTRATION RIGHTS; LIQUIDATED DAMAGES The following description is a summary of the material provisions of the registration rights agreement. it does not restate that agreement in its entirety. We urge you to read the proposed form of registration rights agreement in its entirety because it, and not this description, defines your registration rights as holders of these notes. See "--Additional Information." The Company, the Guarantors and the initial purchasers entered into the registration rights agreement on July 6, 1999. Pursuant to the registration rights agreement, the Company and the Guarantors agreed to file with the commission the exchange offer registration statement on the appropriate form under the Securities Act with respect to the exchange notes. Upon the effectiveness of the exchange offer registration statement, the Company and the Guarantors will offer to the holders of transfer restricted securities pursuant to the exchange offer who are able to make certain representations the opportunity to exchange their transfer restricted securities for exchange notes. If: (1) the Company and the Guarantors are not (a) required to file the exchange offer registration statement; or (b) permitted to consummate the exchange offer because the exchange offer is not permitted by applicable law or Commission policy; or (2) any holder of transfer restricted securities notifies the Company prior to the 20th day following consummation of the exchange offer that: (a) it is prohibited by law or Commission policy from participating in the exchange offer; or (b) that it may not resell the exchange notes acquired by it in the exchange offer to the public without delivering a prospectus and the prospectus contained in the exchange offer registration statement is not appropriate or available for such resales; or 94 (c) that it is a broker-dealer and owns notes acquired directly from the Company or an affiliate of the Company, the Company and the Guarantors will file with the Commission a shelf registration statement to cover resales of the outstanding notes by the holders thereof who satisfy certain conditions relating to the provision of information in connection with the shelf registration statement. The Company and the Guarantors will use their best efforts to cause the applicable registration statement to be declared effective as promptly as possible by the Commission. For purposes of the foregoing, "transfer restricted securities" means each outstanding note, together with any guarantees thereof, until: (1) the date on which such outstanding note has been exchanged by a Person other than a broker-dealer for an exchange note in the exchange offer; (2) following the exchange by a broker-dealer in the exchange offer of an outstanding note for an exchange note, the date on which such exchange note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the exchange offer registration statement; (3) the date on which such outstanding note has been effectively registered under the Securities Act and disposed of in accordance with the shelf registration statement; or (4) the date on which such outstanding note is distributed to the public pursuant to Rule 144 under the Securities Act. The registration rights agreement will provide: (1) the Company and the Guarantors will file an exchange offer registration statement with the Commission on or prior to 45 days after the date of the indenture; (2) the Company and the Guarantors will use their best efforts to have the exchange offer registration statement declared effective by the Commission on or prior to 210 days after the date of the indenture; (3) unless the exchange offer would not be permitted by applicable law or Commission policy, the Company and the Guarantors will (a) commence the exchange offer; and (b) use their best efforts to issue on or prior to 30 business days, or longer, if required by the Federal securities laws, after the date on which the exchange offer registration statement was declared effective by the Commission, exchange notes in exchange for all outstanding notes tendered prior thereto in the exchange offer; and (4) if obligated to file the shelf registration statement, the Company and the Guarantors will use their best efforts to file the shelf registration statement with the Commission on or prior to 45 days after such filing obligation arises and to cause the shelf registration to be declared effective by the Commission on or prior to 90 days after such obligation arises. If: (1) the Company and the Guarantors fail to file any of the registration statements required by the registration rights agreement on or before the date specified for such filing; or 95 (2) any of such registration statements is not declared effective by the Commission on or prior to the date specified for such effectiveness; or (3) the Company and the Guarantors fail to consummate the exchange offer within 30 business days of the date specified for effectiveness with respect to the exchange offer registration statement; or (4) the shelf registration statement or the exchange offer registration statement is declared effective but thereafter ceases to be effective or usable in connection with resales of transfer restricted securities during the periods specified in the registration rights agreement (each such event referred to in clauses (1) through (4) above, a "registration default"), then the Company and the Guarantors will pay liquidated damages to each holder of outstanding notes, with respect to the first 90-day period immediately following the occurrence of the first registration default in an amount equal to $.05 per week per $1,000 principal amount of outstanding notes held by such holder. The amount of the liquidated damages will increase by an additional $.05 per week per $1,000 principal amount of outstanding notes with respect to each subsequent 90-day period until all registration defaults have been cured, up to a maximum amount of liquidated damages for all registration defaults of $.50 per week per $1,000 principal amount of outstanding notes. All accrued liquidated damages will be paid by the Company and the Guarantors on each damages payment date to the global note holder by wire transfer of immediately available funds or by Federal funds check and to holders of certificated notes by wire transfer to the accounts specified by them or by mailing checks to their registered addresses if no such accounts have been specified. Following the cure of all registration defaults, the accrual of liquidated damages will cease. Holders of outstanding notes will be required to make certain representations to the Company and the Guarantors as described in the registration rights agreement in order to participate in the exchange offer and will be required to deliver certain information to be used in connection with the shelf registration statement and to provide comments on the shelf registration statement within the time periods set forth in the registration rights agreement in order to have their outstanding notes included in the shelf registration statement and benefit from the provisions regarding liquidated damages set forth above. By acquiring transfer restricted securities, a holder will be deemed to have agreed to indemnify the Company and the Guarantors against certain losses arising out of information furnished by such holder in writing for inclusion in any shelf registration statement. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "ACQUIRED DEBT" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person; and (2) Indebtedness encumbering any asset acquired by such specified Person. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; PROVIDED, HOWEVER, that beneficial ownership of 10% or more of the voting securities of a 96 Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings. Neither Chase Venture Capital Associates, L.P., nor its Affiliates will be deemed an Affiliate of Holding, the Company or any of its Subsidiaries for purposes of this definition by reason of its direct or indirect beneficial ownership of 30% or less of the voting Common Stock of Holding or by reason of any employee thereof being appointed to the Board of Directors of Holding. "ASSET SALE" means: (1) the sale, lease, conveyance or other disposition of any property or assets of the Company or any Restricted Subsidiary, including by way of a sale-and-leaseback, other than sales of inventory in the ordinary course of business; PROVIDED that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries will be governed by the provisions of the indenture described above under the caption "--Repurchase at the Option of Holders--Change of Control" and/or the provisions described above under the caption "--Certain Covenants--Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant; or (2) the issuance or sale of Equity Interests of any of the Company's Restricted Subsidiaries, in the case of either clause (1) or (2) above, whether in a single transaction or a series of related transactions. Notwithstanding the preceding, the following items shall not be deemed to be Asset Sales: (1) any single transaction or series of related transactions that involves assets having a fair market value equal to or less than $1.0 million or for Net Proceeds equal to or less than $1.0 million; (2) a transfer of assets between or among the Company and its Wholly Owned Restricted Subsidiaries, (3) any Restricted Payment, dividend or purchase or retirement of Equity Interests that is permitted by the covenant described above under the caption "--Certain Covenants--Restricted Payments;" (4) the issuance or sale of Equity Interests of any Restricted Subsidiary of the Company; PROVIDED that such Equity Interests are issued or sold in consideration for the acquisition of assets by such Restricted Subsidiary or in connection with a merger or consolidation of another Person into such Restricted Subsidiary; (5) the sale or lease of equipment, inventory, accounts receivable or other assets in the ordinary course of business; and (6) the sale or other disposition of cash or Cash Equivalents. "BOARD OF DIRECTORS" means: (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the board of directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function. "BORROWING BASE" means, as of any date, an amount equal to: (1) 85% of the face amount of all accounts receivable owned by the Company and its Subsidiaries as of such date that were not more than 90 days past due; PLUS 97 (2) 65% of the book value, calculated on a first in first out basis, of all inventory owned by the Company and its Subsidiaries as of such date, all calculated on a consolidated basis and in accordance with GAAP. To the extent that information is not available as to the amount of accounts receivable or inventory as of a specific date, the Company may utilize the most recent available information for purposes of calculating the Borrowing Base. "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at that time be so required to be capitalized on a balance sheet prepared in accordance with GAAP. "CAPITAL STOCK" means any and all shares, interests, participations, rights or other equivalents, however designated, of corporate stock, including, without limitation, with respect to partnerships, partnership interests, whether general or limited, and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of such partnership. "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. or Standard & Poor's Rating Services and in each case maturing within six months after the date of acquisition. "CHANGE OF CONTROL" means the occurrence of any of the following: (1) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of Holding's or the Company's assets to any person or group, as those terms are used in Section 13(d)(3) of the Exchange Act, other than the Principal and his Related Parties; (2) the adoption of a plan relating to the liquidation or dissolution of Holding or the Company; (3) the acquisition by any person or group, as defined above, other than by the Principal and his Related Parties, of a direct or indirect interest in more than 35% of the voting power of the voting stock of Holding by way of purchase, merger or consolidation or otherwise if: (a) such person or group, as defined above, other than the Principal and his Related Parties, owns, directly or indirectly, more of the voting power of the voting stock of Holding than the Principal and his Related Parties; and (b) such acquisition occurs prior to an Initial Public Offering; 98 (4) the acquisition by any person or group, defined above, other than by the Principal and his Related Parties, of a direct or indirect interest in more than 50% of the voting power of the voting stock of Holding by way of purchase, merger or consolidation or otherwise if such acquisition occurs subsequent to an Initial Public Offering; or (5) the first day on which a majority of the members of the Board of Directors of Holding are not Continuing Directors. "CONSOLIDATED CASH FLOW" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period PLUS: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing Consolidated Net Income; PLUS (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent such provision for taxes was included in computing Consolidated Net Income; PLUS (3) Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period to the extent such expense was deducted in computing Consolidated Net Income; PLUS (4) Consolidated Depreciation and Amortization Expense of such Person and its Restricted Subsidiaries for such period to the extent such expense was deducted in computing Consolidated Net Income; PLUS (5) other non-cash charges, including, without limitation, repricing of stock options, to the extent deducted in computing Consolidated Net Income; but excluding any non-cash charge that requires an accrual or reserve for cash expenditures in future periods or which involved a cash expenditure in a prior period, in each case, on a consolidated basis and determined in accordance with GAAP. "CONSOLIDATED DEPRECIATION AND AMORTIZATION EXPENSE" means, with respect to any Person for any period, the total amount of depreciation and amortization expense, including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period, of such Person for such period on a consolidated basis as determined in accordance with GAAP. "CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any period, the sum of: (1) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, to the extent such expense was deducted in computing Consolidated Net Income, including amortization of original issue discount, non-cash interest payments, the interest component of capital leases, and net payments, if any, pursuant to Hedging Obligations; (2) commissions, discounts and other fees and charges paid or accrued with respect to letters of credit and bankers' acceptance financing; and (3) interest for such period whether or not paid by such Person or its Restricted Subsidiaries under a guarantee of Indebtedness of any other Person. "CONSOLIDATED NET INCOME" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; PROVIDED that: (1) the Net Income of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid to the specified Person or a Guarantor; 99 (2) the Net Income of any Person that is a Restricted Subsidiary, other than a Wholly Owned Restricted Subsidiary, shall be included only to the extent of the amount of dividends or distributions paid to the specified Person or a Guarantor; (3) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; (4) the cumulative effect of a change in accounting principles shall be excluded; and (5) the Net Income, but not loss, of any Unrestricted Subsidiary shall be excluded whether or not distributed to the specified Person or one of its Subsidiaries. "CONSOLIDATED STEP UP DEPRECIATION AND AMORTIZATION" means, with respect to any Person for any period, the total amount of depreciation related to the write up of assets and amortization of such Person for such period on a consolidated basis as determined in accordance with GAAP to the extent such depreciation was deducted in computing Consolidated Net Income. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of Holding who: (1) was a member of such Board of Directors on the date of the indenture; or (2) was nominated for election or elected to such Board of Directors with the affirmative vote of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "CREDIT FACILITY" means the Second Amended and Restated Financing and Security Agreement dated as of July 2, 1998 as amended through the date hereof, by and among the Company, NIM Holdings, Norwich Injection Moulders, the financial institutions party thereto and NationsBank, N.A., as collateral and administrative agent, providing for up to $142.9 million of borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "DEFAULT" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "DESIGNATED SENIOR INDEBTEDNESS" means: (1) the Senior Bank Indebtedness; and (2) any other Senior Indebtedness permitted to be incurred under the indenture the principal amount of which is $15.0 million or more and that has been designated in the instrument creating or evidencing such Senior Indebtedness as "Designated Senior Indebtedness." "DISQUALIFIED STOCK" means 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 upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "--Certain Covenants--Restricted Payments." 100 "DOMESTIC RESTRICTED SUBSIDIARY" means any Restricted Subsidiary that was formed under the laws of the United States or any state thereof or the District of Columbia or that guarantees or otherwise provides direct credit support for any Indebtedness of the Company. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock, but excluding any debt security that is convertible into, or exchangeable for, Capital Stock. "EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Subsidiaries, other than Indebtedness under the Credit Facility, in existence on the date of the indenture, until such amounts are repaid. "FIRST ATLANTIC" means First Atlantic Capital, Ltd. "FIXED CHARGES" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, to the extent such expense was deducted in computing Consolidated Net Income; PLUS (2) the product of (a) all cash dividend payments and noncash dividend payments in the form of securities, other than Disqualified Stock, on any series of preferred stock of such Person and its Restricted Subsidiaries, times; (b) except to the extent such dividend payments are deemed tax deductible, a fraction, the numerator of which is one and the denominator of which is one minus the then current combined Federal, state and local statutory tax rate of such Person and its Restricted Subsidiaries, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "FIXED CHARGE COVERAGE RATIO" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases or redeems any Indebtedness, other than revolving credit borrowings, or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period. For purposes of calculating the Fixed Charge Coverage Ratio, acquisitions, dispositions and discontinued operations, as determined in accordance with GAAP, that have been made by the specified Person or any of its Restricted Subsidiaries, including all mergers and consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the calculation date shall be given pro forma effect as if they, and the reduction of any associated fixed charge obligations resulting therefrom, had occurred on the first day of the four-quarter reference period. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of the indenture. 101 "GOVERNMENT SECURITIES" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States of America is pledged. "GUARANTEE" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, through letters of credit and reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "GUARANTORS" means each of: (1) each Domestic Restricted Subsidiary of the Company; (2) NIM Holdings Limited and Norwich Injection Moulders Limited; and (3) any other Restricted Subsidiary that executes a note guarantee in accordance with the provisions of the indenture; and their respective successors and assigns. "HEDGING OBLIGATIONS" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; and (2) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "INDEBTEDNESS" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) representing Capital Lease Obligations; (4) in respect of the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or (5) representing any Hedging Obligations, if and to the extent any of the preceding items, other than letters of credit and Hedging Obligations, would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes the guarantee by the specified Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be: (1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount; and (2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "INITIAL PUBLIC OFFERING" means a public offering of the common stock of Holding that first results in the common stock of Holding becoming listed for trading on a Stock Exchange. 102 "INVESTMENTS" means, with respect to any Person, all direct or indirect investments by such Person in other Persons, including Affiliates, in the forms of loans, including guarantees, advances or capital contributions; excluding commission, travel and similar advances to officers, directors, consultants and employees made in the ordinary course of business, purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "--Certain Covenants--Restricted Payments." The acquisition by the Company or any Restricted Subsidiary of the Company of a Person that holds an Investment in a third Person shall be deemed to be an Investment by the Company or such Restricted Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption "--Certain Covenants--Restricted Payments." "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code or equivalent statutes of any jurisdiction. "NET INCOME" means, with respect to any specified Person, the net income or loss of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain, but not loss, together with any related provision for taxes on such gain, but not loss, realized in connection with any Asset Sale, including, without limitation, dispositions pursuant to sale and leaseback transactions; and (2) any extraordinary gain, but not loss, together with any related provision for taxes on such extraordinary gain, but not loss. "NET PROCEEDS" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale, net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that are the subject of such Asset Sale and any reserve for indemnification adjustment in respect of the sale price of such asset or assets. "1998 NOTES" means the $25.0 million in principal amount of the Company's 12 1/4% Senior Subordinated Notes due 2004. "1994 NOTES" means the $100.0 million in principal amount of the Company's 12 1/4% senior Subordinated Notes due 2004. "NON-RECOURSE DEBT" means Indebtedness: (1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind, including any undertaking, agreement or instrument that would constitute Indebtedness; 103 (b) is directly or indirectly liable as a guarantor or otherwise; or (c) is the lender. (2) no default with respect to which, including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary, would permit upon notice, lapse of time or both any holder of any other Indebtedness, other than the notes, of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "PERMITTED INVESTMENTS" means: (1) any Investments in the Company or in a Wholly Owned Restricted Subsidiary of the Company; (2) any Investment in Cash Equivalents; (3) any Investment by the Company or any Subsidiary of the Company in a Person, if as a result of such Investment: (a) such Person becomes a Wholly Owned Restricted Subsidiary of the Company; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the Company; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "--Repurchase at the Option of Holders--Asset Sales;" (5) any acquisition of assets solely in exchange for the issuance of Equity Interests, other than Disqualified Stock, of the Company; and (6) Hedging Obligations. "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 indenture. "PERMITTED LIENS" means: (1) Liens of the Company and any Guarantor securing Senior Indebtedness that was permitted by the terms of the indenture to be incurred; (2) Liens in favor of the Company or the Guarantors; 104 (3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Restricted Subsidiary of the Company; PROVIDED that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or the Restricted Subsidiary; (4) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company, PROVIDED that such Liens were in existence prior to the contemplation of such acquisition; (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Liens to secure Indebtedness, including Capital Lease Obligations, permitted by clause (4) of the second paragraph of the covenant entitled "--Certain Covenants--Incurrence of Indebtedness and Disqualified Stock" covering only the assets acquired with such Indebtedness; (7) Liens existing on the date of the indenture; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, PROVIDED that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (9) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; and (10)Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding. "PERMITTED REFINANCING" means Refinancing Indebtedness if: (1) the principal amount of Refinancing Indebtedness does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded, plus the amount of premiums, accrued interest and reasonable expenses incurred in connection therewith; (2) the Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the notes, the Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the notes on terms at least as favorable to the holders of notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company, government or any agency or political subdivision thereof or any other entity. "PRINCIPAL" means Roberto Buaron. 105 "REFINANCING INDEBTEDNESS" means Indebtedness issued in exchange for, or the proceeds of which are used to extend, refinance, renew, replace, defease or refund Indebtedness referred to in the first paragraph of or in clauses (2), (3), (4) and (12) of the second paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of Disqualified Stock." "RELATED PARTY" means with respect to the Principal: (1) any spouse, sibling or descendant of the Principal, whether or not such relationship arises from birth, adoption or marriage or despite such relationship being dissolved by divorce; or (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding a controlling interest of which consist of the Principal and/or such other Persons referred to in the immediately preceding clause (1). "RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment. "RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "SENIOR BANK INDEBTEDNESS" means the Indebtedness outstanding under the Credit Facility as such agreement may be restated, further amended, supplemented or otherwise modified or replaced from time to time hereafter, together with any refunding or replacement of any such Indebtedness. "SENIOR INDEBTEDNESS" means: (1) the Senior Bank Indebtedness; (2) any other Indebtedness permitted to be incurred by the Company or a Guarantor, as the case may be, under the terms of the indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is PARI PASSU with or subordinated in right of payment to the notes or a note guarantee, as the case may be; and (3) all Obligations with respect to the items listed in the preceding clauses (1) and (2). Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness will not include: (1) any liability for Federal, state, local or other taxes owed or owing by the Company or a Guarantor, as the case may be; (2) any Indebtedness of the Company or a Guarantor, as the case may be, to Holding or to any of Holding's other Subsidiaries or other Affiliates; (3) any trade payables; or (4) the portion of any Indebtedness that is incurred in violation of the indenture. "STATED MATURITY" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "STOCK EXCHANGE" means the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market. "SUBSIDIARY" means, with respect to any specified Person: 106 (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled, without regard to the occurrence of any contingency, to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof; and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person; or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person or any combination thereof. "TAX SHARING AGREEMENT" means that certain Tax Sharing Agreement, as in effect on the date of the indenture, between the Company and Holding. "UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests; or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (5) has at least one director on its Board of Directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the trustee by filing with the trustee a certified copy of the Board Resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption "--Certain Covenants--Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "Incurrence of Indebtedness and Issuance of Disqualified Stock," the Company shall be in default of such covenant. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if 107 (1) such Indebtedness is permitted under the covenant described under the caption "Certain Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by; (b) the number of years, calculated to the nearest one-twelfth, that will elapse between such date and the due date of such payment; by (2) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED RESTRICTED SUBSIDIARY" of any specified Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which, other than directors' qualifying shares, shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. 108 MATERIAL FEDERAL INCOME TAX CONSIDERATIONS The following is a summary prepared by O'Sullivan Graev & Karabell, LLP, special counsel to Berry Plastics, of material United States Federal income tax considerations relating to the exchange offer and to the purchase, ownership and disposition of the notes but does not purport to be a complete analysis of all the potential tax considerations relating thereto. Subject to the qualifications, limitations, and factual assumptions set forth herein, the following constitutes the opinion of O'Sullivan Graev & Karabell, LLP, with respect to the material Federal income tax considerations relevant to the exchange of outstanding notes for exchange notes pursuant to the exchange offer and to the ownership of the notes, other than with respect to those matters stated to be as to the belief of Berry Plastics. This summary is based on the Internal Revenue Code of 1986, as amended, existing, temporary and proposed Treasury Regulations, laws, rulings and decisions now in effect, all of which are subject to change. Any such changes may be applied retroactively in a manner that could adversely affect a holder of the notes, other than with respect to those matters stated to be as to the belief of Berry Plastics. This summary deals only with holders that will hold notes as "capital assets", within the meaning of Section 1221 of the Code. As used herein, "U.S. holder" means (4) citizens or residents of the United States; (5) corporations, partnerships and other business entities created or organized under the laws of the United States; (6) estates the income of which is subject to United States Federal income taxation regardless of its source; and (7) trusts if a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantive decisions, or certain trusts in existence on August 20, 1996, which have elected to continue to be treated as United States persons. As used herein, "Non - U.S. holder" means any holder that is not a U.S. holder. This summary does not address tax considerations applicable to investors that may be subject to special tax rules, such as banks, tax-exempt organizations, insurance companies, dealers in securities or currencies, or persons that will hold notes as a position in a hedging transaction, "straddle" or "conversion transaction" for tax purposes. This summary discusses the principal Federal income tax considerations applicable to the exchange offer and subsequent purchasers of the notes. This summary does not consider the effect of any applicable foreign, state, local or other tax laws. No ruling from the Internal Revenue Service will be sought with respect to the notes, and the IRS could take a contrary view with respect to the matters described below. THE FOLLOWING DISCUSSION OF MATERIAL FEDERAL INCOME TAX CONSEQUENCES IS GENERAL AND, AS DISCUSSED, DOES NOT COVER THE TAX EFFECTS TO ALL INVESTORS IN ALL SITUATIONS. ACCORDINGLY, INVESTORS CONSIDERING THE EXCHANGE OFFER SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY. U.S. HOLDERS EXCHANGE OF OUTSTANDING NOTES FOR EXCHANGE NOTES The exchange of outstanding notes for exchange notes pursuant to the exchange offer will not be considered a taxable exchange for Federal income tax purposes because the exchange notes will not constitute a material modification of the terms of the outstanding notes. Accordingly, such exchange will have no Federal income tax consequences to holders of outstanding notes, and a holder's adjusted tax basis and holding period in an 109 exchange note will be the same as such holder's adjusted tax basis and holding period in the outstanding note exchanged therefor. PAYMENT OF INTEREST Interest on a note generally will be includable in the income of a holder as ordinary income at the time such interest is received or accrued, in accordance with such holder's method of accounting for United States Federal income tax purposes. NOTES PURCHASED AT A PREMIUM In general, if a holder purchases a note for an amount in excess of its stated redemption price at maturity, the holder may elect to treat such excess as "amortizable bond premium," in which case the amount required to be included in the holder's income each year with respect to interest on the note will be reduced by the amount of amortizable bond premium allocable, based on the note's yield to maturity, to such year. The amount of amortizable bond premium allocable to a holder's taxable year may be determined, in part, by Berry Plastics' right to redeem the notes. Holders should consult their own tax advisors with respect to the amortization of bond premium. Any such election would apply to all bonds, other than bonds the interest on which is excludable from gross income, held by the holder at the beginning of the first taxable year to which the election applies or which thereafter are acquired by the holder, and such election is irrevocable without the consent of the IRS. OPTIONAL REDEMPTION OR REPAYMENT The notes will not have original issue discount ("OID") because they were issued at par. For purposes of determining OID, Treasury Regulations provide that the holder's right to require redemption of the notes upon the occurrence of a Change of Control will not be taken into account unless, based on all the facts and circumstances as of the issue date, it is significantly more likely than not that both a Change of Control giving rise to the right to require repurchase will occur and such right will be exercised. In the event of a Change of Control, each holder of notes will have the right to require Berry Plastics to repurchase all or a part of such holder's notes as described in "Description of Notes -- Repurchase at the Option of holders -- Change of Control." Under the Treasury Regulations discussed above, Berry Plastics believes that the holder's right to require repurchase should not be taken into account for purposes of calculating OID because a Change of Control and exercise of such rights are not significantly more likely than not to occur. Treasury Regulations also provide that Berry Plastics will be deemed to exercise its option to redeem the notes in a manner that minimizes the yield on the notes. Berry Plastics may redeem the notes in certain circumstances, pursuant to the terms of the notes. See "Description of the Notes -- Optional Redemption." Berry Plastics believes that its option to redeem would not be deemed exercised for the purposes of the Treasury Regulations concerning OID at certain dates because any such deemed exercise would not minimize the yield on the notes. MARKET DISCOUNT ON RESALE OF NOTES A holder of a note should be aware that the purchase or resale of a note may be affected by the "market discount" provisions of the Code. The market discount rules generally provide that if a holder of a note purchases the note at a market discount (i.e., a discount other than at original issue), any gain recognized upon the disposition of the note by the holder will be taxable as ordinary interest income, rather than as capital gain, to the extent such gain does not exceed the accrued market discount on such note at the time of such disposition. "Market discount" generally means the excess, if any, of a note's stated redemption price at maturity over the price paid by the holder therefor, unless a DE MINIMIS exception applies. A holder who acquires a note at a market discount also may be required to defer the deduction of a portion of the amount of interest that the holder paid or accrued during the taxable year on indebtedness incurred or maintained to purchase or carry such note, if any. Any principal payment on a note acquired by a holder at a market discount will be included in gross income as ordinary income (generally, as interest income) to the extent that it does not exceed the accrued market discount at the time of such payment. The amount of the accrued market discount for purposes of determining the tax 110 treatment of subsequent payments on, or dispositions of, a note is to be reduced by the amounts so treated as ordinary income. A holder of a note acquired at a market discount may elect to include market discount in gross income, for Federal income tax purposes, as such market discount accrues, either on a straight-line basis or on a constant interest rate basis. This current inclusion election, 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 IRS. If a holder of a note makes such an election, the foregoing rules regarding the recognition of ordinary interest income on sales and other dispositions and the receipt of principal payments with respect to such note, and regarding the deferral of interest deductions on indebtedness incurred or maintained to purchase or carry such note, will not apply. SALE, EXCHANGE OR RETIREMENT OF THE NOTES Upon the sale, exchange or redemption of a note, a holder generally will recognize capital gain or loss equal to the difference between (1) the amount of cash proceeds and the fair market value of any property received on the sale, exchange or redemption, except to the extent such amount is attributable to either liquidated damages, discussed below, or accrued interest income not previously included in income which is taxable as ordinary income; and (2) such holder's adjusted tax basis in the note. A holder's adjusted tax basis in a note generally will equal the cost of the note to such holder, adjusted for amortizable bond premium, if any, if the holder made an election to amortize such premium. Such capital gain or loss will be long-term capital gain or loss if the holder's holding period in the note is more than one year at the time of sale, exchange or redemption. NON-U.S. HOLDERS PAYMENT OF INTEREST A Non-U.S. holder will not be subject to United States Federal income tax by withholding or otherwise on payments of interest on a note, provided that the beneficial owner of the note fulfills the statement requirements set forth in applicable Treasury Regulations, unless (1) such Non-U.S. holder (a) actually or constructively owns 10% or more of the total combined voting power of all classes of stock of Berry Plastics entitled to vote; (b) is a controlled foreign corporation related, directly or indirectly, to Berry Plastics through stock ownership, or (c) is a bank receiving interest described in Section 881(c)(3)(A) of the Code or (2) such interest is effectively connected with the conduct of a trade or business by the Non-U.S. holder in the United States. If a Non-U.S. holder does not claim, or does not qualify for, the benefit of the exemption from taxation described above, such Non-U.S. holder may be subject to a 30% withholding tax on interest payments made on the notes. However, such Non-U.S. holder may be able to claim the benefit of a reduced withholding tax rate under an applicable income tax treaty. 111 GAIN ON DISPOSITION OF THE NOTES A Non-U.S. holder will not be subject to United States Federal income tax by withholding or otherwise on any gain realized upon the disposition of a note unless: o in the case of a Non-U.S. holder who is an individual, such Non-U.S. holder is present in the United States for a period or periods aggregating 183 days or more during the taxable year of the disposition and certain other requirements are met, or o the gain is effectively connected with the conduct of a trade or business by the Non-U.S. holder in the United States. EFFECTIVELY CONNECTED INCOME To the extent that interest income or gain on the disposition of a note is effectively connected with the conduct of a trade or business of the Non-U.S. holder in the United States, such income will be subject to United States Federal income tax on a net income basis in the same manner as if such holder were a United States person. Additionally, in the case of a Non-U.S. holder that is a corporation, such effectively connected income may be subject to the United States branch profits tax at the rate of 30%. TREATIES A tax treaty between the United States and a country in which a Non-U.S. holder is a resident may alter the tax consequences described above. LIQUIDATED DAMAGES Berry Plastics believes that liquidated damages, if any, described above under "The Exchange Offer -- Purpose and Effect of the Exchange Offer" will be taxable to the holder as ordinary income in accordance with the holder's method of accounting for Federal income tax purposes. The IRS may take a different position, however, which could affect the timing of a holder's income with respect to liquidated damages, if any. INFORMATION REPORTING AND BACKUP WITHHOLDING In general, information reporting requirements will apply to payments of principal, premium, if any, and interest on a note and payments of the proceeds of the sale of a note to certain noncorporate holders, and a 31% backup withholding tax may apply to such payments if the holder. o fails to furnish or certify its correct taxpayer identification number to the payer in the manner required; o is notified by the IRS that it has failed to report payments of interest and dividends properly; or o under certain circumstances, fails to certify that it has not been notified by the IRS that it is subject to backup withholding for failure to report interest and dividend payments. Any amounts withheld under the backup withholding rules from a payment to a holder will be allowed as a credit against such holder's United States Federal income tax and may entitle the holder to a refund, provided that the required minimum information is furnished to the IRS. Generally, such information reporting and backup withholding may apply to payments of principal, interest and premium, if any, to Non-U.S. holders that are not exempt recipients and which fail to provide certain 112 information as may be required by United States law and applicable regulations. The payment of the proceeds of the disposition of notes to or through the United States office of a broker will be subject to information reporting and backup withholding at a rate of 31% unless the owner certifies its status as a Non-U.S. holder under penalties of perjury or otherwise establishes an exemption. Holders should consult their tax advisors regarding the application of information reporting and backup withholding in their particular situation and the availability of an exemption therefrom, and the procedures for obtaining any such exemption. The United States Department of the Treasury has promulgated final regulations regarding the information reporting and backup reporting rules discussed above. In general, the final regulations do not significantly alter the substantive information reporting and backup withholding requirements but rather unify current certification procedures and forms and clarify reliance standards. In addition, the final regulations permit the shifting of primary responsibility for withholding to certain financial intermediaries acting on behalf of beneficial owners. The final regulations are generally effective for payments made on or after January 1, 2001, subject to certain transition rules. Prospective purchasers of notes should consult their own tax advisors concerning the effect of such regulations on their particular situations. 113 PLAN OF DISTRIBUTION Based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, we believe that the exchange notes issued pursuant to the exchange offer in exchange for outstanding notes may be offered for resale, resold and otherwise transferred by any holder thereof, other than any such holder that is an "affiliate" of Berry Plastics within the meaning of Rule 405 promulgated under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that: o such exchange notes are acquired in the ordinary course of such holder's business; o such holder has no arrangement with any person to participate in the distribution of such exchange notes; and o neither such holder nor any such other person is engaging in or intends to engage in a distribution of such exchange notes. Accordingly, any holder who is an affiliate of Berry Plastics or any holder using the exchange offer to participate in a distribution of the exchange notes will not be able to rely on such interpretations by the staff to the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale transaction. Notwithstanding the foregoing, each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with any resale of exchange notes received in exchange for outstanding notes where such outstanding notes were acquired as a result of market-making activities or other trading activities and were not acquired directly from Berry Plastics. Berry Plastics and the guarantors have agreed that, for a period of one year from the date of this prospectus, they will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until April 19, 2000 (90 days from the date of this prospectus), all dealers effecting transactions in the exchange notes may be required to deliver a prospectus. Berry Plastics will not receive any proceeds from any sale of exchange notes by broker-dealers. Exchange notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions: o in the over-the-counter market; o in negotiated transactions; o through the writing of options on the outstanding notes; or o a combination of such methods of resale, in each case, o at market prices prevailing at the time of resale; o at prices related to such prevailing market prices; or o at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account pursuant to the exchange offer and any broker-dealer that participates in a distribution of such exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of 114 exchange notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver, and by delivering, a prospectus as required, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of one year from the date of this prospectus, Berry Plastics will send a reasonable number of additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. Berry Plastics will pay all the expenses incident to the exchange offer, including the expenses of one counsel for the holders, other than commissions or concessions of any broker-dealers. Berry Plastics and the guarantors have agreed to indemnify the initial purchasers and any broker-dealers participating in the exchange offer against certain liabilities, including liabilities under the Securities Act. This prospectus has been prepared for use in connection with the exchange offer and may be used by the initial purchasers in connection with offers and sales related to market-making transactions in the notes. The initial purchasers may act as principal or agent in such transactions. Such sales will be made at prices related to prevailing market prices at the time of sale. Berry Plastics will not receive any of the proceeds of such sales. The initial purchasers have no obligation to make a market in the notes and may discontinue their market-making activities at any time without notice, at their sole discretion. We have agreed to indemnify the initial purchasers against certain liabilities, including liabilities under the Securities Act, and to contribute to payments which the initial purchasers might be required to make in respect thereof. LEGAL MATTERS Certain legal matters in connection with this offering and the exchange notes will be passed upon for us by O'Sullivan Graev & Karabell, LLP, New York, New York. Lawrence G. Graev, one of our directors, is a partner of O'Sullivan Graev & Karabell, LLP. See "Certain Transactions--Legal Services." EXPERTS The consolidated financial statements of BPC Holding Corporation as of December 27, 1997 and January 2, 1999, and for each of the three years in the period ended January 2, 1999 and of Knight Engineering and Plastics Division of Courtaulds Packaging Inc. as of and for the year ended March 31, 1998 included elsewhere in this registration statement and prospectus have been audited by Ernst & Young LLP, independent auditors, as stated in their reports appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. The consolidated financial statements of CPI Holding, Inc. as of November 30, 1998 and 1997, and for the years ended November 30, 1998 and 1997 and for the period January 26, 1996 to November 30, 1996 included in this registration statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The consolidated financial statements of Norwich Injection Moulders Limited for the years ended October 31, 1997, 1996 and 1995 included in this registration statement have been audited by Lovewell Blake, independent auditors, as stated in their report appearing herein. 115 INDEX TO FINANCIAL STATEMENTS
PAGE ------ BPC HOLDING AUDITED FINANCIAL STATEMENTS Report of Independent Auditors ......................................................... F-3 Consolidated Balance Sheets at January 2, 1999 and December 27, 1997 ................... F-4 Consolidated Statements of Operations for the three years in the period ended January 2, 1999 ................................................................ F-6 Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the three years in the period ended January 2, 1999 .................................. F-7 Consolidated Statements of Cash Flows for the three years in the period ended January 2, 1999 ................................................................ F-8 Notes to Consolidated Financial Statements ............................................. F-9 BPC HOLDING UNAUDITED INTERIM FINANCIAL STATEMENTS Consolidated Balance Sheets at October 2, 1999 and January 2, 1999 ..................... F-22 Consolidated Statements of Operations for the Thirteen and Thirty-Nine Weeks ended October 2, 1999 and September 26, 1998 ................................... F-24 Consolidated Statements of Cash Flows for the Thirty-Nine Weeks ended October 2, 1999 and September 26, 1998 ............................................... F-25 Notes to Consolidated Financial Statements ............................................. F-26 CPI HOLDING, INC. AUDITED FINANCIAL STATEMENTS Report of Independent Auditors ......................................................... F-31 Consolidated Balance Sheets at November 30, 1998 and 1997 .............................. F-32 Consolidated Statements of Income for the three years in the period ended November 30, 1998 .............................................................. F-34 Consolidated Statements of Mandatorily Redeemable Preferred Stock and Shareholders' Equity for the three years in the period ended November 30, 1998 ....... F-35 Consolidated Statements of Cash Flows for the three years in the period ended November 30, 1998 ....................................................... F-38 Notes to Consolidated Financial Statements ............................................. F-39 CPI HOLDING, INC. UNAUDITED INTERIM FINANCIAL STATEMENTS Condensed Consolidated Balance Sheet at May 31, 1999 ................................... F-47 Condensed Consolidated Statements of Operations for the 26 weeks ended May 31, 1999 and 1998 .......................................................... F-49 Condensed Consolidated Statements of Cash Flows for the 26 weeks ended May 31, 1999 and 1998 .......................................................... F-50 Notes to Condensed Consolidated Financial Statements ................................... F-51 KNIGHT ENGINEERING AND PLASTICS DIVISION OF COURTAULDS PACKAGING, INC AUDITED FINANCIAL STATEMENTS Report of Independent Auditors ......................................................... F-53 Balance Sheet at March 31, 1998 ........................................................ F-54 Statement of Operations for the year ended March 31, 1998 .............................. F-55 Statement of Cash Flows for the year ended March 31, 1998 .............................. F-56 Notes to Financial Statements .......................................................... F-57 KNIGHT ENGINEERING AND PLASTICS DIVISION OF COURTAULDS PACKAGING, INC UNAUDITED INTERIM FINANCIAL STATEMENTS Condensed Balance Sheet at September 30, 1998 .......................................... F-59 Condensed Statements of Operations for the six months ended September 30, 1998 and 1997 .......................................................... F-60 Condensed Statements of Cash Flows for the six months ended September 30, 1998 and 1997 .......................................................... F-61 Notes to Condensed Financial Statements ................................................ F-62 NORWICH INJECTION MOULDERS LIMITED AUDITED FINANCIAL STATEMENTS Report of the Directors ................................................................ F-63 Report of Independent Auditors ......................................................... F-65 Profit and Loss Account for the three years in the period ended October 31, 1997 ..................................................................... F-66 Balance Sheet at October 31, 1997, 1996, and 1995 ...................................... F-67 Cash Flow Statement for the three years in the period ended October 31, 1997 ..................................................................... F-68
F-1
Notes to the Accounts .................................................................. F-69 NORWICH INJECTION MOULDERS LIMITED UNAUDITED INTERIM FINANCIAL STATEMENTS Profit and Loss Accounts for the 6 months ended April 30, 1998 and 1997 ................ F-82 Balance Sheet at April 30, 1998 ........................................................ F-83 Cash Flow Statements for the 6 months ended April 30, 1998 and 1997 .................... F-84 Notes to the Accounts .................................................................. F-85
F-2 REPORT OF INDEPENDENT AUDITORS The Stockholders and Board of Directors BPC Holding Corporation We have audited the accompanying consolidated balance sheets of BPC Holding Corporation and subsidiaries as of January 2, 1999 and December 27, 1997, and the related consolidated statements of operations, changes in stockholders' equity (deficit) and cash flows for each of the three years in the period ended January 2, 1999. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BPC Holding Corporation and subsidiaries at January 2, 1999 and December 27, 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 2, 1999, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Indianapolis, Indiana February 19, 1999 F-3 BPC HOLDING CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS)
JANUARY 2, DECEMBER 27, 1999 1997 ------------ -------------- ASSETS Current assets: Cash and cash equivalents .................................................... $ 2,318 $ 2,688 Accounts receivable (less allowance for doubtful accounts of $1,651 at January 2, 1999 and $1,038 at December 27, 1997) ..... 29,951 28,385 Inventories: Finished goods ........................................................... 23,146 22,029 Raw materials and supplies ............................................... 8,556 7,429 -------- -------- 31,702 29,458 Prepaid expenses and other receivables ....................................... 1,665 1,834 Income taxes recoverable ..................................................... 577 1,167 -------- -------- Total current assets ............................................................... 66,213 63,532 Assets held in trust ............................................................... 6,679 19,738 Property and equipment: Land ......................................................................... 7,769 5,811 Buildings and improvements ................................................... 38,960 33,891 Machinery, equipment and tooling ............................................. 141,054 122,991 Automobiles and trucks ....................................................... 1,386 1,241 Construction in progress ..................................................... 11,780 10,357 -------- -------- 200,949 174,291 Less accumulated depreciation ................................................ 80,944 66,073 -------- -------- 120,005 108,218 Intangible assets: Deferred financing and origination fees, net ................................. 10,327 10,849 Covenants not to compete, net ................................................ 4,071 3,940 Excess of cost over net assets acquired, net ................................. 44,536 30,303 Deferred acquisition costs ................................................... 20 13 -------- -------- 58,954 45,105 Deferred income taxes .............................................................. 2,758 2,049 Other .............................................................................. 708 802 -------- -------- Total assets ....................................................................... $255,317 $239,444 ======== ========
F-4 BPC HOLDING CORPORATION CONSOLIDATED BALANCE SHEETS (CONTINUED) (IN THOUSANDS OF DOLLARS)
JANUARY 2, DECEMBER 27, 1999 1997 ------------ -------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable ......................................................... $ 18,059 $ 16,732 Accrued expenses and other liabilities ................................... 10,863 7,162 Accrued interest ......................................................... 4,166 3,612 Employee compensation and payroll taxes .................................. 8,953 7,489 Income taxes ............................................................. 22 55 Current portion of long-term debt ........................................ 19,388 7,619 --------- --------- Total current liabilities .................................................... 61,451 42,669 Long-term debt, less current portion ......................................... 303,910 298,716 Accrued dividends on preferred stock ......................................... 7,225 3,674 Deferred income taxes ........................................................ 497 -- Other liabilities ............................................................ 2,591 3,360 --------- --------- 375,674 348,419 STOCKHOLDERS' EQUITY (DEFICIT): Series A Preferred Stock; 800,000 shares authorized; 600,000 shares issued and outstanding (net of discount of $2,770 at January 2, 1999 and $3,062 at December 27, 1997) ......... 11,801 11,509 Series B Preferred Stock; 200,000 shares authorized, issued and outstanding ................................................ 5,000 5,000 Class A Common Stock; $.01 par value: Voting; 500,000 shares authorized; 91,000 shares issued and outstanding .............................................. 1 1 Nonvoting; 500,000 shares authorized; 259,000 shares issued and outstanding .............................................. 3 3 Class B Common Stock; $.01 par value: Voting; 500,000 shares authorized; 145,058 shares issued and 144,546 shares outstanding ............................... 1 1 Nonvoting; 500,000 shares authorized; 58,612 shares issued and 56,937 shares outstanding ................................ 1 1 Class C Common Stock; $.01 par value: Nonvoting; 500,000 shares authorized; 17,000 shares issued and 16,833 shares outstanding ....................................... -- -- Treasury stock: 512 shares Class B Voting Common Stock; 1,675 shares Class B Nonvoting Common Stock; and 167 shares Class C Nonvoting Common Stock ........................................ (280) (22) Additional paid-in capital .............................................. 45,611 49,374 Warrants ................................................................ 3,511 3,511 Retained earnings (deficit) ............................................. (185,923) (178,353) Accumulated other comprehensive income (loss) ........................... (83) -- --------- --------- Total stockholders' equity (deficit) ......................................... (120,357) (108,975) --------- --------- Total liabilities and stockholders' equity (deficit) ......................... $ 255,317 $ 239,444 --------- ---------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-5 BPC HOLDING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS OF DOLLARS)
YEAR ENDED -------------------------------------------------------- JANUARY 2, DECEMBER 27, DECEMBER 28, 1999 1997 1996 -------------- --------------- -------------- Net sales .................................................. $ 271,830 $ 226,953 $ 151,058 Cost of goods sold ......................................... 199,227 180,249 110,110 --------- --------- --------- Gross margin ............................................... 72,603 46,704 40,948 Operating expenses: Selling ................................................ 14,780 11,320 6,950 General and administrative ............................. 19,308 11,505 13,769 Research and development ............................... 1,690 1,310 858 Amortization of intangibles ............................ 4,139 2,226 524 Other expenses ......................................... 4,084 4,144 1,578 --------- --------- --------- Operating income ........................................... 28,602 16,199 17,269 Other expenses: Loss on disposal of property and equipment ............. 1,865 226 302 --------- --------- --------- Income before interest and taxes ........................... 26,737 15,973 16,967 Interest: Expense ................................................ (35,555) (32,237) (21,364) Income ................................................. 999 1,991 1,289 --------- --------- --------- Loss before income taxes ................................... (7,819) (14,273) (3,108) Income taxes (benefit) ..................................... (249) 138 239 --------- --------- --------- Net loss ................................................... (7,570) (14,411) (3,347) Preferred stock dividends .................................. (3,551) (2,558) (1,116) Amortization of preferred stock discount ................... (292) (74) -- --------- --------- --------- Net loss attributable to common shareholders ............... $ (11,413) $ (17,043) $ (4,463) ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-6 BPC HOLDING CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS OF DOLLARS)
COMMON STOCK PREFERRED STOCK ADDITIONAL ----------------------------- ---------------------- TREASURY PAID-IN CLASS A CLASS B CLASS C CLASS A CLASS B STOCK CAPITAL --------- --------- ------- --------- --------- --------- --------- Balance at December 31, 1995(1) ......... $ -- $ -- $-- $ -- $ -- $ (58) $ 960 Net loss ................................ -- -- -- -- -- -- -- Market value adjustment - warrants ...... -- -- -- -- -- -- (1,145) Exercise of stock options ............... -- -- -- -- -- -- 1,130 Distribution on sale of equity interests -- -- -- -- -- 58 (1,424) Proceeds from newly issued equity ....... 4 2 -- 14,571 -- -- 52,797 Payment of deferred compensation ........ -- -- -- -- -- -- 479 Issuance of private warrants ............ -- -- -- (3,511) -- -- -- Accrued dividends on preferred stock .... -- -- -- -- -- -- (1,116) Amortization of preferred stock discount -- -- -- 156 -- -- -- Purchase treasury stock from management . -- -- -- -- -- (22) -- --------- --------- ---- --------- --------- --------- --------- Balance at December 28, 1996 ............ 4 2 -- 11,216 -- (22) 51,681 --------- --------- ---- --------- --------- --------- --------- Net loss ................................ -- -- -- -- -- -- -- Sale of stock to management ............. -- -- -- -- -- -- 325 Issuance of preferred stock ............. -- -- -- -- 5,000 -- -- Accrued dividends on preferred stock .... -- -- -- -- -- -- (2,558) Amortization of preferred stock discount -- -- -- 293 -- -- (74) --------- --------- ---- --------- --------- --------- --------- Balance at December 27, 1997 ............ 4 2 -- 11,509 5,000 (22) 49,374 --------- --------- ---- --------- --------- --------- --------- Net loss ................................ -- -- -- -- -- -- -- Sale of stock to management ............. -- -- -- -- -- -- 80 Purchase treasury stock from management . -- -- -- -- -- (258) -- Translation loss ........................ -- -- -- -- -- -- -- Accrued dividends on preferred stock .... -- -- -- -- -- -- (3,551) Amortization of preferred stock discount -- -- -- 292 -- -- (292) --------- --------- ---- --------- --------- --------- --------- Balance at January 2, 1999 .............. $ 4 $ 2 $-- $ 11,801 $ 5,000 $ (280) $ 45,611 ========= ========= ==== ========= ========= ========= =========
ACCUMULATED OTHER COMPREHENSIVE COMPREHENSIVE RETAINED INCOME INCOME WARRANTS EARNINGS (LOSS) TOTAL (LOSS) --------- --------- --------- --------- --------- Balance at December 31, 1995(1) ......... $ 4,034 $ (37,420) $ -- $ (32,484) $ -- Net loss ................................ -- (3,347) -- (3,347) (3,347) Market value adjustment - warrants ...... 9,399 (8,254) -- -- -- Exercise of stock options ............... -- -- -- 1,130 -- Distribution on sale of equity interests (13,433) (114,921) -- (129,720) -- Proceeds from newly issued equity ....... -- -- -- 67,374 -- Payment of deferred compensation ........ -- -- -- 479 -- Issuance of private warrants ............ 3,511 -- -- -- -- Accrued dividends on preferred stock .... -- -- -- (1,116) -- Amortization of preferred stock discount -- -- -- 156 -- Purchase treasury stock from management . -- -- -- (22) -- --------- --------- --------- --------- --------- Balance at December 28, 1996 ............ 3,511 (163,942) -- (97,550) (3,347) --------- --------- --------- --------- --------- Net loss ................................ -- (14,411) -- (14,411) (14,411) Sale of stock to management ............. -- -- -- 325 -- Issuance of preferred stock ............. -- -- -- 5,000 -- Accrued dividends on preferred stock .... -- -- -- (2,558) -- Amortization of preferred stock discount -- -- -- 219 -- --------- --------- --------- --------- --------- Balance at December 27, 1997 ............ 3,511 (178,353) -- (108,975) (14,411) --------- --------- --------- --------- --------- Net loss ................................ -- (7,570) -- (7,570) (7,570) Sale of stock to management ............. -- -- -- 80 -- Purchase treasury stock from management . -- -- -- (258) -- Translation loss ........................ -- -- (83) (83) (83) Accrued dividends on preferred stock .... -- -- -- (3,551) -- Amortization of preferred stock discount -- -- -- -- -- --------- --------- --------- --------- --------- Balance at January 2, 1999 .............. $ 3,511 $(185,923) $ (83) $(120,357) $ (7,653) ========= ========= ========= ========= =========
(1) Old Class A and Class B Common Stock was redeemed in connection with the 1996 Transaction (see Note 9). SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-7 BPC HOLDING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
YEAR ENDED ---------------------------------------------------- JANUARY 2, DECEMBER 27, DECEMBER 28, 1999 1997 1996 -------------- -------------- -------------- OPERATING ACTIVITIES Net loss .......................................................... $ (7,570) $ (14,411) $ (3,347) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation ............................................. 20,690 16,800 10,807 Non-cash interest expense ................................ 1,765 2,005 1,212 Amortization ............................................. 4,140 2,226 524 Interest funded by assets held in trust .................. 13,059 11,255 5,412 Non-cash compensation .................................... 600 -- 358 Write-off of deferred acquisition costs .................. -- 515 -- Loss on sale of property and equipment ................... 1,865 226 302 Deferred income taxes .................................... (709) -- 53 Changes in operating assets and liabilities: Accounts receivable, net ........................... 4,413 (2,290) (1,716) Inventories ........................................ (252) 2,767 (1,710) Prepaid expenses and other receivables ............. 1,016 (137) 520 Other assets ....................................... (43) (225) (5) Accounts payable and accrued expenses .............. (4,810) (4,516) 1,899 Income taxes payable ............................... (33) (61) 117 --------- --------- --------- Net cash provided by operating activities ......................... 34,131 14,154 14,426 INVESTING ACTIVITIES Additions to property and equipment ............................... (22,595) (16,774) (13,581) Proceeds from disposal of property and equipment .................. 4,471 1,078 94 Acquisitions of businesses ........................................ (33,996) (86,406) (1,152) --------- --------- --------- Net cash used for investing activities ............................ (52,120) (102,102) (14,639) FINANCING ACTIVITIES Proceeds from long-term borrowings ................................ 44,044 85,703 105,000 Payments on long-term borrowings .................................. (24,906) (2,821) (717) Purchase of treasury stock from management ........................ (258) -- -- Exercise of management stock options .............................. -- -- 1,130 Proceeds from issuance of common stock ............................ 80 325 52,797 Proceeds from issuance of preferred stock and warrants ............ -- -- 14,571 Rollover investments and share repurchases ........................ -- -- (125,219) Assets held in trust .............................................. -- -- (35,600) Net payments to public warrant holders ............................ -- -- (4,502) Debt issuance costs ............................................... (1,341) (2,763) (5,090) --------- --------- --------- Net cash provided by financing activities ......................... 17,619 80,444 2,370 --------- --------- --------- Net increase (decrease) in cash and cash equivalents .............. (370) (7,504) 2,157 Cash and cash equivalents at beginning of year .................... 2,688 10,192 8,035 --------- --------- --------- Cash and cash equivalents at end of year .......................... $ 2,318 $ 2,688 $ 10,192 ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-8 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 subsidiaries Berry Plastics Corporation ("Berry" or the "Company"), Berry Iowa Corporation ("Berry Iowa"), Berry Sterling Corporation ("Berry Sterling"), Berry Tri-Plas Corporation ("Berry Tri-Plas"), Berry Plastics Design Corporation ("Berry Design"), PackerWare Corporation ("PackerWare"), Venture Packaging, Inc. ("Venture Packaging") and its subsidiaries Venture Packaging Midwest, Inc. and Venture Packaging Southeast, Inc., NIM Holdings Limited and its subsidiary Norwich Injection Moulders Limited, and Knight Plastics, Inc., manufactures and markets plastic packaging products through its facilities located in Evansville, Indiana; Henderson, Nevada; Iowa Falls, Iowa; Charlotte, North Carolina; York, Pennsylvania; Suffolk, Virginia; Woodstock, Illinois; North Walsham, England; Monroeville, Ohio; and Lawrence, Kansas. In conjunction with the PackerWare acquisition in January 1997 (see Note 3), the Company also acquired a manufacturing facility in Reno, Nevada. This facility was closed in 1997, and its operations were consolidated into the Henderson, Nevada facility. In March 1998, Berry announced the consolidation of its Anderson, South Carolina facility with other Company locations with the majority of the business moving to the Charlotte, North Carolina and Monroeville, Ohio facilities. Holding's fiscal year is a 52/53 week period ending generally on the Saturday closest to December 31. All references herein to "1998", "1997," and "1996" relate to the fiscal years ended January 2, 1999, December 27, 1997, and December 28, 1996, respectively. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION AND BUSINESS The consolidated financial statements include the accounts of Holding and its subsidiaries all of which are wholly-owned. Intercompany accounts and transactions have been eliminated in consolidation. Holding, through its wholly- owned subsidiaries, operates in two primary industry segments. The Company is a manufacturer and marketer of plastic packaging, with sales concentrated in three product groups within this market: plastic aerosol overcaps, rigid open-top containers, and plastic drink cups. In addition, the Company is a manufacturer in the retail housewares/lawn and garden market. The Company's customers are located principally throughout the United States, without significant concentration in any one region or 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 $62 million in 1998 (excluding specialty resins). Dow Chemical Corporation is the principal supplier (approximately 54%) of the Company's total resin material requirements. The Company also uses other suppliers such as Union Carbide, Chevron, Phillips and Equistar to meet its resin requirements. The Company does not anticipate any material difficulty in obtaining an uninterrupted supply of raw materials at competitive prices in the near future. However, should a significant shortage of the supply of resin occur, changes in both the price and availability of the principal raw material used in the manufacture of the Company's products could occur and result in financial disruption to the Company. The Company is subject to existing and potential federal, state, local and foreign legislation designed to reduce solid waste in landfills. While the principal resins used by the Company are recyclable and, therefore, reduce the Company's exposure to legislation promulgated to date, there can be no assurance that future legislation or regulatory initiatives would not have a material adverse effect on the Company. Legislation, if promulgated, requiring plastics to be degradable in landfills or to have minimum levels of recycled content would have a F-9 BPC HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED) significant impact on the Company's business as would legislation providing for disposal fees or limiting the use of plastic products. CASH AND CASH EQUIVALENTS All highly liquid investments with a maturity of three months or less at the date of purchase are considered to be cash equivalents. INVENTORIES Inventories are valued at the lower of cost (first in, first out method) or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed primarily by the straight-line method over the estimated useful lives of the assets ranging from three to 25 years. INTANGIBLE ASSETS Origination fees relating to the 1994 Notes, 1996 Notes, 1998 Notes and deferred financing fees are being amortized using the straight-line method over the lives of the respective debt agreements. Covenants not to compete are being amortized over the respective lives of the agreements. The costs in excess of net assets acquired represent the excess purchase price over the fair value of the net assets acquired in the original acquisition of Berry Plastics and subsequent acquisitions. These costs are being amortized over a range of 15 to 20 years. Holding periodically evaluates the value of intangible assets to determine if an impairment has occurred. This evaluation is based on various analyses including reviewing anticipated cash flows. REVENUE RECOGNITION Revenue from sales of products is recognized at the time product is shipped to the customer. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts on the 1997 and 1996 financial statements have been reclassified to conform with the 1998 presentation. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS On December 28, 1997, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130) which establishes new rules for the reporting and display of comprehensive income and its components (net income and "other comprehensive income"). Adoption of the Statement had no impact on the Company's financial position. F-10 BPC HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED) In fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (FAS 131) which changes the basis on which public business enterprises report information about operating segments. The Company has two reportable segments: packaging products and housewares products. The Company's packaging business consists of three primary market groups: plastic aerosol overcaps, containers, and plastic drink cups. The Company's housewares business consists of semi-disposable plastic housewares and plastic lawn and garden products, sold primarily through major national retail marketers and national chain stores. The Company evaluates performance and allocates resources based on operating income before depreciation and amortization of intangibles adjusted to exclude (i) market value adjustment related to stock options, (ii) other non-recurring or "one-time" expenses, (iii) management fees and reimbursed expenses paid to First Atlantic and (iv) certain legal expenses associated with unusual litigation ("Adjusted EBITDA"). The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The Company's reportable segments are business units that offer different products to different markets.
YEAR ENDED JANUARY 2, DECEMBER 27, DECEMBER 28, 1999 1997 1996 ------------ -------------- -------------- Net sales: Packaging products ............................................... $ 250,270 $ 209,433 $ 151,058 Housewares products .............................................. 21,560 17,520 -- Adjusted EBITDA: Packaging products ............................................... 56,102 38,016 34,068 Housewares products .............................................. 3,662 2,253 -- Total assets: Packaging products ............................................... 218,537 202,198 145,798 Housewares products .............................................. 36,780 37,246 -- Reconciliation of Adjusted EBITDA to loss before income taxes: Adjusted EBITDA for reportable segments .......................... $ 59,764 $ 40,269 $ 34,068 Net interest expense ............................................. (34,556) (30,246) (20,075) Depreciation ..................................................... (20,690) (16,800) (10,807) Amortization ..................................................... (4,140) (2,226) (524) Loss on disposal of property and equipment ....................... (1,865) (226) (302) One-time expenses ................................................ (4,860) (4,216) (4,361) Stock option market value adjustment ............................. (600) -- (358) Management fees .................................................. (872) (828) (749) --------- --------- --------- Loss before income taxes ......................................... $ (7,819) $ (14,273) $ (3,108) ========= ========= =========
NOTE 3. ACQUISITIONS On January 17, 1997, the Company acquired certain assets and assumed certain liabilities of Container Industries, Inc. ("Container Industries") of Pacoima, California for $2.9 million. The purchase was funded out of operating funds. The operations of Container Industries are included in the Company's operations since the acquisition date using the purchase method of accounting. On January 21, 1997, the Company acquired the outstanding stock of PackerWare Corporation, a Kansas corporation, for aggregate consideration of approximately $28.1 million and merged PackerWare with a newly-formed, wholly- owned subsidiary of the Company (with PackerWare being the surviving corporation). The purchase was primarily financed through the Credit Facility (see Note 5). The operations of PackerWare are included in the Company's operations since the acquisition date using the purchase method of accounting. F-11 BPC HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED) On May 13, 1997, Berry Design, a newly-formed wholly-owned subsidiary of the Company, acquired substantially all of the assets and assumed certain liabilities of Virginia Design Packaging Corp. ("Virginia Design") for approximately $11.1 million. The purchase was financed through the Credit Facility (see Note 5). The operations of Berry Design are included in the Company's operations since the acquisition date using the purchase method of accounting. On August 29, 1997, the Company acquired the outstanding common stock of Venture Packaging for aggregate consideration of $43.7 million and merged Venture Packaging with a newly formed subsidiary of the Company (with Venture Packaging being the surviving corporation). The purchase was primarily financed through the Credit Facility (see Note 5). Additionally, preferred stock and warrants were issued to certain selling shareholders of Venture Packaging (see Note 9). The operations of Venture Packaging are included in the Company's operations since the acquisition date using the purchase method of accounting. On July 2, 1998, NIM Holdings, a newly-formed, wholly-owned subsidiary of Berry, acquired all of the capital stock of Norwich Moulders of Norwich, England for aggregate consideration of approximately $14.0 million. The purchase was primarily financed through the Credit Facility (see Note 9). The operations of Norwich Moulders are included in Berry's operations since the acquisition date using the purchase method of accounting. On October 16, 1998, Knight Plastics, Inc. ("Knight"), a newly formed wholly-owned subsidiary of Berry, acquired substantially all of the assets of the Knight Engineering and Plastics Division of Courtaulds Packaging Inc. for aggregate consideration of approximately $18.0 million. The purchase was financed through the Credit Facility's revolving line of credit. The pro forma results listed below are unaudited and reflect purchase accounting adjustments assuming the Container Industries, PackerWare, Virginia Design, and Venture acquisitions occurred on December 31, 1995; and the Norwich Moulders and Knight acquisitions occurred on December 29, 1996. YEAR ENDED ---------------------------------------------- JANUARY 2, DECEMBER 27, DECEMBER 28, 1999 1997 1996 ----------- ------------- ------------- Net sales ................... $ 296,485 $ 298,679 $ 257,098 Loss before income taxes .... (8,924) (19,808) (9,932) Net loss .................... (8,791) (20,178) (10,171) The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisitions been consummated at the above dates, nor are they necessarily indicative of future operating results. Further, the information gathered on the acquired companies is based upon unaudited internal financial information and reflects only pro forma adjustments for additional interest expense and amortization of the excess of the cost over the underlying net assets acquired, net of the applicable income tax effects. NOTE 4. INTANGIBLE ASSETS Intangible assets consist of the following: JANUARY 2, DECEMBER 27, 1999 1997 ------------ -------------- Deferred financing and origination fees .... $ 15,817 $ 14,578 Covenants not to compete ................... 6,233 4,598 Excess of cost over net assets acquired .... 49,197 32,464 Deferred acquisition costs ................. 20 13 Accumulated amortization ................... (12,313) (6,548) -------- -------- $ 58,954 $ 45,105 ======== ======== F-12 BPC HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED) Excess of cost over net assets acquired increased due to the acquisitions of Norwich Moulders and Knight to the extent the purchase price exceeded the fair value of the net assets acquired. NOTE 5. LONG-TERM DEBT Long-term debt consists of the following:
JANUARY 2, DECEMBER 27, 1999 1997 ------------- -------------- Holding 12.50% Senior Secured Notes ......................... $ 105,000 $ 105,000 Berry 12.25% Senior Subordinated Notes ...................... 125,000 100,000 Term loans .................................................. 71,243 58,300 Revolving line of credit .................................... 16,162 25,654 Nevada Industrial Revenue Bonds ............................. 4,500 5,000 Iowa Industrial Revenue Bonds ............................... -- 5,400 South Carolina Industrial Development Bonds ................. -- 6,985 Capital lease obligation payable through December 1999 ...... 561 547 Debt premium (discount), net ................................ 832 (551) --------- --------- 323,298 306,335 Less current portion of long-term debt ...................... 19,388 7,619 --------- --------- $ 303,910 $ 298,716 ========= =========
HOLDING 12.50% SENIOR SECURED NOTES On June 18, 1996, Holding, as part of a recapitalization (see Note 9), issued 12.50% Senior Secured Notes due 2006 (the "1996 Offering") for net proceeds, after expenses, of approximately $100.2 million (or $64.6 million after deducting the amount of such net proceeds used to purchase marketable securities available for payment of interest on the notes). These notes were exchanged in October 1996 for the 12.50% Series B Senior Secured Notes due 2006 (the "1996 Notes"). Interest is payable semi-annually on June 15 and December 15 of each year. In addition, from December 15, 1999 until June 15, 2001, Holding may, at its option, pay interest, at an increased rate of 0.75% per annum, in additional 1996 Notes valued at 100% of the principal amount thereof. In connection with the 1996 Notes, $35.6 million was placed in escrow, which has been invested in U.S. government securities, to pay three years' interest on the notes. Pending disbursement, the trustee will have a first priority lien on the escrow account for the benefit of the holders of the 1996 Notes. Funds may be disbursed from the escrow account only to pay interest on the 1996 Notes and, upon certain repurchases or redemptions of the notes, to pay principal of and premium, if any, thereon. The balance in the escrow account as of January 2, 1999 is $6.7 million. The 1996 Notes rank senior in right of payment to all existing and future subordinated debt of Holding, including Holding's subordinated guarantee of the 1994 Notes and 1998 Notes (as defined hereinafter) and PARI PASSU in right of payment with all senior debt of Holding. The 1996 Notes are effectively subordinated to all existing and future senior debt of Berry, including borrowings under the Credit Facility and the Nevada Industrial Revenue Bond. F-13 BPC HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED) BERRY 12.25% SENIOR SUBORDINATED NOTES On April 21, 1994, Berry completed an offering of 100,000 units consisting of $100.0 million aggregate principal amount of 12.25% Berry Plastics Corporation Senior Subordinated Notes, due 2004 (the "1994 Notes") and 100,000 warrants to purchase 1.13237 shares of Class A Common Stock, $.00005 par value (collectively the "1994 Transaction"), of Holding. The net proceeds to Berry from the sale of the 1994 Notes, after expenses, were $93.0 million. On August 24, 1998, Berry completed an additional offering of $25.0 million aggregate principal amount of 12.25% Series B Senior Subordinated Notes due 2004 (the "1998 Notes"). The net proceeds to Berry from the sale of the 1998 Notes, after expenses, were $25.2 million. The 1994 Notes and 1998 Notes mature on April 15, 2004 and interest is payable semi-annually on October 15 and April 15 of each year and commenced on October 15, 1994 and October 15, 1998 for the 1994 Notes and 1998 Notes respectively. Holding and all of Berry's subsidiaries fully, jointly, and severally, and unconditionally guarantee on a senior subordinated basis the 1994 Notes and 1998 Notes. There are no nonguarantor subsidiaries. Separate financial statements of guarantor subsidiaries have not been included as management believes those financial statements would not be material to investors. Berry is not required to make mandatory redemption or sinking fund payments with respect to the 1994 Notes and 1998 Notes. Subsequent to April 15, 1999, the 1994 Notes and 1998 Notes may be redeemed at the option of Berry, in whole or in part, at redemption prices ranging from 106.125% in 1999 to 100% in 2002 and thereafter. Upon a change in control, as defined in the indenture entered into in connection with the 1994 Transaction (the "1994 Indenture") and the 1998 Transaction ("1998 Indenture"), each holder of notes will have the right to require Berry to repurchase all or any part of such holder's notes at a repurchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued interest. The 1994 Notes and 1998 Notes rank PARI PASSU with or senior in right of payment to all existing and future subordinated debt of Berry. The notes rank junior in right of payment to all existing and future senior debt of Berry, including borrowings under the Credit Facility and the Nevada Industrial Revenue Bonds. The 1994 Indenture and 1998 Indenture contains certain covenants which, among other things, limit Berry and its subsidiaries' ability to incur debt, merge or consolidate, sell, lease or transfer assets, make dividend payments and engage in transactions with affiliates. CREDIT FACILITY Concurrent with the Venture Packaging Acquisition, the Company amended its then existing financing and security agreement (the "Security Agreement") with NationsBank, N.A. for a senior secured line of credit to increase the commitments thereunder to an aggregate principal amount of $127.2 million (the "Credit Facility"). Concurrently with the Norwich Acquisition, the Credit Facility was amended and increased to $132.6 million (plus an additional revolving credit facility of ?1.5 million (the "UK Revolver") and a term loan facility of ?4.5 million (the "UK Term Loan"), each for NIM Holdings and Norwich). The debt under the Credit Facility is guaranteed by Holding and substantially all of its subsidiaries. The obligations of the Company and the subsidiaries under the Credit Facility and the guarantees thereof are secured primarily by all of the assets of such persons. The Credit Facility replaced the facility previously provided by Fleet Capital Corporation. The Credit Facility provides the Company with (i) a $50.0 million revolving line of credit, subject to a borrowing base formula, (ii) the UK Revolver, subject to a borrowing base, (iii) a $63.7 million term loan facility, (iv) the UK Term Loan and (v) a $5.6 million standby letter of credit facility to support the Company's and its subsidiaries' obligations under the Nevada Bonds. The Credit Facility also provides for a $5.4 million term loan facility, the proceeds of which were used to retire in July 1998 the Company's and its subsidiaries' obligations under the Iowa Bonds, on which Berry Iowa had agreed, pursuant to a Loan and Trust Agreement with The City of Iowa Falls, Iowa, to pay amounts sufficient to pay principal, interest and any premium with respect to the Iowa Bonds. Also, the Credit Facility provided a term loan facility to support the Company's and its subsidiaries' obligations under the South Carolina Industrial Development Bonds. In August 1998, in conjunction with the closing and sale of the Anderson, South Carolina Facility, the Bonds were paid by the Company. The difference between the repayment of the development bonds and other related liabilities and the net proceeds from the sale of the facility of approximately $3.0 million has been financed with borrowings under the term loan facility. The Company borrowed F-14 BPC HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED) all amounts available under the term loan facility and the UK Term Loan to finance the PackerWare Acquisition, the Virginia Design Acquisition, the Venture Packaging Acquisition and the Norwich Acquisition. At January 2, 1999, the Company had unused borrowing capacity under the Credit Facility's revolving line of credit of approximately $26.3 million. The Credit Facility matures on January 21, 2002 unless previously terminated by the Company or by the lenders upon an Event of Default as defined in the Security Agreement. The term loan facility requires periodic payments, varying in amount, through the maturity of the facility. Interest on borrowings under the Credit Facility is based on either (i) the lender's base rate (which is the higher of the lender's prime rate and the federal funds rate plus 0.50%) plus an applicable margin of 0.50% or (ii) LIBOR (adjusted for reserves) plus an applicable margin of 2.0%, at the Company's option (7.0% at January 2, 1999 and 8.0% at December 27, 1997). Following receipt of the quarterly financial statements, the agent under the Credit Facility has the option to change the applicable interest rate margin on loans (other than under the UK Revolver and UK Term Loan) once per quarter to a specified margin determined by the ratio of funded debt to EBITDA of the Company and its subsidiaries. Notwithstanding the foregoing, interest on borrowings under the UK Revolver and the UK Term Loan is based on LIBOR (adjusted for reserves) plus 2.50%. The Credit Facility contains various covenants which include, among other things: (i) maintenance of certain financial ratios and compliance with certain financial tests and limitations, (ii) limitations on the issuance of additional debt and (iii) limitations on capital expenditures. NEVADA INDUSTRIAL REVENUE BONDS The Nevada Industrial Revenue Bonds bear interest at a variable rate (3.0% at January 2, 1999 and 4.6% at December 27, 1997), require annual principal payments of $0.5 million on April 1, are collateralized by irrevocable letters of credit issued by NationsBank under the Credit Facility and mature in April 2007. OTHER Future maturities of long-term debt are as follows: 1999, $19,388; 2000, $20,386; 2001, $16,105; 2002, $34,763; 2003, $500, and $231,324 thereafter. Interest paid was $33,236, $29,927 and $19,744 for 1998, 1997 and 1996, respectively. Interest capitalized was $777, $341 and $225 for 1998, 1997 and 1996, respectively. NOTE 6. LEASE AND OTHER COMMITMENTS Certain property and equipment are leased using capital and operating leases. Capitalized lease property consisted of manufacturing equipment with a cost of $2,970 and $1,661 and related accumulated amortization of $1,468 and $831 at January 2, 1999, and December 27, 1997, respectively. Capital lease amortization is included in depreciation expense. Total rental expense for operating leases was approximately $5,414, $3,332, and $2,344 for 1998, 1997, and 1996, 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 2, 1999 --------------------------------- CAPITAL LEASES OPERATING LEASES -------------- ---------------- 1999............................................. $ 606 $ 3,834 2000............................................. -- 3,724 2001............................................. -- 3,422 2002............................................. -- 2,805
F-15 BPC HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED)
2003............................................. -- 2,207 Thereafter....................................... -- 1,921 ------- -------- 606 $ 17,913 ======== Less: amount representing interest............... 45 ------- Present value of net minimum lease payments...... $ 561 =======
NOTE 7. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax liabilities and assets at January 2, 1999 and December 27, 1997 are as follows:
JANUARY 2, DECEMBER 27, 1999 1997 ------------- -------------- Deferred tax liabilities: Tax over book depreciation ................................. $ 11,080 $ 11,073 Deferred tax assets: Allowance for doubtful accounts ............................ 633 590 Inventory .................................................. 900 1,391 Compensation and benefit accruals .......................... 1,592 1,198 Insurance reserves ......................................... 436 338 Net operating loss carryforwards ........................... 10,012 8,372 Alternative minimum tax (AMT) credit carryforwards ......... 2,758 2,049 -------- -------- Total deferred tax assets ............................ 16,331 13,938 -------- -------- 5,251 2,865 Valuation allowance ............................................ (2,493) (816) -------- -------- Net deferred tax asset ......................................... $ 2,758 $ 2,049 ======== ========
Income tax expense consists of the following:
JANUARY 2, DECEMBER 27, DECEMBER 28, 1999 1997 1996 ------------ ------------- -------------- Current Federal ........................... $ (493) $ -- $ -- Foreign ........................... 152 -- -- State ............................. 92 138 186 Deferred Federal ........................... -- -- 69 State ............................. -- -- (16) ------- ------- ------- Income tax expense (benefit) ......... $ (249) $ 138 $ 239 ------- ------- -------
Holding has unused operating loss carryforwards of approximately $26.0 million for federal income tax purposes which begin to expire in 2010. AMT credit carryforwards are available to Holding indefinitely to reduce future years' federal income taxes. A tax sharing agreement is in place that allows Holding to make losses available to Berry. Income taxes paid during 1998, 1997 and 1996 approximated $526, $47, and $528 respectively. F-16 BPC HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED) A reconciliation of income tax expense, computed at the federal statutory rate, to income tax expense, as provided for in the financial statements, is as follows:
YEAR ENDED -------------------------------------------------- JANUARY 2, DECEMBER 27, DECEMBER 28, 1999 1997 1996 ------------ -------------- -------------- Income tax expense (benefit) computed at statutory rate ......... $(2,658) $(4,853) $(1,057) State income tax expense, net of federal benefit ................ 90 138 112 Amortization of goodwill ........................................ 339 285 -- Expenses not deductible for income tax purposes ................. 432 219 51 Change in valuation allowance ................................... 1,677 4,298 1,103 Other ........................................................... (129) 51 30 ------- ------- ------- Income tax expense (benefit) .................................... $ (249) $ 138 $ 239 ======= ======= =======
NOTE 8. EMPLOYEE RETIREMENT PLANS Berry sponsors a defined contribution 401(k) retirement plan covering substantially all employees. Contributions are based upon a fixed dollar amount for employees who participate and percentages of employee contributions at specified thresholds. Contribution expense for this plan was approximately $933, $629, and $531 for 1998, 1997 and 1996, respectively. NOTE 9. STOCKHOLDERS' EQUITY COMMON STOCK On June 18, 1996, Holding consummated the transaction described below (the "1996 Transaction"). BPC Mergerco, Inc. ("Mergerco"), a wholly owned subsidiary of Holding, was organized by Atlantic Equity Partners International II, L.P. ("International"), Chase Venture Capital Associates, L.P. ("CVCA"), and certain other institutional investors to effect the acquisition of a majority of the outstanding capital stock of Holding. Pursuant to the terms of a Common Stock Purchase Agreement dated as of June 12, 1996 each of International, CVCA and certain other equity investors (collectively the "Common Stock Purchasers") subscribed for shares of common stock of Mergerco. In addition, pursuant to the terms of a Preferred Stock Purchase Agreement dated as of June 12, 1996 (the "Preferred Stock Purchase Agreement"), CVCA and an additional institutional investor (the "Preferred Stock Purchasers") purchased shares of preferred stock of Mergerco (the "Preferred Stock") and warrants (the "1996 Warrants") to purchase shares of common stock of Mergerco. Immediately after the purchase of the common stock, the preferred stock and the 1996 Warrants of Mergerco, Mergerco merged (the "Merger") with and into Holding, with Holding being the surviving corporation. Upon the consummation of the Merger: each share of the Class A Common Stock, $.00005 par value, and Class B Common Stock, $.00005 par value, of Holding and certain privately-held warrants exercisable for such Class A and Class B Common Stock were converted into the right to receive cash equal to the purchase price per share for the common stock into which such warrants were exercisable less the amount of the nominal exercise price therefor, and all other classes of common stock of Holding, a majority of which was held by certain members of management, were converted into shares of common stock of the surviving corporation. In addition, upon the consummation of the Merger, the holders of the warrants (the "1994 Warrants") to purchase capital stock of Holding that were issued in connection with the 1994 Transaction became entitled to receive cash equal to the purchase price per share for the common stock into which such warrants were exercisable less the amount of the exercise price therefor. The Company's common stock shareholders who held common stock immediately preceding the 1996 Transaction retained 78% of the common stock. Additionally, a $2,762 bonus was paid to management employees who held unvested stock options at the time of the 1994 Transaction which is included in 1996 general and administrative expenses. The authorized capital stock of Holding consists of 3,500,000 shares of capital stock, including 2,500,000 shares of Common Stock, $.01 par value (the "Holding Common Stock"). Of the 2,500,000 shares of Holding F-17 BPC HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED) Common Stock, 500,000 shares are designated Class A voting Common Stock (the "Class A Voting Stock"), 500,000 shares are designated Class A Nonvoting Common Stock (the "Class A Nonvoting Stock"), 500,000 shares are designated Class B Nonvoting Common Stock (the "Class B Nonvoting Stock"), and 500,000 shares are designated Class C Nonvoting Common Stock (the "Class C Nonvoting Stock"). PREFERRED STOCK AND WARRANTS In connection with the 1996 Transaction, for aggregate consideration of $15.0 million, Mergerco issued units (the "Units") comprised of Series A Senior Cumulative Exchangeable Preferred Stock, par value $.01 per share (the "Preferred Stock"), and detachable warrants to purchase shares of Class B Common Stock (voting and non-voting) constituting 6% of the issued and outstanding Common Stock of all classes, determined on a fully-diluted basis (the "Warrants"). Dividends accrue at a rate of 14% per annum, payable quarterly in arrears (each date of payment, a "Dividend Payment Date") and will accumulate until declared and paid. Dividends declared and accruing prior to the first Dividend Payment Date occurring after the sixth anniversary of the issue date (the "Cash Dividend Date") may, at the option of Holding, be paid in cash in full or in part or accrue quarterly on a compound basis. Thereafter, all dividends are payable in cash in arrears. The dividend rate is subject to increase to a rate of (i) 16% per annum if (and for so long as) Holding fails to declare and pay dividends in cash for any quarterly period following the Cash Dividend Date and (ii) 15% per annum if (and for so long as) Holding fails to comply with its obligations relating to the rights and preferences of the Preferred Stock. If Holding fails to pay in full, in cash, (a) all accrued and unpaid dividends on or prior to the twelfth anniversary of the issue date or (b) all accrued dividends on any Dividend Payment Date following the twelfth anniversary of the issue date, the holders of Preferred Stock will be permitted to elect a majority of the Board of Directors of Holding. The Preferred Stock ranks prior to all other classes of stock of Holding upon liquidation and is entitled to receive, out of assets available for distribution, cash in the aggregate amount of $15.0 million, plus all accrued and unpaid dividends thereon. Subject to the terms of the 1996 Indenture, on any Dividend Payment Date, Holding has the option of exchanging the Preferred Stock, in whole but not in part, for Senior Subordinated Exchange Notes, at the rate of $25 in principal amount of notes for each $25 of liquidation preference of Preferred Stock held; provided, however, that no shares of Preferred Stock may be exchanged for so long as any shares of Preferred Stock are held by CVCA or its affiliates. Upon such exchange, Holding will be required to pay in cash all accrued and unpaid dividends. Pursuant to the Preferred Stock Purchase Agreement, the holders of Preferred Stock and Warrants have unlimited incidental registration rights (subject to cutbacks under certain circumstances). The exercise price of the Warrants is $.01 per Warrant and the Warrants are exercisable immediately upon issuance. All unexercised warrants will expire on the tenth anniversary of the issue date. The number of shares issuable upon exercise of a Warrant are subject to anti-dilution adjustments upon the occurrence of certain events. In conjunction with the Venture Packaging acquisition, Holding authorized and issued 200,000 shares of Series B Cumulative Preferred Stock to certain selling shareholders of Venture Packaging. The Preferred Stock has a stated value of $25 per share, and dividends accrue at a rate of 14.75% per annum and will accumulate until declared and paid. The Preferred Stock ranks junior to the Series A Preferred Stock and prior to all other capital stock of Holding. In addition, Warrants to purchase 9,924 shares of Class B Non-Voting Common Stock at $108 per share were issued to the same selling shareholders of Venture Packaging. STOCK OPTION PLAN Pursuant to the provisions of the BPC Holding Corporation 1996 Stock Option Plan (the "Option Plan") as amended, whereby 51,620 shares have been reserved for future issuance, Holding has granted options to certain officers and key employees to acquire shares of Class B Nonvoting Common Stock. These options are subject to various agreements, which among other things, set forth the class of stock, option price and performance thresholds to determine exercisability and vesting requirements. The Option Plan expires October 3, 2003 or such earlier date F-18 BPC HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED) on which the Board of Directors of Holding, in its sole discretion, determines. Option prices range from $100 to $122 per share. Options granted under the Option Plan typically expire after seven years and vest over a five-year period with half of each person's award based on continued employment and half based on the Company achieving financial performance targets. FASB 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 Option Plan is as follows:
JANUARY 2, 1999 DECEMBER 27, 1997 ----------------------- ------------------------ WEIGHTED WEIGHTED NUMBER AVERAGE NUMBER AVERAGE OF EXERCISE OF EXERCISE SHARES PRICE SHARES PRICE ------------ -------- ------------ -------- Options outstanding, beginning of year .............. 47,708 $ 101 43,393 $ 100 Options granted ................... 11,005 122 5,425 106 Options exercised ................. -- -- -- -- Options canceled .................. 7,984 100 (1,110) 100 ------------ ------------ Options outstanding, end of year ........................... 50,729 105 47,708 101 ============ ============ Option price range at end of year ........................... $100 - $122 $100 - $108 Options exercisable at end of year ........................... 25,191 13,561 Options available for grant at year end .................... 891 3,912 Weighted average fair value of options granted during year ........................... $ 122 $ 106
The following table summarizes information about the options outstanding at January 2, 1999: WEIGHTED NUMBER AVERAGE WEIGHTED RANGE OF OUTSTANDING REMAINING AVERAGE NUMBER EXERCISE AT JANUARY 2, CONTRACTUAL EXERCISE EXERCISABLE AT PRICES 1999 LIFE PRICE JANUARY 2, 1999 - ----------- ------------- ----------- -------- --------------- $100 - $122 50,729 3 years $105 25,191 Disclosure of pro forma financial information is required by Statement 123 as if the Company had accounted for its employee stock options using the fair value method as defined by the Statement. The fair value for options granted by the Company have been estimated at the date of grant using a Black Scholes option pricing model with the following weighted average assumptions: YEAR ENDED ---------------------------------------- JANUARY 2, DECEMBER 27, DECEMBER 28, 1999 1997 1996 ---------- ----------- ------------ Risk-free interest rate ............ 6.4% 6.4% 6.5% Dividend yield ..................... 0.0% 0.0% 0.0% Volatility factor .................. .20 .07 .01 Expected option life ............... 4.0 years 4.0 years 5.0 years F-19 BPC HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED) For purposes of the pro forma disclosures, the estimated fair value of the stock options are amortized to expense over the related vesting period. Because compensation expense is recognized over the vesting period, the initial impact on pro forma net loss may not be representative of compensation expense in future years, when the effect of amortization of multiple awards would be reflected in the Consolidated Statement of Operations. The Company's pro forma net losses giving effect to the estimated compensation expense related to stock options are as follows: YEAR ENDED ---------------------------------------- JANUARY 2, DECEMBER 27, DECEMBER 28, 1999 1997 1996 ---------- ----------- ------------ Net loss......................... $ (7,198) $ (14,594) $ (3,389) STOCKHOLDERS AGREEMENTS Holding entered into a new stockholders agreement (the "New Stockholders Agreement") dated as of June 18, 1996 with the Common Stock Purchasers, certain management stockholders and, for limited purposes thereunder, the Preferred Stock Purchasers. The New Stockholders Agreement grants certain rights including, but not limited to, designation of members of Holding's Board of Directors, the initiation of an initial public offering of equity securities of the Company or a sale of Holding. The agreement also restricts certain transfers of Holding's equity. Holding entered into an amended and restated agreement with its management stockholders and International on June 18, 1996. The agreement contains provisions (i) limiting transfers of equity by the management stockholders; (ii) requiring the management stockholders to sell their shares as designated by Holding or International upon the consummation of certain transactions; (iii) granting the management stockholders certain rights of co-sale in connection with sales by International; (iv) granting rights to repurchase capital stock from the management stockholders upon the occurrence of certain events; and (v) requiring the management stockholders to offer shares to Holding prior to any permitted transfer. NOTE 10. RELATED PARTY TRANSACTIONS The Company is party to a management agreement (the "Management Agreement") with First Atlantic Capital, Ltd. ("First Atlantic"). In connection with the 1996 Transaction, Holding paid a fee of $1,250 plus reimbursement for out-of-pocket expenses to First Atlantic for advisory services, including originating, structuring and negotiating the 1996 Transaction. First Atlantic also received advisory fees of $966 for originating, structuring and negotiating the 1997 acquisitions and advisory fees of approximately $140 and $180 in July 1998 and October 1998, respectively, for originating, structuring and negotiating the Norwich Acquisition and the Knight Acquisition, respectively. In consideration of financial advisory and management consulting services, the Company paid First Atlantic fees and expenses of $835, $771 and $788 for fiscal 1998, 1997, and 1996, respectively. NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS INFORMATION The Company's financial instruments generally consist of cash and cash equivalents and the Company's long-term debt. The carrying amounts of the Company's financial instruments approximate fair value at January 2, 1999, except for the 1994 Notes and the 1996 Notes for which the fair value exceed the carrying value by approximately $4.5 million and $4.2 million, respectively. F-20 BPC HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED) NOTE 12. SUMMARY FINANCIAL INFORMATION (IN THOUSANDS) The following summarizes consolidated financial information of Holding's wholly- owned subsidiary, Berry Plastics Corporation and subsidiaries: JANUARY 2, DECEMBER 27, 1999 1997 ---------- ------------ CONSOLIDATED BALANCE SHEETS Current assets ................................... $ 65,590 $ 62,824 Property and equipment - net of accumulated depreciation ..................................... 120,005 108,218 Other noncurrent assets .......................... 58,716 44,480 Current liabilities .............................. 60,210 42,158 Noncurrent liabilities ........................... 210,093 205,172 Equity (deficit) ................................. (25,992) (31,808) YEAR ENDED ----------------------------------------- JANUARY 2, DECEMBER 27, DECEMBER 28, 1999 1997 1996 ---------- ------------ ------------ CONSOLIDATED STATEMENTS OF OPERATIONS Net sales ........................... $ 271,830 $ 226,954 $ 151,058 Cost of goods sold .................. 199,226 180,249 110,110 Income (loss) before income taxes ... 5,650 (2,493) 6,490 Net income (loss) ................... 5,899 (2,631) 5,989 The following summarizes parent company only financial information of Berry: JANUARY 2, DECEMBER 27, 1999 1997 ---------- ------------ BALANCE SHEET Current assets ................................... $ 28,579 $ 31,492 Property and equipment - net of accumulated depreciation ..................................... 48,220 45,091 Investment in/due from subsidiaries .............. 120,230 87,613 Other noncurrent assets .......................... 15,629 14,111 Current liabilities .............................. 41,325 53,506 Noncurrent liabilities ........................... 197,325 156,609 Equity (deficit) ................................. (25,992) (31,808) YEAR ENDED ----------------------------------------- JANUARY 2, DECEMBER 27, DECEMBER 28, 1999 1997 1996 ---------- ------------ ------------ STATEMENTS OF OPERATIONS Net sales ........................... $ 140,856 $ 140,976 $ 108,253 Cost of goods sold .................. 91,763 101,769 75,861 Income (loss) before income taxes ... 5,650 (2,493) 6,490 Net income (loss) ................... 5,899 (2,631) 5,989 F-21 BPC HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS)
OCTOBER 2, JANUARY 2, 1999 1999 ------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents ............................................. $ 2,089 $ 2,318 Accounts receivable (less allowance for doubtful accounts of $1,648 at October 2, 1999 and $1,651 at January 2, 1999) ...... 44,097 29,951 Inventories: Finished goods ................................................... 27,185 23,146 Raw materials and supplies ....................................... 11,070 8,556 -------- -------- 38,255 31,702 Prepaid expenses and other receivables ................................ 3,087 1,665 Income taxes recoverable .............................................. 45 577 -------- -------- Total current assets ...................................................... 87,573 66,213 Assets held in trust ...................................................... 267 6,679 Property and equipment: Land .................................................................. 8,180 7,769 Buildings and improvements ............................................ 42,941 38,960 Machinery, equipment and tooling ...................................... 162,310 141,054 Automobiles and trucks ................................................ 1,448 1,386 Construction in progress .............................................. 28,979 11,780 -------- -------- 243,858 200,949 Less accumulated depreciation ......................................... 96,357 80,944 -------- -------- 147,501 120,005 Intangible assets: Deferred financing and origination fees, net .......................... 12,192 10,327 Covenants not to compete, net ......................................... 3,446 4,404 Excess of cost over net assets acquired, net .......................... 84,932 44,536 Deferred acquisition costs ............................................ 84 20 -------- -------- 100,654 59,287 Deferred income taxes ..................................................... 2,758 2,758 Other ..................................................................... 1,363 375 ======== ======== Total assets .............................................................. $340,116 $255,317 ======== ========
F-22 BPC HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (IN THOUSANDS OF DOLLARS)
OCTOBER 2 JANUARY 2, 1999 1999 ------------ ------------ (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable ....................................................... $ 19,028 $ 18,059 Accrued expenses and other liabilities ................................. 14,391 9,944 Accrued interest ....................................................... 13,238 4,166 Employee compensation and payroll taxes ................................ 15,885 8,953 Income taxes ........................................................... 892 941 Current portion of long-term debt ...................................... 17,546 19,388 --------- --------- Total current liabilities .................................................. 80,980 61,451 Long-term debt, less current portion ....................................... 372,402 303,910 Accrued dividends on preferred stock ....................................... 10,222 7,225 Deferred income taxes ...................................................... 494 497 Other liabilities .......................................................... 1,872 2,591 --------- --------- 465,970 375,674 Stockholders' equity (deficit): Series A Preferred Stock; 800,000 shares authorized; 600,000 shares issued and outstanding (net of discount of $2,551 at October 2, 1999 and $2,770 at January 2, 1999) ............................................... 12,021 11,801 Series B Preferred Stock; 200,000 shares authorized, issued and outstanding ................................................... 5,000 5,000 Class A Common Stock; $.01 par value: Voting; 500,000 shares authorized; 91,000 shares issued and outstanding ................................. 1 1 Nonvoting; 500,000 shares authorized; 259,000 shares issued and outstanding ................................. 3 3 Class B Common Stock; $.01 par value: Voting; 500,000 shares authorized; 145,058 shares issued and 144,546 shares outstanding ......................... 1 1 Nonvoting; 500,000 shares authorized; 58,612 shares issued and 57,169 shares outstanding .......................... 1 1 Class C Common Stock; $.01 par value: Nonvoting; 500,000 shares authorized; 17,000 shares issued and 16,833 shares outstanding .......................... -- -- Treasury stock: 512 shares Class B Voting Common Stock; 1,443 shares Class B Nonvoting Common Stock; and 167 shares Class C Nonvoting Common Stock ......................... (296) (280) Additional paid-in capital ............................................. 42,395 45,611 Warrants ............................................................... 3,511 3,511 Retained earnings (deficit) ............................................ (188,339) (185,923) Accumulated other comprehensive loss ................................... (152) (83) --------- --------- Total stockholders' equity (deficit) ....................................... (125,854) (120,357) ========= ========= Total liabilities and stockholders' equity (deficit) ....................... $ 340,116 $ 255,317 ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-23 BPC HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS OF DOLLARS)
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED --------------------------------- --------------------------------- OCTOBER 2, SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26, 1999 1998 1999 1998 ------------ --------------- ------------ -------------- (Unaudited) (Unaudited) Net sales .......................................... $ 90,105 $ 68,800 $ 249,956 $ 205,116 Cost of goods sold ................................. 68,458 51,066 181,240 151,083 --------- --------- --------- --------- Gross margin ....................................... 21,647 17,734 68,716 54,033 Operating expenses: Selling ..................................... 4,630 3,769 13,183 10,881 General and administrative .................. 5,336 4,502 17,220 13,301 Research and development .................... 537 488 1,712 1,231 Amortization of intangibles ................. 2,432 776 4,981 2,483 Other ....................................... 1,224 877 2,890 3,240 --------- --------- --------- --------- Operating income ................................... 7,488 7,322 28,730 22,897 Other income and expense: Loss on disposal of property and equipment ................................... 372 62 1,150 492 --------- --------- --------- --------- Income before interest and income taxes ............ 7,116 7,260 27,580 22,405 Interest: Expense ..................................... (11,516) (9,083) (29,539) (26,524) Income ...................................... 41 259 204 833 --------- --------- --------- --------- Loss before income taxes ........................... (4,359) (1,564) (1,755) (3,286) Income tax expense ................................. 175 306 659 331 --------- --------- --------- --------- Net loss ........................................... (4,534) (1,870) (2,414) (3,617) Preferred stock dividends .......................... (1,034) (837) (2,996) (2,620) Amortization of preferred stock discount ........... (73) (73) (219) (219) ========= ========= ========= ========= Net loss attributable to common stockholders ......................... $ (5,641) $ (2,780) $ (5,629) $ (6,456) ========= ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-24 BPC HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
THIRTY-NINE WEEKS ENDED --------------------------------- OCTOBER 2, SEPTEMBER 26, 1999 1998 ------------ --------------- (Unaudited) OPERATING ACTIVITIES Net loss .............................................................. $ (2,414) $ (3,617) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation ................................................. 18,085 15,466 Non-cash interest expense .................................... 1,404 1,335 Amortization ................................................. 4,981 2,483 Interest funded by assets held in trust ...................... 6,413 6,617 Loss on sale of property and equipment ....................... 1,150 492 Changes in operating assets and liabilities: Accounts receivable, net ................................ (7,079) (3,590) Inventories ............................................. 706 3,492 Prepaid expenses and other receivables .................. (1,391) 316 Other assets ............................................ (4,757) 5,935 Payables and accrued expenses ........................... 15,299 (349) -------- -------- Net cash provided by operating activities ............................. 32,397 28,580 INVESTING ACTIVITIES Additions to property and equipment ................................... (25,580) (13,540) Proceeds from disposal of property and equipment ...................... 455 4,452 Acquisitions of businesses ............................................ (71,293) (15,948) -------- -------- Net cash used for investing activities ................................ (96,418) (25,036) FINANCING ACTIVITIES Proceeds from long-term borrowings .................................... 81,333 42,254 Payments on long-term borrowings ...................................... (14,520) (40,244) Debt issuance costs ................................................... (3,000) (1,141) Proceeds from issuance of common stock ................................ 56 80 Purchase of stock from management ..................................... (16) (59) -------- -------- Net cash provided by (used for) financing activities .................. 63,853 890 -------- -------- Effect of exchange rate changes on cash ............................... (61) -- -------- -------- Net increase (decrease) in cash and cash equivalents .................. (229) 4,434 Cash and cash equivalents at beginning of period ...................... 2,318 2,688 -------- -------- Cash and cash equivalents at end of period ............................ $ 2,089 $ 7,122 ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-25 BPC HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED) (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of BPC Holding Corporation and its subsidiaries (collectively, the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full fiscal year. The accompanying financial statements include the results of BPC Holding Corporation ("Holding") and its wholly-owned subsidiary, Berry Plastics Corporation ("Berry"), and its wholly-owned subsidiaries: Berry Iowa Corporation, Berry Tri-Plas Corporation, Berry Sterling Corporation, AeroCon, Inc., PackerWare Corporation, Berry Plastics Design Corporation, Venture Packaging, Inc., Venture Packaging Midwest, Inc., Venture Packaging Southeast, Inc., NIM Holdings Limited ("NIM Holdings"), Norwich Injection Moulders Limited ("Norwich Moulders"), Knight Plastics, Inc., CPI Holding Corporation, Cardinal Packaging, Inc., Norwich Acquistion Limited, and Berry Plastics Acquisition Corporation. For further information, refer to the consolidated financial statements and footnotes thereto included in Holding's and Berry's Form 10-K's filed with the Securities and Exchange Commission for the year ended January 2, 1999. Certain amounts in the 1998 financial statements have been reclassified to conform with the 1999 presentation. 2. ACQUISITIONS On July 2, 1998, NIM Holdings, a newly-formed, wholly-owned subsidiary of Berry, acquired all of the capital stock of Norwich Moulders of Norwich, England for aggregate consideration of approximately $14.0 million. The purchase was primarily financed through Berry's credit. The operations of Norwich Moulders are included in Berry's operations since the acquisition date using the purchase method of accounting. On October 16, 1998, Knight Plastics, Inc. ("Knight"), a newly formed wholly-owned subsidiary of Berry, acquired substantially all of the assets of the Knight Engineering and Plastics Division of Courtaulds Packaging Inc. for aggregate consideration of approximately $18.0 million. The purchase was financed through Berry's revolving line of credit. The operations of Knight are included in Berry's operations since the acquisition date using the purchase method of accounting. On July 6, 1999, Berry acquired all of the outstanding capital stock of CPI Holding Corporation ("Cardinal"), the parent company of Cardinal Packaging, Inc., for aggregate consideration of approximately $72.0 million. The purchase price and allocation of such to the purchased assets and liabilities is preliminary and subject to completion of Cardinal's working capital accounts. The purchase was financed through the issuance by Berry of $75.0 million of 11% Senior Subordinated Notes. The operations of Cardinal are included in Berry's operations since the acquisition date using the purchase method of accounting. The pro forma results listed below are unaudited and reflect purchase accounting adjustments assuming the Norwich Moulders, Knight, and Cardinal acquisitions occurred on December 28, 1997.
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED --------------------- ------------------------------------ SEPTEMBER 26, SEPTEMBER 26, OCTOBER 2, 1998 1998 1999 --------------------- --------------- -------------- Net sales ........................... $ 88,940 $ 270,370 $ 278,422 Loss before income taxes ............ (3,436) (9,878) (5,262) Net loss ............................ (3,742) (10,326) (5,921)
F-26 The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisitions been consummated at the above date, nor are they necessarily indicative of future operating results. Further, the information gathered on the acquired companies is based upon unaudited internal financial information and reflects only pro forma adjustments for additional interest expense and amortization of the excess of the cost over the underlying net assets acquired, net of the applicable income tax effects. 3. LONG-TERM DEBT Long-term debt consists of the following: OCTOBER 2, JANUARY 2, 1999 1999 ------------ ------------ Holding 12.50% Senior Secured Notes ........... $105,000 $105,000 Berry 12.25% Senior Subordinated Notes ........ 125,000 125,000 Berry 11% Senior Subordinated Notes ........... 75,000 -- Term loans .................................... 56,819 71,243 Revolving line of credit ...................... 22,768 16,162 Nevada Industrial Revenue Bonds ............... 4,000 4,500 Capital leases ................................ 640 561 Debt premium, net ............................. 721 832 -------- -------- 389,948 323,298 Less current portion of long-term debt ........ 17,546 19,388 ======== ======== $372,402 $303,910 ======== ======== The current portion of long-term debt consists of $16.9 million of quarterly installments on the term loans, a $0.5 million repayment of the industrial bonds and the monthly principal payments related to capital lease obligations. On July 6, 1999, Berry completed an offering of $75.0 million aggregate principal amount of 11% Series B Senior Subordinated Notes due 2007 (the "1999 Notes"). The net proceeds to Berry from the sale of the 1999 Notes, after expenses, were $72.0 million. The proceeds from the 1999 Notes were used to finance the Cardinal acquisition. The 1999 Notes mature on July 15, 2007 and interest is payable semi-annually on January 15 and July 15 of each year. Holding and all of Berry's subsidiaries fully, jointly, severally, and unconditionally guarantee on a senior subordinated basis the 1999 Notes. There are no nonguarantor subsidiaries. The debt under Berry's credit facility is guaranteed by BPC Holding and substantially all of its subsidiaries. As of October 2, 1999, the credit facility provided an aggregate commitment of about $134.4 million including (i) $70.0 million revolving line of credit, subject to a borrowing base formula; (ii) (pound)1.5 million revolving line of credit, subject to a borrowing base ("UK Revolver"); (iii) $51.1 million term loan facility; (iv) (pound)3.4 million term loan facility ("UK Term Loan"); and (v) $5.2 million standby letter of credit facility to support Berry and its subsidiaries' obligations under its Nevada Industrial Revenue Bonds. At October 2, 1999, Berry had unused borrowing capacity under the credit facility's revolving line of credit of about $23.9 million. The credit facility matures on January 21, 2002 unless previously terminated by the Company or by the lenders upon an Event of Default as defined in the Security Agreement. The term loan facilities require periodic principal payments, varying in amount through the maturity of the facility. Such periodic payments will aggregate about $19.0 million for fiscal 1999 and about $19.9 million for fiscal 2000. Interest on borrowings under the credit facility is based on either the lender's base rate (which is the higher of the lender's prime rate and the federal funds rate plus 0.50%) plus an applicable margin of 0.50%; or LIBOR (adjusted for reserves) plus an applicable margin of 2.0%, at our option. Following receipt of the quarterly financial statements, the agent under the credit facility has the option to change the applicable interest rate margin on loans (other than under the UK Revolver and UK Term Loan) once per quarter to a specified margin determined by the ratio of funded debt to EBITDA of Berry Plastics and its subsidiaries. Notwithstanding the foregoing, interest on borrowings under the UK Revolver and the UK Term Loan is based on LIBOR (adjusted for reserves) plus 2.50%. F-27 The credit facility contains various covenants which include, among other things (i) maintenance of certain financial ratios and compliance with certain financial tests and limitations, (ii) limitations on the issuance of additional debt, and (iii) limitations on capital expenditures. F-28 4. BERRY PLASTICS CORPORATION SUMMARY FINANCIAL INFORMATION The following summarizes financial information of Holding's wholly-owned subsidiary, Berry Plastics Corporation, and its subsidiaries. OCTOBER 2, JANUARY 2, 1999 1999 ------------ ------------ CONSOLIDATED BALANCE SHEETS Current assets ........................... $ 87,142 $ 65,590 Property and equipment - net of accumulated depreciation ............... 147,501 120,005 Other noncurrent assets .................. 93,346 58,716 Current liabilities ...................... 76,223 60,210 Noncurrent liabilities ................... 269,765 210,093 Equity (deficit) ......................... (17,999) (25,992)
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED -------------------------------- -------------------------------- OCTOBER 2, SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26, 1999 1998 1999 1998 ----------- -------------- ------------ -------------- CONSOLIDATED STATEMENT OF OPERATIONS Net sales ....................................... $ 90,105 $ 68,800 $249,956 $205,116 Cost of goods sold .............................. 68,458 51,066 181,240 151,083 Income (loss) before income taxes ............... (749) 1,652 8,716 6,223 Net income (loss) ............................... (924) 1,346 8,064 5,892
The following summarizes parent company only financial information of Berry:
OCTOBER 2, JANUARY 2, 1999 1999 -------------- ------------ BALANCE SHEETS Current assets .................................................. $ 36,350 $ 28,579 Property and equipment - net of accumulated depreciation ........ 51,458 48,220 Investment in/due from subsidiaries ............................. 185,151 120,230 Other noncurrent assets ......................................... 17,939 15,629 Current liabilities ............................................. 46,381 41,325 Noncurrent liabilities .......................................... 262,516 197,325 Equity (deficit) ................................................ (17,999) (25,992)
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED ----------------------------- ----------------------------- OCTOBER 2, SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26, 1999 1998 1999 1998 ------------ -------------- ----------- --------------- CONSOLIDATED STATEMENTS OF OPERATIONS Net sales .................................... $ 40,415 $ 35,294 $116,623 $107,702 Cost of goods sold ........................... 28,033 23,001 76,675 70,055 Income before income taxes ................... 1,896 3,968 10,406 8,539 Net income ................................... 1,781 3,878 9,987 8,424
F-29 5. SEGMENT REPORTING The Company has two reportable segments: plastic packaging products and plastic housewares products. The Company's plastic packaging business consists of three primary market groups: aerosol overcaps, containers, and drink cups. The Company's plastic housewares business consists of semi-disposable plastic housewares and plastic lawn and garden products, sold primarily through major national retail marketers and national chain stores. The Company evaluates performance and allocates resources based on operating income before depreciation and amortization of intangibles adjusted to exclude (i) market value adjustment related to stock options, (ii) other non-recurring or "one-time" expenses, (iii) management fees and reimbursed expenses paid to First Atlantic Capital, Ltd. and (iv) certain legal expenses associated with unusual litigation ("Adjusted EBITDA"). The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The Company's reportable segments are business units that offer different products to different markets.
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED ---------------------------- ---------------------------- OCTOBER 2, SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26, 1999 1998 1999 1998 ------------ -------------- ----------- -------------- Net sales: Plastic packaging products ....................................... $ 87,329 $ 65,273 $ 227,771 $ 186,168 Plastic housewares products ...................................... 2,776 3,527 22,185 18,948 Adjusted EBITDA: Plastic packaging products ....................................... 17,496 14,611 51,411 41,782 Plastic housewares products ...................................... 414 125 4,155 3,020 Reconciliation of Adjusted EBITDA to loss before income taxes: Adjusted EBITDA for reportable segments ......................... $ 17,910 $ 14,736 $ 55,566 $ 44,802 Net interest expense ............................................ (11,475) (8,824) (29,335) (25,691) Depreciation .................................................... (6,525) (5,391) (18,085) (15,466) Amortization .................................................... (2,432) (775) (4,981) (2,483) Loss on disposal of property and equipment .................................................... (372) (62) (1,150) (492) One-time expenses ............................................... (1,224) (877) (2,890) (3,240) Stock option market value adjustment ............................ (23) (152) (225) (62) Management fees ................................................. (218) (219) (655) (654) --------- --------- --------- --------- Loss before income taxes ........................................ $ (4,359) $ (1,564) $ (1,755) $ (3,286) ========= ========= ========= =========
6. COMPREHENSIVE LOSS Comprehensive loss was $4.6 million and $1.9 million for the thirteen weeks ended October 2, 1999 and September 26, 1998, respectively, and $2.5 million and $3.7 million for the thirty-nine weeks ended October 2, 1999 and September 26, 1998, respectively. F-30 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders CPI Holding, Inc. and Subsidiary We have audited the accompanying consolidated balance sheets of CPI Holding, Inc. and Subsidiary as of November 30, 1998 and 1997, and the related consolidated statements of income, mandatorily redeemable preferred stock and shareholders' equity, and cash flows for the years ended November 30, 1998 and 1997 and for the period January 26, 1996 (Date of Acquisition) to November 30, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of CPI Holding, Inc. and Subsidiary as of November 30, 1998 and 1997, and the results of their operations and their cash flows for the years ended November 30, 1998 and 1997 and for the period January 26, 1996 (Date of Acquisition) to November 30, 1996 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Cleveland, Ohio June 11, 1999 F-31 CPI HOLDING, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS NOVEMBER 30, 1998 AND 1997
ASSETS (NOTE 4) 1998 1997 ----------- ----------- CURRENT ASSETS: Cash and cash equivalents .......................... $ 101,748 $ 18,624 Accounts receivable, less allowances of $163,000 and $72,000 .......................................... 5,397,359 5,260,109 Inventories ........................................ 7,553,127 7,878,158 Prepaid expenses ................................... 579,064 455,492 Prepaid income taxes ............................... 428,019 50,600 Deferred income taxes (Note 7) ..................... 305,000 215,000 ----------- ----------- Total current assets ............................. 14,364,317 13,877,983 ----------- ----------- PROPERTY AND EQUIPMENT: Land ............................................... 295,000 295,000 Building and improvements .......................... 3,597,818 3,526,034 Machinery and equipment ............................ 24,587,601 22,222,100 Molds .............................................. 12,486,433 10,720,280 ----------- ----------- Total ............................................ 40,963,852 36,763,414 ----------- ----------- Less accumulated depreciation and amortization ..... 9,271,295 5,670,397 ----------- ----------- Property and equipment, net ........................ 31,692,557 31,093,017 ----------- ----------- GOODWILL, less accumulated amortization of $1,078,511 in 1998 and $734,756 in 1997 ..................... 14,147,546 14,491,301 ----------- ----------- OTHER ASSETS (Note 3) ................................. 1,004,109 1,267,964 ----------- ----------- TOTAL ................................................. $61,208,529 $60,730,265 =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these financial statements. F-32 CPI HOLDING, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (CONTINUED) NOVEMBER 30, 1998 AND 1997
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997 ------------ ------------ CURRENT LIABILITIES: Current portion of long-term debt (Note 4) .......... $ 4,060,780 $ 3,519,064 Current portion of long service executive nonqualified pension (Note 5) ....................... 420,310 380,000 Accounts payable .................................... 2,595,014 2,922,093 Accrued liabilities ................................. 547,524 881,507 ------------ ------------ Total current liabilities ......................... 7,623,628 7,702,664 LONG-TERM DEBT, less current portion (Note 4) .......... 28,388,825 28,132,857 LONG SERVICE EXECUTIVE NONQUALIFIED PENSION, less current portion (Note 5) ............................ 544,424 968,000 DEFERRED INCOME TAXES (Note 7) ......................... 5,182,000 4,611,000 Total liabilities ................................. 41,738,877 41,414,521 ------------ ------------ MANDATORILY REDEEMABLE PREFERRED STOCK (Note 9) ........ 18,761,668 17,171,325 ------------ ------------ SHAREHOLDERS' EQUITY (Notes 4 and 10): Common stock: Class A (voting), $.01 par value, authorized 500,000 shares, 89,281.5 in 1998 and 90,114.8 in 1997 issued and outstanding ..................... 893 901 Class B (non-voting), $.01 par value, authorized 300,000 shares, 124,760 issued and outstanding .. 1,247 1,247 Class C (non-voting), $.01 par value, authorized 200,000 shares, 90,791.6 issued and outstanding . 908 908 Additional paid-in capital ........................ 883,848 2,392,768 ESOP receivable (Note 8) .......................... (113,912) (186,405) Stock subscription receivable ..................... (65,000) (65,000) ------------ ------------ Total shareholders' equity ....................... 707,984 2,144,419 ------------ ------------ TOTAL .................................................. $ 61,208,529 $ 60,730,265 ============ ============
The accompanying notes to consolidated financial statements are an integral part of these financial statements. F-33 CPI HOLDING, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED NOVEMBER 30, 1998 AND 1997 AND FOR THE PERIOD JANUARY 26, 1996 (DATE OF ACQUISITION) TO NOVEMBER 30, 1996
1998 1997 1996 ------------ ------------ ------------ (10 MONTHS) NET SALES ............................... $ 53,970,517 $ 54,387,787 $ 45,416,838 COST OF SALES ........................... 43,066,403 42,421,263 34,275,302 ------------ ------------ ------------ GROSS PROFIT ............................ 10,904,114 11,966,524 11,141,536 ------------ ------------ ------------ OPERATING EXPENSES: Selling .............................. 3,087,033 3,113,293 2,790,338 General and administrative (Note 11) . 3,176,276 2,949,312 2,164,232 ESOP contribution (Note 8) ........... 26,720 30,999 209,780 ------------ ------------ ------------ Total operating expenses .......... 6,290,029 6,093,604 5,164,350 ------------ ------------ ------------ INCOME FROM OPERATIONS .................. 4,614,085 5,872,920 5,977,186 OTHER INCOME (EXPENSE): Interest expense ..................... (3,383,736) (3,531,327) (3,188,345) Miscellaneous, net ................... 5,602 (8,225) 1,500 ------------ ------------ ------------ INCOME BEFORE INCOME TAXES .............. 1,235,951 2,333,368 2,790,341 INCOME TAXES (Note 7) ................... 438,700 797,000 1,056,000 ------------ ------------ ------------ NET INCOME .............................. $ 797,251 $ 1,536,368 $ 1,734,341 ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these financial statements. F-34 CPI HOLDING, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY FOR THE YEAR ENDED NOVEMBER 30, 1998
SHAREHOLDERS' EQUITY MANDATORILY REDEEMABLE ----------------------------------------------- PREFERRED STOCK COMMON STOCK ADDITIONAL ------------------------ ------------------- PAID-IN RETAINED SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS -------- ------------ -------- ------- ----------- --------- BALANCE - DECEMBER 1, 1997 .................... 141,134 $ 17,171,325 305,666 $ 3,056 $ 2,392,768 REDEMPTION OF STOCK: Common stock ............................ (833) (8) (22,145) Preferred stock ......................... (167) (20,347) NET INCOME .................................... $ 797,251 TAX BENEFIT OF DIVIDENDS PAID TO ESOP FOR UNALLOCATED SHARES ...................... 26,664 REPAYMENT OF ESOP RECEIVABLE .............................. DIVIDENDS: Paid ($8.75 per Class A Preferred Shares outstanding) ......................... (700,000) Increase in accumulated but not declared dividends on mandatorily redeemable preferred stock ..................... 2,310,690 (1,486,775) (823,915) -------- ------------ -------- ------- ----------- --------- BALANCE, NOVEMBER 30, 1998 .................... 140,967 $ 18,761,668 304,833 $ 3,048 $ 883,848 -- ======== ============ ======== ======= =========== ========= SHAREHOLDERS' EQUITY ------------------------------------------- STOCK TOTAL ESOP SUBSCRIPTION SHAREHOLDERS' RECEIVABLE RECEIVABLE EQUITY ---------- ------------ ------------- BALANCE - DECEMBER 1, 1997 .................... $ (186,405) $ (65,000) $ 2,144,419 REDEMPTION OF STOCK: Common stock ............................ (22,153) Preferred stock ......................... NET INCOME .................................... 797,251 TAX BENEFIT OF DIVIDENDS PAID TO ESOP FOR UNALLOCATED SHARES ...................... 26,664 REPAYMENT OF ESOP RECEIVABLE .............................. 72,493 72,493 DIVIDENDS: Paid ($8.75 per Class A Preferred Shares outstanding) ......................... Increase in accumulated but not declared dividends on mandatorily redeemable preferred stock ..................... (2,310,690) ---------- ------------ ------------- BALANCE, NOVEMBER 30, 1998 .................... $ (113,912) $ (65,000) $ 707,984 ========== ============ =============
The accompanying notes to consolidated financial statements are an integral part of these financial statements. (Continued) F-35 CPI HOLDING, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY FOR THE YEAR ENDED NOVEMBER 30, 1997
SHAREHOLDERS' EQUITY MANDATORILY REDEEMABLE ----------------------------------------------- PREFERRED STOCK COMMON STOCK ADDITIONAL ---------------------- ---------------- PAID-IN RETAINED SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ------- ------------ ------- ------ ----------- ----------- BALANCE - DECEMBER 1, 1996 ........................... 140,867 $ 15,872,343 304,333 $3,043 $ 2,988,955 ISSUANCE OF STOCK: Common stock .................................. 1,333 13 13,318 Preferred stock ................................ 267 26,668 NET INCOME ........................................... $ 1,536,368 TAX BENEFIT OF DIVIDENDS PAID TO ESOP FOR UNALLOCATED SHARES ............................. 70,000 REPAYMENT OF ESOP RECEIVABLE ..................................... DIVIDENDS: Paid ($11.97 per Class A Preferred Shares outstanding ) ............................... (943,559) Increase in accumulated but not declared dividends on mandatorily redeemable preferred stock ............................ 2,215,873 (609,505) (1,606,368) ------- ------------ ------- ------ ----------- ----------- BALANCE, NOVEMBER 30, 1997 ........................... 141,134 $ 17,171,325 305,666 $3,056 $ 2,392,768 -- ======= ============ ======= ====== =========== =========== SHAREHOLDERS' EQUITY ------------------------------------------- STOCK TOTAL ESOP SUBSCRIPTION SHAREHOLDERS' RECEIVABLE RECEIVABLE EQUITY ---------- ------------ ------------- BALANCE - DECEMBER 1, 1996 ........................... $ (360,000) $ (65,000) $ 2,566,998 ISSUANCE OF STOCK: Common stock .................................. 13,331 Preferred stock ................................ NET INCOME ........................................... $ 1,536,368 TAX BENEFIT OF DIVIDENDS PAID TO ESOP FOR UNALLOCATED SHARES ............................. 70,000 REPAYMENT OF ESOP RECEIVABLE ..................................... $ 173,595 173,595 DIVIDENDS: Paid ($11.97 per Class A Preferred Shares outstanding ) ............................... Increase in accumulated but not declared dividends on mandatorily redeemable preferred stock ............................ (2,215,873) ---------- ------------ ------------- BALANCE, NOVEMBER 30, 1997 ........................... $ (186,405) $ (65,000) $ 2,144,419 ========== ============ =============
The accompanying notes to consolidated financial statements are an integral part of these financial statements. (Continued) F-36 CPI HOLDING, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY FOR THE YEAR ENDED NOVEMBER 30, 1996
SHAREHOLDERS' EQUITY MANDATORILY REDEEMABLE ---------------------------------- PREFERRED STOCK COMMON STOCK ADDITIONAL ---------------------- ---------------- PAID-IN SHARES AMOUNT SHARES AMOUNT CAPITAL ------- ------------ ------- ------ ----------- ISSUANCE OF STOCK: Class A Preferred ....................................... 80,000 $ 8,000,000 Class B Preferred ....................................... 60,000 6,000,000 Class A Common .......................................... 88,782 $ 888 $ 886,928 Class B Common .......................................... 124,760 1,248 1,246,352 Class C Common .......................................... 86,458 864 863,720 ESOP RECEIVABLE ACQUIRED IN ACQUISITION FOR GUARANTEE OF FUTURE DEBT PAYMENTS ........................................... ISSUANCE OF STOCK UNDER EXECUTIVE STOCK AGREEMENTS: Class C Common .......................................... 4,333 43 43,289 Class B Preferred ....................................... 867 86,668 NET INCOME .................................................... REDUCTION OF ESOP RECEIVABLE .................................. DIVIDENDS: Increase in accumulated but not declared dividends on redeemable preferred stock .... 1,785,675 (51,334) ------- ----------- ------- ------ ----------- BALANCE, NOVEMBER 30, 1996 .................................... 140,867 $15,872,343 304,833 $3,043 $ 2,988,955 ======= =========== ======= ====== =========== SHAREHOLDERS' EQUITY ---------------------------------------------------------- STOCK TOTAL RETAINED ESOP SUBSCRIPTION SHAREHOLDERS' EARNINGS RECEIVABLE RECEIVABLE EQUITY ----------- ---------- ------------ ------------- ISSUANCE OF STOCK: Class A Preferred ....................................... Class B Preferred ....................................... Class A Common .......................................... $ 887,816 Class B Common .......................................... 1,247,600 Class C Common .......................................... 864,584 ESOP RECEIVABLE ACQUIRED IN ACQUISITION FOR GUARANTEE OF FUTURE DEBT PAYMENTS ........................................... $ (540,000) (540,000) ISSUANCE OF STOCK UNDER EXECUTIVE STOCK AGREEMENTS: Class C Common .......................................... $ (21,666) 21,666 Class B Preferred ....................................... (43,334) (43,334) NET INCOME .................................................... $ 1,734,341 1,734,341 REDUCTION OF ESOP RECEIVABLE .................................. 180,000 180,000 DIVIDENDS: Increase in accumulated but not declared dividends on redeemable preferred stock .... (1,734,341) (1,785,675) ----------- ---------- ------------ ------------- BALANCE, NOVEMBER 30, 1996 .................................... -- $ (360,000) $ (65,000) $ 2,566,998 =========== ========== ============ =============
(Concluded) F-37 CPI HOLDING, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS CASH FLOWS FOR THE YEARS ENDED NOVEMBER 30, 1998 AND 1997 AND FOR THE PERIOD JANUARY 26, 1996 (DATE OF ACQUISITION) TO NOVEMBER 30, 1996
1998 1997 1996 ----------- ----------- ------------ (10 MONTHS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income .................................................................. $ 797,251 $ 1,536,368 $ 1,734,341 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................................ 4,167,042 3,849,775 2,954,524 (Gain) loss on disposals of property and equipment ................................................................ (5,602) 8,225 (1,500) Deferred income taxes .................................................... 481,000 20,000 303,000 Tax benefit of dividends paid to ESOP .................................... 26,664 70,000 Change in operating assets and liabilities: Accounts receivable .................................................... (137,250) 113,169 346,751 Inventories ............................................................ 325,031 344,427 (1,908,856) Prepaid expenses, prepaid income taxes, and deposits ............................................................. (444,735) 145,576 (388,988) Accounts payable ....................................................... (327,079) (1,187,703) (501,026) Accrued liabilities .................................................... (333,983) (241,057) 497,245 Income taxes payable ................................................... -- (203,900) 283,300 ----------- ----------- ------------ Net cash provided by operating activities ................................... 4,548,339 4,454,880 3,318,791 ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of stock of Cardinal Packaging, Inc. ............................... along with land and buildings from a related partnership, including acquisition costs and net of cash received of $28,946 ............................................... -- -- (39,363,708) Purchase of property and equipment .......................................... (4,207,586) (3,160,719) (2,882,380) Proceeds from disposal of property and equipment ............................ 7,500 2,500 1,500 Investment in patents ....................................................... (9,540) -- -- ----------- ----------- ------------ Net cash used in investing activities ....................................... (4,209,626) (3,158,219) (42,244,588) ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Preferred dividends paid .................................................... (700,000) (943,559) -- Repayment of ESOP receivable ................................................ 72,493 173,595 -- Proceeds from issuance of (payments for redemption of): Common Stock ............................................................. (22,153) 13,331 3,021,666 Mandatorily redeemable preferred stock ...................................... (20,347) 26,668 6,043,334 Proceeds from long-term debt ................................................ 4,190,822 2,508,745 30,993,349 Payments on long-term debt, and long service executive nonqualified pension ........................................... (3,776,404) (3,112,774) (1,076,595) ----------- ----------- ------------ Net cash (used in) provided by financing activities ......................... (255,589) (1,333,994) 38,981,754 ----------- ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................... 83,124 (37,333) 55,957 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ................................... 18,624 55,957 -- ----------- ----------- ------------ CASH AND CASH EQUIVALENTS, END OF YEAR ......................................... $ 101,748 $ 18,624 $ 55,957 =========== =========== ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Income taxes ................................................................ $ 335,119 $ 925,942 $ 415,525 ----------- ----------- ------------ Interest .................................................................... $ 3,776,313 $ 3,384,339 $ 2,240,510 =========== =========== ============ SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: The Company received stock subscriptions of $65,000 in 1996 In conjunction with the acquisition in 1996, the Company recorded liabilities to the former shareholders totaling $1,960,000 and issued preferred stock valued at $8,000,000 in exchange for previously issued common shares of Cardinal .................................................................
The accompanying notes to consolidated financial statements are an integral part of these financial statements. F-38 CPI HOLDING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED NOVEMBER 30, 1998 AND 1997 AND FOR THE PERIOD JANUARY 26, 1996 (DATE OF ACQUISITION) TO NOVEMBER 30, 1996 1. NATURE OF OPERATIONS AND ORGANIZATION CPI Holding, Inc. ("CPI" or the "Company") was organized under the laws of the State of Delaware for the purpose of acquiring an injection molding manufacturer. On January 26, 1996, CPI acquired 100 percent of the common stock of Cardinal Packaging, Inc. ("Cardinal"). The Company, through its wholly-owned subsidiary, Cardinal, is a manufacturer of rigid thin-walled polyethylene and polypropylene containers and sells its products to customers located throughout the United States and Canada. The majority of the Company's products are used in the frozen dessert and refrigerated product industries in the form of premium round containers. In addition, the Company provides containers for selected industrial customers and seasonal retailers. The Company maintains ongoing credit evaluations of its customers and generally does not require collateral. The Company provides reserves for potential credit losses and such losses historically have not exceeded management's estimates. The Company is headquartered in Streetsboro, Ohio. Additional manufacturing facilities are located in Minneapolis, Minnesota and Ontario, California. CPI acquired, along with land and buildings previously owned by a related partnership, 70 percent of the common stock of Cardinal for $39,392,654, including acquisition costs. The remaining 30 percent of the common stock of Cardinal was acquired from the Cardinal Packaging, Inc. Employee Stock Ownership Plan ("ESOP") in exchange for 80,000 shares of CPI Class A redeemable preferred stock valued at $8,000,000. In addition, and in conjunction with the acquisition, the Company entered into an agreement to pay the sellers $2,460,000 (which includes imputed interest of $500,000) in monthly payments through January 2001 (see Note 5). The total purchase price, including acquisition costs, has been allocated to the assets acquired and liabilities assumed based on their estimated fair values, except for the portion related to the ESOP's ownership which is accounted for at historical costs, using the purchase method of accounting. In addition, goodwill was reduced by $745,000 because of the deferred tax asset recorded for the future tax benefits of the long service executive nonqualified pension payments (See Note 7). Accordingly, the amounts recorded for this acquisition were as follows: Current Assets, including $28,946 of cash .................... $12,435,461 Property ..................................................... 30,557,656 Other assets ................................................. 1,743,858 ----------- Total assets acquired .................................... 44,736,975 Liabilities assumed .......................................... 11,355,378 ----------- Net assets acquired .......................................... 33,381,597 Goodwill ..................................................... 15,226,057 ----------- Total purchase price, including acquisition costs ............ $48,607,654 =========== As a result of the acquisition in 1996, the inventory on January 26, 1996 was increased by $296,712 based on the fair market value of the acquired inventory at the date of acquisition. Cost of sales for the period January 26, 1996 (date of acquisition) to November 30, 1996 includes $296,712 related to this adjustment. F-39 CPI HOLDING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FINANCIAL STATEMENT PRESENTATION--The consolidated financial statements include the accounts of CPI and its wholly-owned subsidiary. All significant intercompany balances and transactions are eliminated in consolidation. USE OF ESTIMATES--The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the financial statement date and the reported amounts of revenues and expenses for the reporting period. Actual amounts could differ from those estimates. REVENUE RECOGNITION--Sales and cost of sales are recognized upon shipment of product. CASH AND CASH EQUIVALENTS--The Company considers all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. INVENTORIES--Inventories are valued at the lower of cost, using the first-in, first-out basis, or market. Inventories consist of the following at November 30: 1998 1997 ---------- ---------- Raw materials ..................... $2,433,849 $1,700,765 Finished Good ..................... 5,119,278 6,177,393 ---------- ---------- Total ............................. $7,553,127 $7,878,158 ========== ========== PROPERTY AND EQUIPMENT--Property and equipment is stated at cost. Additions, renewals and betterments are capitalized; maintenance and repairs, which do not extend the useful life of the asset, are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from ten to 40 years for buildings, related building improvements and leasehold improvements, 12 to 15 years for manufacturing machinery and equipment, seven years for molds, five years for office furniture and fixtures, and three years for vehicles. Equipment under capitalized leases is amortized over the terms of the leases, which do not exceed the estimated useful life of the leased equipment. GOODWILL AND INTANGIBLE ASSETS--The Company's intangible assets consist of goodwill, deferred financing costs, and patent costs. Amortization is recorded over the estimated economic lives. Goodwill is amortized over 40 years. Deferred financing costs are amortized over the terms of the related loans with the amortization included in interest expense. Patent costs are amortized over 17 years, beginning when the patent approval is obtained. The Company evaluates the unamortized cost of these intangible assets to determine if the carrying amount exceeds the recoverable amount and to record an impairment loss, if necessary. This determination is based on an evaluation of such factors as the occurrence of a significant event, a significant change in the environment in which the business operates or, primarily for goodwill, the expected undiscounted future net cash flows. INCOME TAXES--Deferred income taxes are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of various assets and liabilities using enacted rates in effect for the year in which the differences are expected to reverse. NEW ACCOUNTING PRONOUNCEMENTS--In 1998, Cardinal adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," and SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". SFAS No. 130 established standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. SFAS No. 131 requires that a public business enterprise report financial and F-40 CPI HOLDING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) descriptive information about its reportable operating segments such as a measure of segment profit or loss, certain specific revenue and expense items, and segment assets. SFAS No. 132 standardized the disclosure requirements for pensions and other postretirement benefits. The adoption of these statements did not have a material impact on the Company's financial statements. In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133 is effective for fiscal quarters of fiscal years beginning after June 15, 1999. The Company has not completed its evaluation of this statement but does not anticipate a material impact on the financial statements from the adoption of this accounting standard. RECLASSIFICATIONS--Certain reclassifications were made to the 1996 and 1997 financial statements to conform to the presentation used in the 1998 financial statements. 3. OTHER ASSETS Other assets consist of the following at November 30: 1998 1997 ---------- ---------- Deferred financing costs, less accumulated amortization of $607,139 in 1998 and $392,855 in 1997 .............................. $ 892,861 $1,107,145 Deposits ......................................... 65,106 115,062 Patents, less accumulated amortization of $18,566 in 1998 and $15,711 in 1997 ........... 46,142 39,457 Miscellaneous .................................... -- 6,300 ---------- ---------- Total ...................................... $1,004,109 $1,267,964 ========== ========== 4. LONG-TERM DEBT Long-term debt consists of the following as of November 30:
1998 1997 ----------- ----------- Note payable to financial institution with quarterly principal payments at scheduled amounts, plus interest at a variable rate (7.8125 percent as of November 30,1998), due March 1, 2001 ........................................ $10,500,000 $13,500,000 Note payable to financial institution with quarterly principal payments at scheduled amounts beginning in 2001, plus interest at a variable rate (8.3125 percent as of November 30,1998), due March 1, 2001 ..................... 10,000,000 10,000,000 Revolving credit facility payable to financial institution with interest at a variable rate (7.8125 percent as of November 30,1998), due March 1, 2003 ..................... 7,002,522 5,615,116 Capital expansion note payable to financial institution with quarterly interest payments at a variable rate (8.3125 percent as of November 30, 1998), fifteen equal quarterly principal payments, plus interest, beginning September 1, 1999, due March 2003 ........................ 4,681,646 1,886,980
F-41 CPI HOLDING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1998 1997 ----------- ----------- ESOP loan to bank with semi-annual principal payments of $90,000, plus monthly interest (6.5875 percent as of November 30, 1998) at 85 percent of the bank's prime rate, through January 2000; collateralized by the common stock of the Company ........................................... 113,912 186,405 Note payable to financing company with monthly principal and interest payments of $3,690, through October 1999; interest at 6.755 percent a year, collateralized by specific equipment ....................................... 39,252 79,399 Other notes payable to banks paid off in 1998 ........... -- 3,481 Capital lease obligations for equipment, payable to various banks and leasing companies in aggregate monthly principal and interest payments of $20,583 through July 2000; interest at 6.75 percent to 10.85 percent a year; collateralized by equipment with an aggregate net book value of $810,344 and $1,454,135 as of November 30, 1998 and November 30, 1997, respectively ...................... 112,273 380,540 ----------- ----------- Total .................................................... 32,449,605 31,651,921 Less current portion ..................................... 4,060,780 3,519,064 ----------- ----------- Amount due after one year ................................ $28,388,825 $28,132,857 =========== ===========
The notes payable, revolving credit facility, and capital expansion note are collateralized by substantially all of the assets of the Company. The credit agreement includes financial covenants with respect to capital expenditure limits; rent payments under operating leases; earnings before depreciation, amortization, interest and income taxes; and fixed charge and interest coverage ratios. As of November 30, 1998, the Company has violated certain of these covenants related to minimum EBITDA, as defined, fixed charges coverage ratio, interest coverage ratio, and maximum capital expenditures, for which the lender has waived the covenant violations. At November 30, 1998, required annual principal payments on long-term debt are: YEAR ENDING NOVEMBER 30, 1999........................................ $4,060,780 2000........................................ 5,765,206 2001........................................ 6,248,439 2002........................................ 6,248,439 2003........................................ 10,126,741 ----------- Total....................................... $32,449,605 =========== F-42 CPI HOLDING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Future minimum lease payments under capital leases, included above, as of November 30, 1998 are as follows: YEAR ENDING NOVEMBER 30, 1999........................................ $109,337 2000........................................ 7,080 -------- Total minimum lease payments................ 116,417 Less amount representing interest........... 4,144 -------- Present value of capital lease obligations included with long-term debt at November 30, 1998................................. $112,273 ======== 5. LONG SERVICE EXECUTIVE NONQUALIFIED PENSION AND CONSULTING AGREEMENTS Under the terms of the purchase agreement for the common stock of Cardinal, the Company agreed to make payments to the previous shareholders of $41,000 a month through January 2001 for long service executive nonqualified pension payments. These future payments have been recorded as a liability at their net present value. In addition, the Company paid $20,000 a year to the previous shareholders under a consulting agreement from February 1996 through January 1998. Consulting expense was $3,333 for 1998, $20,000 for 1997, and $16,660 for the period January 26, 1996 to November 30, 1996. At November 30, 1998, future payments under the long service executive nonqualified pension agreement are as follows: YEAR ENDING NOVEMBER 30, 1999........................................ $492,000 2000........................................ 492,000 2001........................................ 82,000 --------- Total Payments.............................. 1,066,000 Less amount representing interest (at 9.25 percent).................................. 101,266 --------- Present value of long service executive nonqualified pension...................... 964,734 Current portion............................. 420,310 --------- Noncurrent portion.......................... $544,424 ========= 6. OPERATING LEASES The Company leases specific equipment, vehicles, and its Minneapolis, Minnesota and Ontario, California office and plant facilities under operating leases from unrelated parties. These leases expire at various dates through November 2003. Total rent expense, including month-to-month rentals, was $1,588,000 for 1998, $1,538,000 for 1997. Future minimum lease payments under noncancellable operating leases as of November 30, 1998 are: YEAR ENDING NOVEMBER 30, 1999........................................ $1,479,200 2000........................................ 1,218,900 2001........................................ 999,300 2002........................................ 945,300 2003........................................ 855,600 ---------- Total....................................... $5,498,300 ========== F-43 CPI HOLDING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES The provision (benefit) for income taxes consists of: 1998 1997 1996 --------- --------- ----------- (10 MONTHS) Federal: Current .................. $(122,300) $ 649,000 $ 618,000 Deferred ................. 267,000 31,000 245,000 State and local: Current .................. 80,000 128,000 135,000 Deferred ................. 214,000 (11,000) 58,000 --------- --------- ----------- Total ....................... $ 438,700 $ 797,000 $ 1,056,000 ========= ========= =========== The consolidated tax provision differs from the tax provision computed at the statutory United States tax rate of approximately 34 percent for the following reasons:
1998 1997 1996 --------- --------- ----------- Tax provision at statutory federal rate . $ 420,000 $ 785,000 $ 949,000 Amortization of goodwill ............... 117,000 136,000 114,000 Dividends paid to Employee Stock Ownership Plan on allocated shares ................. (163,000) (189,000) -- State and local income taxes ........... 294,000 117,000 193,000 Other .................................. (229,300) (52,000) (200,000) --------- --------- ----------- Total ............................ $ 438,700 $ 797,000 $ 1,056,000 ========= ========= ===========
The tax benefit of the deductible portion of the Class A preferred dividends paid on the unallocated shares held by the ESOP that were utilized by the ESOP to make debt payments was charged directly to retained earnings. The approximate tax effect of each type of temporary difference that gave rise to the Company's deferred tax assets and liabilities as of November 30, is as follows:
1998 1997 ----------- ----------- Current deferred income tax assets (liabilities): Inventories ..................................... $ 73,000 $ 53,000 (Prepaid) accrued state income taxes ............ 6,000 (13,000) Accrued liabilities ............................. 4,000 3,000 Long service executive nonqualified pension - current ....................................... 160,000 145,000 Allowance for doubtful accounts ............... 62,000 27,000 ----------- ----------- 305,000 215,000 ----------- ----------- Noncurrent deferred income tax assets (liabilities): Basis of property ............................... (5,878,000) (5,509,000) Long service executive nonqualified pension - noncurrent ...................................... 206,000 367,000 Net operating loss carryforward ................. 102,000 Alternative minimum tax credit carryforwards .... 388,000 531,000 ----------- ----------- (5,182,000) (4,611,000) ----------- ----------- Net deferred income tax liability .................. $(4,877,000) $(4,396,000) =========== ===========
F-44 CPI HOLDING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. EMPLOYEE STOCK OWNERSHIP PLAN In 1988, Cardinal established an employee stock ownership plan. On December 14, 1989, the ESOP used $1,800,000 of proceeds from a bank loan to purchase 30 percent of Cardinal's common stock. In conjunction with the acquisition of Cardinal by CPI in which the ESOP exchanged its 30 percent investment in Cardinal for a 22 percent investment in CPI, the Company assumed the remaining bank obligation of $720,000 at January 26, 1996. As of November 30, 1998, $113,912 remains outstanding on this loan. As a result of the Company assuming the bank obligation, the Company also recorded a loan receivable from the ESOP, which is reported as a reduction of shareholders' equity. The Company is obligated to make contributions to the ESOP that are used by the ESOP to pay the loan principal and interest to the bank. Shares of stock acquired by the ESOP are allocated to each eligible employee in amounts based on the employee's compensation. Company contributions charged to expense were $26,720 in 1998, $30,999 in 1997 and $209,780 for the period January 26, 1996 to November 30, 1996. The Company paid Class A preferred dividends of $700,000 in 1998 and $943,559 in 1997 to the ESOP. The ESOP used a portion of the dividends to make the required principal payments. 9. MANDATORILY REDEEMABLE PREFERRED STOCK MANDATORILY REDEEMABLE PREFERRED STOCK--The Company is authorized to issue 100,000 nonvoting shares of Class A redeemable preferred stock and 100,000 non-voting shares of Class B redeemable preferred stock, each with a par value of $.01 per share. There are 80,000 shares of Class A redeemable preferred stock outstanding as of November 30, 1998 and 1997. There are 60,966.69 shares of Class B redeemable preferred stock outstanding as of November 30, 1998 and 61,133.36 shares outstanding as of November 30, 1997, including 866.68 shares issued under Executive Stock Agreements described in Note 10. Accumulating dividends accrue daily at 8.75 percent of the liquidation value ($100 per share) plus any accumulated dividends on the Class A redeemable preferred stock. Accumulating dividends accrue at 10 percent of the liquidation value ($100 per share) plus any accumulated dividends on the Class B redeemable preferred stock. Unpaid accumulating dividends are deemed to be accumulated dividends for purposes of calculating the accumulating and nonaccumulating dividends. Nonaccumulating dividends accrue daily at 10 percent of the liquidation value plus any accumulated dividends on the Class A redeemable preferred stock only. Unpaid nonaccumulating dividends are not deemed to be accumulated dividends for purposes of calculating the accumulating and nonaccumulating dividends. Accumulating dividends were $1,483,077 for the year ended November 30, 1998 and $1,385,329 for the year ended November 30, 1997. The nonaccumulating dividends were $827,613 for the year ended November 30, 1998 and $830,544 for the year ended November 30, 1997. These amounts have been recorded as an increase in the redeemable preferred stock and as a reduction of retained earnings and of additional paid-in capital in the accompanying consolidated statements of mandatorily redeemable preferred stock and shareholders' equity. As of November 30, 1998, the unpaid accumulating dividends were $2,331,161 and the unpaid nonaccumulating dividends were $2,331,864. On June 30, 2003, the Company shall redeem all outstanding shares of the Class A and Class B redeemable preferred stock for the aggregate liquidation value plus all unpaid dividends. The aggregate liquidation value and unpaid dividends of the Class A and Class B redeemable preferred stock is $18,761,668 as of November 30, 1998 and $17,171,325 as of November 30, 1997. The Class A redeemable preferred stock is convertible at the shareholders' option into Class A common stock at any time based on the liquidation value of the shares to be converted at the then current conversion price. 10. COMMON STOCK The authorized shares of stock and the number of shares outstanding as of November 30, 1998 and 1997 are as follows: COMMON STOCK--The Company has three classes of common stock of which Class A is voting and Class B and C are non-voting. Holders of Class B common stock are entitled to convert such shares into the same number of shares of Class A or Class C common stock at any time. F-45 CPI HOLDING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Holders of Class C common stock are entitled to convert such shares into the same number of shares of Class A common stock upon the occurrence of a Conversion Event as defined in the Company's Certificate of Amendment to Certificate of Incorporation. Class C common stock includes 4,333.2 shares issued under Executive Stock Agreements described below, as of November 30, 1998 and 1997. EXECUTIVE STOCK AGREEMENTS--The Company has entered into agreements with certain members of its management under which shares of Class B redeemable preferred stock and Class C common stock have been issued. The Company has notes receivable aggregating $65,000 from manager shareholders for the purchase of one-half of their shares at November 30, 1998 and 1997. These notes bear interest at 8.25 percent a year and are reported as stock subscriptions receivable as a reduction of shareholders' equity. One-half of the shares of common stock and one-half of the shares of redeemable preferred stock vest immediately and the remaining shares vest upon the payment in full of the receivables plus any accrued interest. In the event a shareholder manager ceases to be employed by the Company, the Company and certain shareholders have the right to repurchase all or a portion of these shares from the individual at the fair value of the vested shares and the lower of the fair value of shares or the original cost of the unvested shares held as of the date of termination. 11. RELATED PARTY TRANSACTIONS The following amounts were paid to shareholders of the Company: 1998 1997 1996 -------- -------- ---------- Management fees ........ $200,000 $200,000 $ 200,000 Transaction costs ...... -- -- 1,285,000 -------- -------- ---------- Total ............. $200,000 $200,000 $1,485,000 ======== ======== ========== The management fees are included in general and administrative expense in the accompanying statements of income. The transaction costs were capitalized as of the acquisition date. * * * * * * F-46 CPI HOLDING, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEET (In Thousands of Dollars)
MAY 31, 1999 ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents ...................................... $ 31 Accounts receivable (less allowance for doubtful accounts of $156) ........................................................ 6,910 Inventories: Finished goods .............................................. 5,705 Raw materials and supplies .................................. 2,338 ------------ 8,043 Prepaid expenses and other receivables ......................... 323 Deferred income taxes .......................................... 305 ------------ Total current assets ................................................ 15,612 Property and equipment: Land ........................................................... 295 Buildings and improvements ..................................... 3,499 Machinery, equipment and tooling ............................... 37,407 Automobiles and trucks ......................................... 54 Construction in progress ....................................... 1,914 ------------ 43,169 Less accumulated depreciation .................................. 11,213 ------------ 31,956 Intangible assets: Deferred financing and origination fees, net ................... 786 Excess of cost over net assets acquired, net ................... 13,957 ------------ 14,743 Other ............................................................... 112 ------------ Total assets ........................................................ $ 62,423 ============
F-47 CPI HOLDING, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED) (In Thousands of Dollars) MAY 31, 1999 (UNAUDITED) ------------ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable ........................................... $ 4,205 Accrued expenses and other liabilities ..................... 157 Current portion of long-term debt .......................... 4,987 ------------ Total current liabilities ....................................... 9,349 Long-term debt, less current portion ............................ 28,078 Deferred income taxes ........................................... 5,182 ------------ 42,609 Mandatorily Redeemable Preferred Stock .......................... 19,348 Stockholders' equity: Class A Common Stock (voting); $.01 par value: 500,000 shares authorized; 89,281.5 shares issued and outstanding ............................................. 1 Class B Common Stock (non-voting); $.01 par value: 300,000 shares authorized; 124,760 shares issued and outstanding ............................................. 1 Class C Common Stock (non-voting); $.01 par value: 200,000 shares authorized; 90,791.6 shares issued and outstanding 1 Additional paid-in capital ................................. 349 Retained earnings .......................................... 293 Less: ESOP receivable ..................................... (114) Stock subscription receivable ......................... (65) ------------ Total stockholders' equity ...................................... 466 ------------ Total liabilities and stockholders' equity ...................... $ 62,423 ============ SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. F-48 CPI HOLDING, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands of Dollars) TWENTY-SIX WEEKS ENDED --------------------------- MAY 31, 1999 MAY 31, 1998 ------------ ------------ (UNAUDITED) Net sales ........................................ $ 28,465 $ 26,418 Cost of goods sold ............................... 23,407 21,247 ------------ ------------ Gross margin ..................................... 5,058 5,171 Operating expenses: Selling ...................................... 1,447 1,550 General and administrative ................... 1,310 1,296 Amortization of intangibles .................. 301 311 Other ........................................ 61 43 ------------ ------------ Operating income ................................. 1,939 1,971 Interest expense ............................. 1,400 1,639 ------------ ------------ Income before income taxes ....................... 539 332 Income tax expense ............................... 202 114 ------------ ------------ Net income ....................................... $ 337 $ 218 ============ ============ SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. F-49 CPI HOLDING, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars)
TWENTY-SIX WEEKS ENDED ------------------------ MAY 31, MAY 31, 1999 1998 ---------- ---------- (UNAUDITED) OPERATING ACTIVITIES Net income ............................................... $ 337 $ 218 Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation ........................................ 1,942 1,746 Amortization ........................................ 298 307 Deferred income taxes ............................... -- 28 Changes in operating assets and liabilities: Accounts receivable, net ........................ (1,513) (1,399) Inventories ..................................... (490) 723 Prepaid expenses and other receivables .......... 684 (210) Other assets .................................... (1) 38 Payables and accrued expenses ................... 1,219 101 ---------- ---------- Net cash provided by operating activities ................ 2,476 1,552 INVESTING ACTIVITIES Additions to property and equipment ...................... (2,205) (2,594) ---------- ---------- Net cash used for investing activities ................... (2,205) (2,594) FINANCING ACTIVITIES Proceeds from long-term borrowings ....................... 1,460 3,299 Payments on long-term borrowings ......................... (1,809) (1,876) Proceeds (payments) from Preferred equity ................ 7 (348) ---------- ---------- Net cash provided by (used for) financing activities ..... (342) 1,075 Effect of exchange rate changes on cash ---------- ---------- Net increase (decrease) in cash and cash equivalents ..... (71) 33 Cash and cash equivalents at beginning of period ......... 102 19 ---------- ---------- Cash and cash equivalents at end of period ............... $ 31 $ 52 ========== ==========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. F-50 CPI HOLDING, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands of dollars, except as otherwise noted) (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of CPI Holding, Incorporated and its subsidiary, Cardinal Packaging, Incorporated (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full fiscal year. The accompanying financial statements include the results of CPI Holding, Incorporated ("Holding") and its wholly-owned subsidiary, Cardinal Packaging, Incorporated ("Cardinal"). 2. LONG-TERM DEBT Long-term debt consists of the following: MAY 31, 1999 ------- Note payable to financial institution with quarterly principal payments at scheduled amounts, plus interest at a variable rate, due March 1, 2000 ....................................................... $ 9,000 Note payable to financial institution with quarterly principal payments at scheduled amounts beginning in 2001, plus interest at a variable rate, due March 1, 2003 .................................... 10,000 Revolving credit facility payable to financial institution with interest at a variable rate, due March 1, 2003 ...................... 8,117 Capital expansion note payable to financial institution with quarterly interest payments at a variable rate, fifteen equal quarterly principal payments, plus interest, beginning September 1, 1999, due March 2003 ................................................ 5,000 ESOP loan to bank with semi-annual principal payments of $90, plus monthly interest at 85 percent of the bank's prime rate, through January 2000; collateralized by the common stock of the Company ..... 114 Note payable to financing company with monthly principal and interest payments of $4, through October 1999; interest at 6.755 percent a year, collateralized by specific equipment .......................... 18 Capital lease obligations for equipment, payable to various banks and leasing companies in aggregate monthly principal and interest payments of $20 through July 2000; interest at 6.75 percent to 10.85 percent a year; collateralized by specific equipment ................ 57 Long service executive nonqualified pension agreements payable to the previous shareholders. The pension agreements are payable at $41 per month through January 2001 and are recorded at their net present value with a discount rate of 9.25 percent .......................... 759 ------- 33,065 Less current portion of long-term debt .............................. 4,987 ------- $28,078 ======= F-51 CPI HOLDING, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LONG-TERM DEBT (CONTINUED) The current portion of long-term debt consists of $4.5 million of principal payments outlined in the table above, and $0.4 million of payments related to the Long service executive nonqualified pension agreement. The notes payable, revolving credit facility, and capital expansion note are collateralized by substantially all of the assets of the Company. The credit agreement includes financial covenants with respect to capital expenditure limits; rent payments under operating leases; earnings before depreciation, amortization, interest and income taxes; and fixed charge and interest coverage ratios. 3. CARDINAL PACKAGING, INCORPORATED SUMMARY FINANCIAL INFORMATION The following summarizes parent company only financial information of Holding: MAY 31, 1999 ------- CONSOLIDATED BALANCE SHEETS Current assets ............................................. $ 7 Investment in subsidiary ................................... 19,807 Other noncurrent assets .................................... -- Current liabilities ........................................ -- Noncurrent liabilities ..................................... -- Equity (deficit) ........................................... 19,814 26 WEEKS ENDED ---------------- MAY 31, MAY 31, 1999 1998 ------ ------ CONSOLIDATED STATEMENTS OF OPERATIONS Net sales ................................................ $ -- $ -- Cost of goods sold ....................................... -- -- Income before income taxes ............................... 539 332 Net income ............................................... 337 218 4. SEGMENT REPORTING The Company has one reportable segment of plastic packaging products. F-52 REPORT OF INDEPENDENT AUDITORS Knight Engineering & Plastics Division of Courtaulds Packaging Inc. We have audited the accompanying balance sheet of Knight Engineering & Plastics Division of Courtaulds Packaging Inc. (the Division) as of March 31, 1998 and the related statement of operations, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Division at March 31, 1998, and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Indianapolis, Indiana May 19, 1999 F-53 KNIGHT ENGINEERING & PLASTICS DIVISION OF COURTAULDS PACKAGING INC. BALANCE SHEET MARCH 31, 1998 ASSETS Current assets Cash .......................................................... $ 719,004 Accounts receivable, less allowance for doubtful accounts of $52,061 ..................................................... 3,625,898 Inventories: Finished goods ............................................. 586,035 Raw materials and supplies ................................. 1,192,082 ----------- 1,778,117 Prepaid expenses .............................................. 195,799 ----------- Total current assets ............................................. 6,318,818 Property and equipment Land and improvements ......................................... 877,410 Buildings and improvements .................................... 5,754,664 Machinery, equipment and tooling .............................. 21,102,328 Construction in progress ...................................... 2,085,286 ----------- 29,819,688 Less accumulated depreciation ................................. 16,348,730 ----------- 13,470,958 Goodwill, net of accumulated amortization of $854,972 ............ 2,402,064 ----------- $22,191,840 =========== LIABILITIES AND DIVISION EQUITY Current liabilities Note payable, parent .......................................... $ 3,477,089 Accounts payable .............................................. 2,336,323 Accrued expenses and other liabilities ........................ 2,493,482 ----------- Total current liabilities ........................................ 8,306,894 Division equity .................................................. 13,884,946 ----------- $22,191,840 =========== SEE ACCOMPANYING NOTES. F-54 KNIGHT ENGINEERING & PLASTICS DIVISION OF COURTAULDS PACKAGING INC. STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1998 Net sales ................................................. $ 23,836,485 Cost of goods sold ........................................ 21,058,181 Gross margin .............................................. 2,778,304 Operating expenses: Selling, general and administrative ..................... 3,219,902 Amortization of intangibles ............................. 162,852 ------------ Operating income (loss) ................................... (604,450) Other income (expense): Gain on disposal of property and equipment .............. 41,400 Interest income ......................................... 3,590 Interest (expense), parent .............................. (261,325) ------------ Division (loss) ........................................... $ (820,785) ============ SEE ACCOMPANYING NOTES. F-55 KNIGHT ENGINEERING & PLASTICS DIVISION OF COURTAULDS PACKAGING INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MARCH 31, 1998 OPERATING ACTIVITIES Division loss ................................................... $ (820,785) Adjustments to reconcile division loss to net cash provided by operating activities: Depreciation ................................................. 1,702,511 Amortization ................................................. 162,852 Gain on sale of property and equipment ....................... (41,400) Changes in operating assets and liabilities: Accounts receivable, net .................................. (168,875) Inventories ............................................... 67,937 Prepaid expenses .......................................... 253,840 Accounts payable and accrued expenses ..................... 1,009,378 ----------- Net cash provided by operating activities ....................... 2,165,458 INVESTING ACTIVITIES Purchases of machinery and equipment ............................ (1,530,295) Division equity contribution from parent ........................ 261,000 Proceeds from disposal of property and equipment ................ 41,400 ----------- Net cash used in investing activities ........................... (1,227,895) FINANCING ACTIVITIES Net payments on note payable, parent ............................ (456,893) ----------- Net cash used in financing activities ........................... (456,893) ----------- Net increase in cash ............................................ 480,670 Cash at beginning of year ....................................... 238,334 ----------- Cash at end of year ............................................. $ 719,004 =========== SEE ACCOMPANYING NOTES. F-56 KNIGHT ENGINEERING & PLASTICS DIVISION OF COURTAULDS PACKAGING INC. NOTES TO FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying financial statements include the accounts of Knight Engineering and Plastics Division of Courtaulds Packaging Inc., a West Virginia Corporation (the Division). Courtaulds Packaging, Inc. (Parent) is owned by Courtaulds PLC, a public limited company organized under the laws of England and Wales. The Division was not a legal entity and operated as a component of a larger business. The Division's financial statements includes only assets, liabilities and results of operations which comprise the specific division. The balance sheet and statement of operations, which have been prepared from the historical accounting records of the Division, include all revenues and costs directly attributable to the Division's business, including costs of facilities, employees and related support functions. The Division has not been charged for the cost of certain functions and services performed by the Parent or other related entities on behalf of the Division. Similarly, the Division has not been allocated any income tax expense or benefit during the year ended March 31, 1998. Management believes that the impact of costs performed by Parent and other related entities on behalf of the Division would not be significant to the accompanying financial statements. The Division manufactures and markets plastic packaging products, primarily proprietary and custom molded plastic overcaps and closures. During the year ended March 31, 1998, the Division operated manufacturing facilities located in Woods tock and Arlington Heights, Illinois. The Division's customers are located principally throughout the United States. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES Inventories are valued at the lower of cost (first in, first out method) or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed primarily by the straight-line method over the estimated useful lives of the assets ranging from three to fifty years. GOODWILL The cost in excess of net assets acquired represent the excess purchase price over the fair value of the net assets acquired in the original acquisition of the Division. These costs are being amortized over 20 years. The Division periodically evaluates the value of intangible assets to determine if an impairment has occurred. This evaluation is based on various analyses including reviewing anticipated cash flows. REVENUE RECOGNITION Revenue from sales of products is recognized at the time product is shipped to the customer. RETIREMENT PLANS During the year ended March 31, 1998, the Division had two defined contribution benefit plans, a retirement and a employee thrift plan. The Plans covered substantially all the Division's employees. The retirement plan provides for an annual employer contribution of 4% of gross wages. The employee thrift plan provides for a 75% to a 100% annual match on employee deferrals of up to 6%. The plans expenses were approximately $291,000 for the year ended March 31, 1998. F-57 KNIGHT ENGINEERING & PLASTICS DIVISION OF COURTAULDS PACKAGING INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) INCOME TAXES The taxable income of the Division was included in the tax returns of Courtaulds Packaging Inc. As such, separate income tax returns were not prepared or filed for the Division. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 3. NOTE PAYABLE, PARENT At March 31, 1998, the Division had a note payable to Courtaulds Packaging Inc. The note was used to fund the Division's working capital requirements with no stated maturity. Interest was charged to the Division at a rate of approximately 7%. 4. SALES INFORMATION For the year ended March 31, 1998, 38% of the Division's revenues were derived from three customers. The accounts receivables related to these customers at March 31, 1998 was approximately $560,000. 5. LEASES The Division leases certain warehouse buildings under a month to month lease arrangements. Rent expense for the year ended March 31, 1998 was approximately $145,000. 6. RELATED PARTY TRANSACTIONS The Division has engaged in business transactions with a related party, Thatcher Tubes, Inc., throughout the year. Thatcher Tubes is a fully consolidated subsidiary of Courtaulds Packaging Inc. During the year ended March 31, 1998, the Division had sales of approximately $1,845,000 to Thatcher. In addition, the related accounts receivable balance at March 31, 1998 was approximately $354,000. 7. SUBSEQUENT EVENT On October 16, 1998, a newly formed, wholly-owned subsidiary of Berry Plastics Corporation acquired substantially all of the assets of the Division for aggregate consideration of approximately $18 million. F-58 KNIGHT ENGINEERING AND PLASTICS DIVISION OF COURTAULDS PACKAGING INC. CONDENSED BALANCE SHEET (In Thousands of Dollars) SEPTEMBER 30, 1998 --------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents .................................. $ 790 Accounts receivable (less allowance for doubtful accounts of $50) ........................................ 2,785 Inventories: Finished goods .......................................... 522 Raw materials and supplies .............................. 1,256 --------------- 1,778 Prepaid expenses and other receivables ..................... 199 --------------- Total current assets ......................................... 5,552 Property and equipment: Land ....................................................... 877 Buildings and improvements ................................. 6,059 Machinery, equipment and tooling ........................... 22,456 Construction in progress ................................... 2,620 --------------- 32,012 Less accumulated depreciation .............................. 18,678 --------------- 13,334 Goodwill (net of accumulated amortization of $936) ........... 2,321 --------------- $ 21,207 =============== LIABILITIES AND DIVISION EQUITY Current liabilities: Notes payable, parent ...................................... $ 3,186 Accounts payable ........................................... 2,443 Accrued expenses and other liabilities ..................... 2,024 --------------- Total current liabilities .................................... 7,653 Division equity .............................................. 13,554 --------------- $ 21,207 =============== SEE ACCOMPANYING NOTES. F-59 KNIGHT ENGINEERING AND PLASTICS DIVISION OF COURTAULDS PACKAGING INC. CONDENSED STATEMENTS OF OPERATIONS (In Thousands of Dollars) SIX-MONTHS ENDED ------------------------------ SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ------------- ------------- (Unaudited) Net sales .................................... $ 11,893 $ 11,721 Cost of goods sold ........................... 10,596 11,097 ------------- ------------- Gross margin ................................. 1,297 624 Operating expenses: Selling, general and administrative ...... 1,377 1,244 Amortization of intangibles .............. 81 81 ------------- ------------- Operating income (loss) ...................... (161) (701) Other income and expense: Gain on sale of property and equipment ................................ -- 9 Interest expense, parent ................. (169) (226) Interest income .......................... -- 2 ------------- ------------- Division loss ................................ $ (330) $ (916) ============= ============= SEE ACCOMPANYING NOTES. F-60 KNIGHT ENGINEERING AND PLASTICS DIVISION OF COURTAULDS PACKAGING INC. CONDENSED STATEMENTS OF CASH FLOWS (In Thousands of Dollars)
SIX-MONTHS ENDED ------------------------------- SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ------------- ------------- (UNAUDITED) OPERATING ACTIVITIES Division loss ........................................ $ (330) $ (916) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation .................................... 918 1,030 Amortization .................................... 81 81 Gain on sale of property and equipment .......... -- (9) Changes in operating assets and liabilities: Accounts receivable, net ...................... 841 257 Inventories ................................... -- 115 Prepaid expenses and other receivables ........ (4) 153 Payables and accrued expenses ................. (363) (313) ------------- ------------- Net cash provided by operating activities ............ 1,143 398 INVESTING ACTIVITIES Additions to property and equipment .................. (781) (59) Proceeds from disposal of property and equipment ..... -- 9 Division equity contribution from parent ............. -- 133 ------------- ------------- Net cash provided by (used in) investing activities ........................................ (781) 83 FINANCING ACTIVITIES Net payments on note payable, parent ................. (291) (286) ------------- ------------- Net cash used in financing activities ................ (291) (286) ------------- ------------- Net increase in cash and cash equivalents ............ 71 195 Cash and cash equivalents at beginning of period ..... 719 238 ------------- ------------- Cash and cash equivalents at end of period ........... $ 790 $ 433 ============= =============
SEE ACCOMPANYING NOTES. F-61 KNIGHT ENGINEERING AND PLASTICS DIVISION OF COURTAULDS PACKAGING INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED) (Unaudited) 1. BASIS OF PRESENTATION The accompanying financial statements include the accounts of Knight Engineering and Plastics Division of Courtaulds Packaging Inc., a West Virginia Corporation (the Division) and have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Courtaulds Packaging, Inc. (Parent) is owned by Courtauld PLC, a public limited company organized under the laws of England and Wales. The Division was not a legal entity and operated as a component of a larger business. The Division's financial statement includes only assets, liabilities and results of operations which comprise the specific division. The balance sheet and statement of operations, which have been prepared from the historical accounting records of the Division, include all revenues and costs directly attributable to the Division's business, including costs of facilities, employees and related support functions. The Division has not been charged for the cost of certain functions and services performed by the Parent or other related entities on behalf of the Division. Similarly, the Division has not been allocated any income tax expense or benefit. Management believes that the impact of costs performed by Parent and other related entities on behalf of the Division would not be significant to the accompanying financial statements. 2. NOTE PAYABLE, PARENT At September 30, 1998, the Division had a note payable to Courtaulds Packaging Inc. The note was used to fund the Division's working capital requirements with no stated maturity. Interest was charged to the Division at a rate of approximately 7%. 3. SUBSEQUENT EVENT On October 16, 1998, a newly formed, wholly-owned subsidiary of Berry Plastics Corporation acquired substantially all of the assets of the Division for aggregate consideration of approximately $18 million. F-62 NORWICH INJECTION MOULDERS LIMITED DIRECTORS J E Barlow (Chairman) A R Sandell (Managing) T D Johnson SECRETARY REGISTERED OFFICE Mrs. J Barlow Stanford Tuck Road North Walsham Norfolk AUDITORS Lovewell Blake Chartered Accountants 102 Prince of Wales Road Norwich REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31ST OCTOBER 1997 The directors present herewith the audited accounts for the year ended 31st October 1997. DIRECTORS' RESPONSIBILITIES Company law requires the directors to prepare accounts that give a true and fair view of the state of affairs of the company and of the profit or loss for its financial year. In doing so the directors are required to: o select suitable accounting policies and apply them consistently; o make judgements and estimates that are reasonable and prudent; o state whether applicable accounting standards have been followed, o subject to any material departures disclosed and explained in the accounts; o prepare the accounts on the going concern basis unless it is inappropriate o to presume that the company will continue in business. The directors are responsible for maintaining proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the accounts comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. REVIEW OF ACTIVITIES The company's main activities are unchanged since last year and are principally those of the production of plastic goods by injection moulding. In the opinion of the directors the company will be able to maintain its present level of turnover for the foreseeable future. The profit for the year has been added to the balance on the profit and loss account. F-63 NORWICH INJECTION MOULDERS LIMITED REPORT OF THE DIRECTORS (CONTINUED) DIRECTORS The directors named above held office throughout the year. In accordance with the articles of association T D Johnson will retire at the annual general meeting and, being eligible, offers himself for re-election. The interests of the directors of the company at 31st October 1997 in the shares of the company, according to the register required to be kept by Section 325 of the Companies Act 1985 were as follows: 31ST OCTOBER 31ST OCTOBER 31ST OCTOBER 1995 1997 ORDINARY 1996 ORDINARY ORDINARY SHARES SHARES SHARES ----------------------- FULLY PAID FULLY PAID FULLY PAID PARTLY PAID ------------- ------------- ---------- ----------- J E Barlow........... 60 60 11 49 A R Sandell.......... 29 29 -- 29 T D Johnson.......... 11 11 -- 11 MARKET VALUE OF INTEREST IN LAND In the opinion of the directors, the current open market value on an existing use basis of the freehold land and buildings exceeds the net book value as shown in the balance sheet at the 31st October 1997 by (pound)80,711. CLOSE COMPANY PROVISIONS The company is a close company within the provisions of the Income and Corporation Taxes Act 1988. AUDITORS A resolution to re-appoint Lovewell Blake will be proposed at the annual general meeting. By order of the board J BARLOW Secretary North Walsham 22nd December 1997 F-64 REPORT OF INDEPENDENT AUDITORS TO THE DIRECTORS OF NORWICH INJECTION MOULDERS LIMITED To the Directors of Norwich Injection Moulders Limited We have audited the balance sheets of Norwich Injection Moulders Limited as at 31st October 1997, 31st October 1996 and 31st October 1995, and the related profit and loss accounts and cash flow statements for each of the three years in the period ended 31st October 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with United Kingdom auditing standards which do not differ in any significant respect from United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Norwich Injection Moulders Limited at 31st October 1997, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended 31st October 1997 in conformity with accounting principles generally accepted in the United Kingdom which differ in certain respects from those generally accepted in the United States (see Note 24 of Notes to the Accounts). /S/ LOVEWELL BLAKE Chartered Accountants Norwich, England 22nd December 1997 in respect of accounts to 31st October 1997 31st January 1997 in respect of accounts to 31st October 1996 11th March 1996 in respect of accounts to 31st October 1995 except for Note 24 Differences between United Kingdom and United States Generally Accepted Accounting Principles as to which the date is 18th May 1999 F-65 NORWICH INJECTION MOULDERS LIMITED PROFIT AND LOSS ACCOUNT
YEAR ENDED YEAR ENDED YEAR ENDED 31ST OCTOBER 31ST OCTOBER 31ST OCTOBER NOTES 1997 1996 1995 ----- ------------ ------------ ------------ (pound) (pound) (pound) Turnover ........................... 2 8,117,742 7,308,368 5,046,307 Change in stock of finished goods .. 5,908 26,405 15,783 ------------ ------------ ------------ 8,123,650 7,334,773 5,062,090 Other operating income ............. 3 21,738 6,823 3,749 ------------ ------------ ------------ 8,145,388 7,341,596 5,065,839 Raw materials and consumables ...... 3,772,741 3,521,241 2,270,368 Other external charges ............. 677,847 616,428 468,515 Staff costs ........................ 4 1,510,732 1,421,872 1,073,648 Depreciation ....................... 6 441,666 338,363 293,657 Other operating charges ............ 537,182 482,605 432,372 Interest payable and similar charges 7 103,769 120,943 128,526 ------------ ------------ ------------ 7,043,937 6,501,452 4,666,086 ------------ ------------ ------------ Profit on ordinary activities before taxation ......................... 8 1,101,451 840,144 399,753 Tax on profit on ordinary activities 9 261,160 4,618 98,035 ------------ ------------ ------------ Profit on ordinary activities after taxation ......................... * 840,291 835,526 301,718 Balance 1st November 1996 .......... 2,209,809 1,374,283 1,072,565 ------------ ------------ ------------ Balance 31st October 1997 .......... 3,050,100 2,209,809 1,374,283 ============ ============ ============
There are no movements in shareholders funds other than the increase to the retained profits for the years ended 31st October 1997, 31st October 1996 and 31st October 1995. There were no recognized gains or losses other than the profit of (pound)840,291 in the year ended 31st October 1997, (pound)835,526 in the year ended 31st October 1996 and (pound)301,718 in the year ended 31st October 1995. *A summary of the significant adjustments to the profit on ordinary activities after taxation (net income) that would be required if US Generally Accepted Accounting Principles were to be applied instead of those generally accepted in the United Kingdom is set out in Note 24 of Notes to the Accounts. F-66 NORWICH INJECTION MOULDERS LIMITED BALANCE SHEET
31ST OCTOBER 31ST OCTOBER 31ST OCTOBER NOTES 1997 1996 1995 ----- ------------- ------------- ------------- (pound) (pound) (pound) FIXED ASSETS Tangible assets ........... 10 3,839,712 3,507,176 2,978,664 CURRENT ASSETS Stock and work in progress 11 342,324 313,971 231,064 Debtors ................... 12 1,622,209 1,582,819 1,234,573 Bank balances ............. 510,081 560,087 -- Cash in hand .............. 464 338 669 ------------- ------------- ------------- 2,475,078 2,457,215 1,466,306 CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR ....... 13 2,384,216 2,696,054 1,783,404 NET CURRENT ASSETS/(LIABILITIES) ...... 90,862 (238,839) (317,098) ------------- ------------- ------------- TOTAL ASSETS LESS CURRENT LIABILITIES ....... 3,930,574 3,268,337 2,661,566 CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR ...................... 14 880,374 1,058,428 1,098,041 PROVISIONS FOR LIABILITIES AND CHARGES DEFERRED TAXATION ......... 15 -- -- 189,227 ------------- ------------- ------------- 3,050,200 2,209,909 1,374,298 ============= ============= ============= CAPITAL AND RESERVES Called up share capital ... 16 100 100 15 Profit and loss account ... 3,050,100 2,209,809 1,374,283 ------------- ------------- ------------- 3,050,200 2,209,909 1,374,298 ============= ============= =============
JE BARLOW - Director AR SANDELL - Director The statutory accounts for the year to 31st October 1997 were approved by the board of directors on 22nd December 1997. The statutory accounts for the year to 31st October 1997 were approved by the board of directors on 31st January 1997. The statutory accounts for the year to 31st October 1997 were approved by the board of directors on 27th February 1996. o A summary of the significant adjustments to capital and reserves (shareholders funds) that would be required if US Generally Accepted Accounting Principles were to be applied instead of those generally accepted in the United Kingdom is set out in Note 24 of Notes to the Accounts. F-67 NORWICH INJECTION MOULDERS LIMITED CASH FLOW STATEMENT
YEAR ENDED YEAR ENDED YEAR ENDED 31ST OCTOBER 31ST OCTOBER 31ST OCTOBER NOTES 1997 1996 1995 ----- ------------ ------------ ------------ (pound) (pound) (pound) CASH FLOW FROM OPERATING ACTIVITIES ....... 20 1,520,397 1,443,181 781,305 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE ................................ 21 (84,576) (122,884) (126,426) TAXATION .................................. (193,817) (70,214) (50,052) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT .............................. 21 (980,793) (635,844) (924,113) ------------ ------------ ------------ CASH INFLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING ................. 261,211 614,239 (319,286) FINANCING - DECREASE IN DEBT .............. 21 (251,086) (9,654) 379,110 - CALLS ON SHARE CAPITAL .......... 21 -- 85 -- ------------ ------------ ------------ INCREASE IN CASH IN THE YEAR .............. 22 10,125 604,760 59,824 ============ ============ ============ RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT INCREASE IN CASH IN THE YEAR .............. 10,125 604,760 59,824 CASH OUTFLOW/(INFLOW) FROM DECREASE/INCREASE IN DEBT AND LEASE FINANCING ................................. 21 251,086 9,564 (379,110) ------------ ------------ ------------ MOVEMENT IN NET DEBT IN THE PERIOD ........ 261,211 614,324 (319,286) NET DEBT AT 1ST NOVEMBER .................. (921,849) (1,536,173) (1,216,887) ------------ ------------ ------------ NET DEBT AT 31ST OCTOBER .................. 22 (660,638) (921,849) (1,536,173) ============ ============ ============
The significant differences between the cashflow statement presented above and that required under US Generally Accepted Accounting Principles are set out in Note 24 of Notes to the Accounts. F-68 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS 1. PRINCIPAL ACCOUNTING POLICIES (A) BASIS OF ACCOUNTING The accounts are prepared under the historical cost basis of accounting and in accordance with applicable UK accounting standards. (B) DEPRECIATION Depreciation is provided on fixed assets at rates sufficient to write off, on a straight line basis, the cost of the assets over their expected useful lives. It is the company's policy to maintain its freehold property to such a standard that its residual disposal value will at least equal its book value and accordingly no provision for depreciation has been made. The principal annual rates used for this purpose which are consistent with those of last year are: Freehold land and buildings Not depreciated Leasehold property expenditure Over period of the lease Plant and machinery 10% - 50% Motor vehicles 20% - 25% Loose tools Written off on a usage basis (C) STOCK AND WORK IN PROGRESS Stock and work in progress are stated at the lower of cost and net realisable value. In general cost is determined on a first in first out basis and includes transport and handling costs. In the case of work in progress cost includes all direct expenditure and production overheads based on the normal level of activity. Net realisable value is the price at which stock can be sold in the normal course of business after allowing for the costs of realisation and, where appropriate, the cost of conversion from their existing state to a finished condition. Provision is made where necessary for obsolete, slow moving and defective stock. (D) FINANCE LEASE AND HIRE PURCHASE CONTRACTS Assets held under finance leases, other than hire purchase contracts, are capitalized at their fair value and are depreciated over either the lease term, or the useful working life of the asset, whichever is the shorter. Fair value is usually the cost at which the company could have purchased the asset. Future rental payments due during the primary lease period are shown as creditors. The difference between the total primary lease payments and the fair value of the asset is treated as a finance charge and is charged to the profit and loss account on a straight line basis over the primary lease period. Secondary lease rentals are charged to profit and loss account in the period in which they are paid. Assets held under hire purchase contracts are capitalized at their fair value and are depreciated over their useful working life on the same basis as set out in note 1(b). F-69 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS (CONTINUED) 1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (E) OPERATING LEASES Operating lease rentals are charged to profit and loss account in the period in which they are incurred. (F) DEFERRED TAXATION Provision is made for deferred taxation where, in the opinion of the directors, it is likely to be payable in the foreseeable future. (G) PENSION SCHEME The company operates defined contribution schemes. The assets of the schemes are held separately from those of the company in independently administered funds. The charge in the profit and loss accounts represents the contributions payable by the company to the funds for the year. (H) FOREIGN CURRENCIES Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling on the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Significant differences arising due to exchange fluctuations have been reflected in the profit and loss account. 2. TURNOVER The contribution to turnover and profit before taxation arises from the production of plastic goods by injection moulding. 1997 1996 1995 --------- --------- --------- (pound) (pound) (pound) Geographical analysis of turnover United Kingdom .......................... 7,890,743 7,160,110 4,887,260 Rest of Europe .......................... 226,999 148,258 159,047 --------- --------- --------- 8,117,742 7,308,368 5,046,307 ========= ========= ========= 3. OTHER OPERATING INCOME 1997 1996 1995 --------- --------- --------- (pound) (pound) (pound) Training grants ............................ 500 2,589 3,700 Interest received (gross) .................. 21,238 4,234 49 --------- --------- --------- 21,738 6,823 3,749 ========= ========= ========= F-70 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS (CONTINUED) 4. EMPLOYEE INFORMATION The average number of persons employed by the company during the year including directors is analyzed below: 1997 1996 1995 --------- --------- --------- Manufacturing and packing ............... 57 52 42 Selling and administration .............. 18 17 16 Former employees ........................ 2 2 2 --------- --------- --------- 77 71 60 ========= ========= ========= 1997 1996 1995 ----------- ----------- ----------- (pound) (pound) (pound) Staff costs: Wages and salaries paid to the company's employees ........................... 1,313,859 1,264,343 926,530 Pensions to former employees ........................... 14,905 14,905 14,905 Social security costs ............... 139,201 107,619 98,325 Pension contributions ............... 42,767 35,005 33,888 ----------- ----------- ----------- 1,510,732 1,421,872 1,073,648 =========== =========== =========== 5. DIRECTORS' EMOLUMENTS 1997 1996 1995 --------- --------- --------- (pound) (pound) (pound) Management remuneration ................... 271,217 363,153 206,546 Pension contributions ..................... 15,818 16,043 15,449 Taxable benefits .......................... 27,301 28,608 29,403 --------- --------- --------- 314,336 407,804 251,398 ========= ========= ========= The directors' emoluments disclosed above (excluding pension contributions) include amounts paid to: (pound) (pound) (pound) --------- --------- --------- The Highest Paid Director............... 106,903 137,910 86,398 Retirement benefits in respect of the three directors are accruing under a defined contribution scheme. The contributions paid in respect of the highest paid director were (pound)5,488 ((pound)5,583 in the year ended 31st October 1996 anD (pound)5,365 in the year ended 31st October 1995). F-71 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS (CONTINUED) 6. DEPRECIATION The charge for the year is made up as under: 1997 1996 1995 ------- ------- ------- (pound) (pound) (pound) The charge for the year is made up as under: Depreciation of tangible fixed assets Owned assets ................................. 342,082 193,832 143,785 Assets held under finance lease and hire purchase contracts .................. 116,103 169,931 151,738 ------- ------- ------- 458,185 363,763 295,523 Profit on sale of tangible fixed assets ....................................... (16,519) (25,400) (1,866) ------- ------- ------- 441,666 338,363 293,657 ======= ======= ======= 7. INTEREST PAYABLE AND SIMILAR CHARGES 1997 1996 1995 ------- ------- ------- (pound) (pound) (pound) Bank loan and overdraft ...................... 63,718 69,425 80,945 Finance leases and hire purchase contracts expiring within five years ...... 40,051 51,518 47,581 ------- ------- ------- 103,769 120,943 128,526 ======= ======= ======= 8. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION The profit on ordinary activities before taxation is stated after charging the following amounts: 1997 1996 1995 ------- ------- ------- (pound) (pound) (pound) Hire of equipment ................................ 55,698 71,616 72,385 Rent of land and buildings ....................... 22,080 22,127 28,203 Auditors remuneration ............................ 3,000 3,000 2,750 F-72 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS (CONTINUED) 9. TAX ON PROFIT ON ORDINARY ACTIVITIES 1997 1996 1995 ------- ------- -------- (pound) (pound) (pound) Corporation tax for the year at 30% (1996 30%, 1995 25%) Taxation payable .............................. 261,163 193,845 70,043 Overprovision in previous year ................ (3) -- -- Decrease in provision for deferred tax ........................................ -- (189,227) 27,992 ------- ------- -------- 261,160 4,618 98,035 ======= ======= ======== F-73 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS (CONTINUED) 10. TANGIBLE FIXED ASSETS
EXPENDITURE ON SHORT FREEHOLD LEASEHOLD PLANT AND MOTOR TOTAL PROPERTY PROPERTY MACHINERY VEHICLES ---------- --------- ---------- ---------- -------- (pound) (pound) (pound) (pound) (pound) COST 1st November 1994 .......................... 3,211,137 921,157 298 2,167,594 122,088 Additions .................................. 843,420 269,790 -- 546,130 27,500 Disposals .................................. (109,265) -- -- (85,375) (23,890) ---------- --------- -------- ---------- -------- 31st October 1995 .......................... 3,945,292 1,190,947 298 2,628,349 125,698 Additions .................................. 967,725 1,719 -- 933,038 32,968 Disposals .................................. (168,686) -- -- (137,011) (31,675) ---------- --------- -------- ---------- -------- 31st October 1995 .......................... 4,744,331 1,192,666 298 3,424,376 126,991 Additions .................................. 900,630 26,623 -- 779,975 94,032 Disposals .................................. (365,688) -- -- (276,915) (88,773) ---------- --------- -------- ---------- -------- 31st October 1995 .......................... 5,279,273 1,219,289 298 3,927,436 132,250 ========== ========= ======== ========== ======== DEPRECIATION 1st November 1994 .......................... 729,236 -- 225 696,176 32,835 Disposals .................................. (58,131) -- -- (46,677) (11,454) Charge for the year ........................ 295,523 -- 12 265,347 30,146 ---------- --------- -------- ---------- -------- 31st October 1995 .......................... 966,628 -- 237 914,846 51,545 Disposals .................................. (93,236) -- -- (70,136) (23,100) Charge for the year ........................ 363,763 -- 12 334,547 29,204 ---------- --------- -------- ---------- -------- 31st October 1996 .......................... 1,237,155 -- 249 1,179,257 57,649 Disposals .................................. (255,779) -- -- (193,173) (62,606) Charge for the year ........................ 458,185 -- 12 431,284 26,889 ---------- --------- -------- ---------- -------- 31st October 1997 .......................... 1,439,561 -- 261 1,417,368 21,932 ========== ========= ======== ========== ======== NET BOOK AMOUNT 31st October 1997 .......................... 3,839,712 1,219,289 37 2,510,068 110,318 ========== ========= ======== ========== ======== 31st October 1996 .......................... 3,507,176 1,192,666 49 2,245,119 69,342 ========== ========= ======== ========== ======== 31st October 1995 .......................... 2,978,664 1,190,947 61 1,713,503 74,153 ========== ========= ======== ========== ======== 31st October 1994 .......................... 2,481,901 921,157 73 1,471,418 89,253 ========== ========= ======== ========== ========
Details of fixed assets held under finance leases and hire purchase contracts, which are included in the relevant headings in the table above, are as follows: 1997 1996 1995 ------- --------- ------- (pound) (pound) (pound) Net book value at 31st October 1997 ...... 808,682 1,080,707 954,467 ======= ========= ======= F-74 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS (CONTINUED) 11. STOCK AND WORK IN PROGRESS The amounts attributable to the different categories are as follows: 1997 1996 1995 ------- ------- ------- (pound) (pound) (pound) Raw materials ............... 200,506 200,719 129,345 Packing materials ........... 9,698 11,492 15,035 Finished goods .............. 87,466 81,558 61,156 Work in progress ............ 44,654 20,202 25,528 ------- ------- ------- 342,324 313,971 231,064 ======= ======= ======= 12. DEBTORS 1997 1996 1995 --------- --------- --------- (pound) (pound) (pound) Trade debtors ............... 1,595,311 1,562,039 1,219,983 Loans ....................... -- -- 160 Prepayments ................. 26,898 20,780 14,430 --------- --------- --------- 1,622,209 1,582,819 1,234,573 ========= ========= ========= 13. CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR
1997 1996 1995 --------- --------- --------- (pound) (pound) (pound) Bank overdraft (see note (a) below) .......... -- 60,005 105,009 Bank loan (see note (b) below) ............... 36,664 36,664 36,664 --------- --------- --------- Bank loan and overdraft ...................... 36,664 96,669 141,673 Trade creditors .............................. 1,578,688 1,743,509 1,044,690 Corporation tax payable 1st August 1998 (1996 - 1st August 1997, 1995 - 1st August 1996) ........................ 261,163 193,820 70,189 Taxation and social security payments ........ 163,762 130,944 142,640 Hire purchase obligations (see note (c) below) 254,145 327,177 297,128 Accruals ..................................... 89,794 203,935 87,084 --------- --------- --------- 2,384,216 2,696,054 1,783,404 ========= ========= =========
(a) Secured by a fixed and floating charge over the other assets of the company. (b) Secured by a mortgage on the freehold premises. (c) Secured on the assets concerned. F-75 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS (CONTINUED) 14. CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 1997 1996 1995 --------- --------- --------- (pound) (pound) (pound) Bank loan bearing interest at various rates repayable by quarter installments (see note (a) below) ................... 705,742 742,406 779,070 (see note (b) below) ................... 174,632 316,022 318,971 --------- --------- --------- 880,374 1,058,428 1,098,041 ========= ========= ========= (a) Secured by a mortgage on the freehold premises (b) Secured on the assets concerned ..... The bank loan above analyzed by due dates of repayment Repayable between one and two years ..... 36,664 36,664 36,664 Repayable between two and five years .... 109,992 109,992 109,992 Repayable after more than five years by installments ............................ 559,086 595,750 632,414 --------- --------- --------- 705,742 742,406 779,070 ========= ========= ========= 15. DEFERRED TAXATION
1997 1996 1995 PROVIDED UNPROVIDED PROVIDED UNPROVIDED PROVIDED UNPROVIDED -------- ---------- -------- ---------- -------- ---------- (pound) (pound) (pound) (pound) (pound) (pound) Accelerated capital Allowances ............. -- 373,364 -- 316,866 189,227 -- ======== ========== ======== ========== ======== ==========
16. SHARE CAPITAL
1997 1996 1995 ------- ------- ------- (pound) (pound) (pound) AUTHORIZED Ordinary shares of(pound)1 each ........................... 100 100 100 ------- ------- ------- CALLED UP SHARE CAPITAL Shares issued at(pound)1 each (1997:100, 1996:100, 1995:11) 100 100 11 Shares issued at 5p each (1997:nil, 1996:nil, 1995:89) .... -- -- 4 ------- ------- ------- 100 100 15 ======= ======= =======
F-76 17. LEASING COMMITMENTS The company leases land and building in Norwich. At 31st October 1997 the lease has an unexpired term of two years, at a rental of (pound)22,080. 18. CAPITAL EXPENDITURE 1997 1996 1995 ------- ------- ------- (pound) (pound) (pound) Authorized and contracted for .................... 43,652 -- 175,108 ======= ======= ======= 19. CONTROLLING INTEREST Mr. J E Barlow owns 60% of the issued share capital of the company and, as such, controls the company. 20. NOTES TO CASHFLOW STATEMENT Reconciliation of operating profit to net cash inflow from operating activities. 1997 1996 1995 ---------- ---------- -------- (pound) (pound) (pound) Operating profit ........................ 1,101,451 840,144 399,753 Depreciation ............................ 441,666 338,363 293,657 Interest payable and similar charges .... 103,769 120,943 128,526 Interest received ....................... (21,238) (4,234) -- Increase in stocks ...................... (28,353) (82,907) (59,607) Increase in debtors ..................... (39,390) (348,246) (290,978) (Decrease)/Increase in creditors ........ (37,508) 579,118 309,954 ---------- ---------- -------- Net cash inflow from operating activities 1,520,397 1,443,181 781,305 ========== ========== ======== F-77 21. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
1997 1996 1995 ------- -------- -------- (pound) (pound) (pound) Interest received .............................. 21,238 4,234 -- Interest paid .................................. (63,598) (73,625) (81,245) Interest element of finance lease rental payments (42,216) (53,493) (45,181) ------- -------- -------- NET CASH (OUTFLOW) FOR RETURNS ON INVESTMENTS AND SERVICING OF FINANCE ........ (84,576) (122,884) (126,426) ======= ======== ========
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
1997 1996 1995 ---------- -------- -------- (pound) (pound) (pound) Purchase of tangible fixed assets ............... (1,107,221) (736,694) (977,113) Proceeds from the sale of fixed assets .......... 126,428 100,850 53,000 ---------- -------- -------- NET CASH (OUTFLOW) FOR CAPITAL EXPENDITURE AND FINANCIAL) INVESTMENT . (980,793) (635,844) (924,113) ========== ======== ========
FINANCING 1997 1996 1995 -------- -------- -------- (pound) (pound) (pound) Loans advanced to company .................. -- -- 250,000 Loans repaid by company .................... (36,664) (36,664) (29,466) Hire purchase advances to company .......... 137,700 386,953 453,296 Hire purchase and finance lease repayments . (352,122) (359,853) (294,720) Calls on share capital ..................... -- 85 -- -------- -------- -------- NET CASH (OUTFLOW)/INFLOW FROM FINANCING ... (251,086) (9,479) (379,110) ======== ======== ======== F-78 22. ANALYSIS OF CHANGES IN NET DEBT
AT AT 1ST NOVEMBER CASH OTHER 31ST OCTOBER 1994 FLOWS CHANGES 1995 -------------- -------------- ------------- --------------- (pound) (pound) (pound) (pound) Cash in hand, at bank ..................... 131 538 -- 669 Overdraft ................................. (164,295) 59,286 -- (105,009) ---------- ---------- ---------- ---------- (164,164) 59,824 -- (104,340) Hire purchase and finance leases .......... (457,523) (158,576) -- (616,099) Debt due within one year .................. (25,600) 29,466 (40,530) (36,664) Debt due after one year ................... (569,600) (250,000) 40,530 (779,070) ---------- ---------- ---------- ---------- (1,216,887) (319,286) -- (1,536,173) ========== ========== ========== ========== AT AT 1ST NOVEMBER CASH OTHER 31ST OCTOBER 1995 FLOWS CHANGES 1996 -------------- -------------- ------------- --------------- (pound) (pound) (pound) (pound) Cash in hand, at bank ..................... 669 559,756 -- 560,425 Overdraft ................................. (105,009) 45,004 -- (60,005) ---------- ---------- ---------- ---------- (104,340) 604,760 -- 500,420 Hire purchase and finance leases .......... (616,099) (27,100) -- (643,199) Debt due within one year .................. (36,664) 36,664 (36,664) (36,664) Debt due after one year ................... (779,070) -- 36,664 (742,406) ---------- ---------- ---------- ---------- (1,536,173) 614,324 -- (921,849) ========== ========== ========== ==========
AT AT 1ST NOVEMBER CASH OTHER 31ST OCTOBER 1996 FLOWS CHANGES 1997 -------------- -------------- ------------- --------------- (pound) (pound) (pound) (pound) Cash in hand, at bank ..................... 560,425 (49,880) -- 510,545 Overdraft ................................. (60,005) 60,005 -- -- -------- -------- -------- -------- 500,420 10,125 -- 510,545 Hire purchase and finance leases .......... (643,199) 214,422 -- (428,777) Debt due within one year .................. (36,664) 36,664 (36,664) (36,664) Debt due after one year ................... (742,406) -- 36,664 (705,742) -------- -------- -------- -------- (921,849) 261,211 -- (660,638) ======== ======== ======== ========
23. COMPANIES ACT 1985 These financial statements do not comprise the Company's statutory accounts within the meaning of section 240 of the Companies Act 1985 of Great Britain. Statutory accounts for the years ended 31st October 1997, 1996 and 1995, on which the auditors' reports were unqualified, have been delivered to the Registrar of Companies for England and Wales. F-79 24. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. The company's accounts are prepared in accordance with accounting principles generally accepted in the United Kingdom ("UK GAAP") which differ from United States generally accepted accounting principles ("US GAAP"). The significant differences applicable to the company are summarized below. DEPRECIATION OF FREEHOLD PROPERTY Under UK GAAP, the company does not depreciate its freehold property. Under US GAAP, depreciation would be provided. FINANCE LEASES AND HIRE PURCHASE CONTRACTS Under UK GAAP, the finance charge relating to finance (capital) leases and hire purchase contracts is charged to the profit and loss account on a straight line basis. Under US GAAP, such finance charges would be charged to income over the period of the lease so as to provide a constant rate of interest on the remaining balance of the capital obligation. It is considered that the difference between the two methods in this case does not have a material effect on either the balance sheets as at 31st October 1995, 31st October 1996 and 31st October 1997 or the reported results for the years then ended. DEFERRED TAXATION Under UK GAAP, provision for deferred taxation is only made where in the opinion of the directors it is likely to be payable in the foreseeable future. Under US GAAP, deferred taxation is computed for all temporary differences between the tax and book bases of assets and liabilities. Deferred tax assets are recognized to the extent their realisation is more likely than not. The following is a summary of the significant adjustments to income and shareholders' funds which would be required if US GAAP were to be applied instead of UK GAAP. INCOME
YEAR ENDED 31ST YEAR ENDED 31ST YEAR ENDED 31ST OCTOBER 1997 OCTOBER 1996 OCTOBER 1995 ----------------- ---------------- ---------------- (pound) (pound) (pound) Profit on ordinary activities after taxation as reported in the profit and loss account .................... 840,291 835,526 301,718 Adjustments Depreciation ............................................... (22,160) (21,627) (21,593) Deferred taxation - methodology ............................ (73,260) (250,215) (9,789) - on above adjustments ................... 6,648 6,488 6,478 ---------- ---------- ---------- Net income as adjusted to accord with US GAAP Net income ......................................... 751,519 570,172 276,814 ========== ========== ========== F-80 24. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) SHAREHOLDERS' FUNDS YEAR ENDED 31ST YEAR ENDED 31ST YEAR ENDED 31ST OCTOBER 1997 OCTOBER 1996 OCTOBER 1995 ----------------- ---------------- ---------------- (pound) (pound) (pound) Capital and reserves as reported ................................. 3,050,200 2,209,909 1,374,298 Adjustments Fixed assets Tangible assets-freehold property depreciation ................... (97,427) (75,267) (53,640) Deferred taxation - methodology ....................... (361,320) (288,060) (37,845) - on above adjustments .............. 29,228 22,580 16,092 ---------- ---------- ---------- Shareholders' funds as adjusted to accord with US GAAP ............................................... 2,620,681 1,869,162 1,298,905 ========== ========== ==========
STATEMENT OF CASH FLOWS The statement of cash flows prepared under UK GAAP presents substantially the same information as that required under US GAAP but it differs with regard to the classification of items within it and as regards the definition of cash under UK GAAP and cash and cash equivalents under US GAAP. Under UK GAAP, cash flows are presented separately for operating activities, returns on investments and servicing of finance, taxation, capital expenditure and financial investment and financing. US GAAP require only three categories of cash flow activity to be reported, operating, investing and financing. Cash flows from taxation and returns on investments and servicing shown under UK GAAP would be included within operating activities under US GAAP. Capital expenditure and financial investment would be included within investing activities under US GAAP. Under UK GAAP, cash is defined as cash in hand and deposits repayable on demand less bank overdrafts repayable on demand. Under US GAAP, cash and cash equivalents would not include bank overdrafts but would include cash deposits repayable within three months at their inception. The categories of cash flows under US GAAP can be summarized as follows:
YEAR ENDED 31ST YEAR ENDED 31ST YEAR ENDED 31ST OCTOBER 1997 OCTOBER 1996 OCTOBER 1995 ------------------ ------------------ ------------------ (pound) (pound) (pound) Cash inflow from operating activities .................... 1,242,004 1,250,083 604,827 Cash outflow on investing activities ..................... (980,793) (635,844) (924,113) Cash outflow from financing activities ................... (251,086) (9,479) 379,110 (Decrease)/Increase in cash and cash equivalents ......... (49,880) 559,756 538 Cash and cash equivalents At 1st November .................................... 560,425 669 131 At 31st October .................................... 510,545 560,425 669
F-81 NORWICH INJECTION MOULDERS LIMITED PROFIT AND LOSS ACCOUNT
6 MONTHS 6 MONTHS ENDED ENDED 30 APRIL 1998 30 APRIL 1997 --------------- --------------- (pound) (pound) Turnover ................................................. 4,294,764 3,954,620 Change in stock of finished goods ........................ (8,941) (5,726) ---------- ---------- 4,285,823 4,948,894 Other operating income ................................... 11,663 10,707 ---------- ---------- 4,297,486 3,959,601 Raw materials and consumables ............................ 1,813,051 1,735,182 Other external charges ................................... 272,590 316,745 Staff costs .............................................. 812,776 731,892 Depreciation ............................................. 251,990 201,514 Other operating charges .................................. 405,219 434,945 Interest payable and similar charges ..................... 47,096 53,500 ---------- ---------- 3,602,722 3,473,778 Profit on ordinary activities before taxation ............ 694,754 485,823 Tax on profit on ordinary activities ..................... 225,798 115,140 ---------- ---------- Profit on ordinary activities after taxation ............. 468,956 370,683 Balance 1st November ..................................... 3,050,100 2,209,809 ---------- ---------- Balance 30th April ....................................... 3,519,056 2,580,492 ========== ==========
There are no movements in shareholders funds other than the increase to the retained profits for the six month periods ended 30th April 1998 and 30th April 1997. There were no recognized gains or losses other than the profit of (pound)468,956 in the six months ended 30th April 1998, and (pound)370,683 in the six months ended 30th April 1997. * A summary of the significant adjustments to the profit on ordinary activities after taxation (net income) that would be required if US Generally Accepted Accounting Principles were to be applied instead of those generally accepted in the United Kingdom is set out in the Notes to the Accounts. F-82 NORWICH INJECTION MOULDERS LIMITED BALANCE SHEET 30 APRIL 1998 --------------- (pound) FIXED ASSETS Tangible Assets .......................................... 3,907,483 CURRENT ASSETS Stock and work in progress ............................... 307,332 Debtors .................................................. 1,651,367 Cash at bank and in hand ................................. 886,682 --------- 2,845,381 CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR .......... 2,240,635 --------- NET CURRENT ASSETS/(LIABILITIES) ......................... 604,746 --------- NET ASSETS LESS CURRENT LIABILITIES ...................... 4,512,229 CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR . 993,073 PROVISIONS FOR LIABILITIES AND CHARGES DEFERRED TAXATION ........................................ -- --------- 3,519,156 ========= CAPITAL AND RESERVES* Called up share capital .................................. 100 Profit and loss account .................................. 3,519,056 --------- 3,519,156 --------- * A summary of the significant adjustments to capital and reserves (shareholders funds) that would be required if US Generally Accepted Accounting Principles were to be applied instead of those generally accepted in the United Kingdom is set out in the Notes to the Accounts. F-83 NORWICH INJECTION MOULDERS LIMITED CASH FLOW STATEMENT
6 MONTHS ENDED 6 MONTHS ENDED 30TH APRIL 1998 30TH APRIL 1997 ----------------- ---------------- (pound) (pound) CASH FLOW FROM OPERATING ACTIVITIES ........................................... 887,585 585,484 RETURNS ON INVESTMENTS AND SERVING OF FINANCE ................................. (35,433) (42,793) TAXATION ...................................................................... -- -- CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT .................................. (319,771) (422,933) -------- -------- Cash inflow before use of liquid resources and financing ...................... 532,381 119,758 FINANCING - Decrease in debt .................................................. (156,244) (159,666) -------- -------- INCREASE/(DECREASE) IN CASH IN THE PERIOD ..................................... 376,137 (39,908) ======== ======== RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT INCREASE/(DECREASE) IN CASH IN THE PERIOD ..................................... 376,137 (39,908) Cash outflow/(inflow) from decrease/increase in debt and lease financing ...... 156,244 159,666 -------- -------- MOVEMENT IN THE NET DEBT IN THE PERIOD ........................................ 532,381 119,758 NET DEBT AT 1ST NOVEMBER ...................................................... (660,638) (921,849) -------- -------- NET DEBT AT 30TH APRIL ........................................................ (128,257) (802,091) ======== ========
The significant differences between the cashflow statement presented above and that required under the US Generally Accepted Accounting Principles are set out in Note 4 of the Notes to the Accounts. F-84 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS 1. PRINCIPAL ACCOUNTING POLICIES The accounts are prepared under the historical cost basis of accounting and in accordance with applicable UK accounting standards. 2. CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR 1998 1997 --------- --------- (pound) (pound) Bank loan (see note (a) below) ............... 36,664 36,664 --------- --------- Bank loan and overdraft ...................... 36,664 36,664 Trade creditor ............................... 1,544,442 1,747,629 Corporation tax payable 1st August ........... 261,163 193,820 Taxation and social security payments ........ 187,366 172,042 Hire purchase obligations (see (b) below) .... 211,000 211,000 --------- --------- 2,240,635 2,361,155 ========= ========= (a) Secured by a mortgage on a freehold premises. (b) Secured on the assets concerned. 3. CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 1998 1997 --------- --------- (pound) (pound) Bank loan bearing interest at various rates repayable by quarterly installments (see note (a) below) ........ 687,410 724,074 Hire purchase obligations ................ 79,865 290,865 Corporation Tax .......................... 225,798 115,140 --------- --------- 993,073 1,130,079 ========= ========= (a) Secured by a mortgage on the freehold premises. (b) Secured on the assets concerned. 1998 1997 ------- ------- (pound) (pound) The bank loan above analyzed by due dates of repayment Repayable between one and two years .......... 36,664 36,664 Repayable between two and five years ......... 109,992 109,992 Repayable after more than five years by installments ............................ 540,754 577,418 ------- ------- 687,410 724,074 ======= ======= 4. DIFFERENCE BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. The company's accounts are prepared in accordance with accounting principles generally accepted in the United Kingdom ("UK GAAP") which differ from United States generally accepted accounting principles ("US GAAP"). The significant differences applicable to the company are summarized below. F-85 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS (CONTINUED) DEPRECIATION OF FREEHOLD PROPERTY Under UK GAAP, the company does not depreciate its freehold property. Under US GAAP, depreciation would be provided. FINANCE LEASES AND HIRE PURCHASE CONTRACTS Under UK GAAP, the finance charge relating to finance (capital) leases and hire purchase contracts is charged to the profit and loss account on a straight line basis. Under US GAAP, such finance charges would be charged to income over the period of the lease so as to provide a constant rate of interest on the remaining balance of the capital obligation. It is considered that the difference between the two methods in this case does not have a material effect on either the balance sheets as at 30th April 1997 and 30th April 1998 or the reported results for the six month periods then ended. DEFERRED TAXATION Under UK GAAP, provision for deferred taxation is only made where in the opinion of the directors it is likely to be payable in the foreseeable future. Under US GAAP, deferred taxation is computed for all temporary differences between the tax and book bases of assets and liabilities. Deferred tax assets are recognized to the extent their realization is more likely than not. The following is a summary of the significant adjustments to income and shareholders' funds which would be required if US GAAP were to be applied instead of UK GAAP.
INCOME 6 MONTHS ENDED 6 MONTHS ENDED 30TH APRIL 1998 30TH APRIL 1997 ----------------- ----------------- (pound) (pound) Profit on ordinary activities after taxation as reported on the profit and loss account ..................................... 468,956 370,683 Adjustments Depreciation ......................................................... (11,080) (10,814) Deferred taxation - methodology ...................................... (37,420) (36,630) - an above adjustments ............................. 3,324 3,244 ---------- ---------- Net income as adjusted to accord with US GAAP Net income ............. 423,780 326,483 ========== ========== SHAREHOLDERS' FUNDS 6 MONTHS ENDED 6 MONTHS ENDED 30TH APRIL 1998 30TH APRIL 1997 ----------------- ----------------- (pound) (pound) Capital and reserves as reported ..................................... 3,519,156 2,580,592 Adjustments Fixed Assets Tangible Assets - freehold property depreciation ..................... (108,507) (86,347) Deferred taxation - methodology ........................ (397,950) (324,690) - on above adjustments ............... 32,550 25,904 ---------- ---------- Shareholders' funds as adjusted to accord with US GAAP ............... 3,045,249 2,195,459 ========== ==========
F-86 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS (CONTINUED) STATEMENT OF CASH FLOWS The statement of cash flows prepared under UK GAAP presents substantially the same information as that required under US GAAP but it differs with regard to the classification of items within it and as regards the definition of cash under UK GAAP and cash and cash equivalents under US GAAP. Under UK GAAP, cash flows are presented separately for operating activities, returns on investments and servicing of finance, taxation, capital expenditure and financial investment and financing. US GAAP require only three categories of cash flow activity to be reported, operating, investing and financing. Cash flows from taxation and returns on investments and servicing shown under UK GAAP would be included within operating activities under US GAAP. Capital expenditure and financial investment would be included within investing activities under US GAAP. Under UK GAAP, cash is defined as cash in hand and deposits repayable on demand less bank overdrafts repayable on demand. Under US GAAP, cash and cash equivalents would not include bank overdrafts but would include cash deposits repayable within three months at their inception. The categories of cash flows under US GAAP can be summarized as follows:
6 MONTHS ENDED 6 MONTHS ENDED 30TH APRIL 1998 30TH APRIL 1997 ----------------- ----------------- (pound) (pound) Cash inflow from operating activities ..................... 676,633 501,630 Cash outflow on investing activities ...................... (319,771) (422,933) Cash outflow from financing activities .................... (156,244) (159,666) (Decrease)/Increase in cash and cash equivalents .......... 376,137 (39,908) Cash and cash equivalents At 1st November .................................. 510,545 500,420 At 30th April .................................... 886,682 460,512
F-87 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Certificate or Articles of Incorporation of the Company and each of the Guarantors (except Norwich NIM Holdings and Norwich Acquisition), in each case as amended, provide that the Company and the Guarantors shall indemnify their respective directors to the fullest extent permitted under the DGCL and the laws of England and Wales (collectively, the "Corporation Law"), as applicable. The Corporation Law provides for indemnification by the Company and each of the Guarantors of their respective directors and officers. In addition, the By-laws of each of the Company and each Guarantor require the respective company to indemnify its current or former directors and officers to the fullest extent permitted by the applicable Corporation Law. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) EXHIBITS 2.1 Asset Purchase Agreement dated February 12, 1992, among the Company, Berry Iowa, Berry Carolina, Inc., Genpak Corporation, a New York corporation, and Innopac International Inc., a public Canadian corporation (filed as Exhibit 10.1 to the Registration Statement on Form S-1 filed on February 24, 1994 (Registration No. 33-75706) (the "Form S-1") and incorporated herein by reference) 2.2 Asset Purchase Agreement dated December 24, 1994, between the Company and Berry Plastics, Inc. (filed as Exhibit 10.2 to the Form S-1 and incorporated herein by reference) 2.3 Asset Purchase Agreement dated March 1, 1995, among Berry Sterling, Sterling Products, Inc. and the stockholders of Sterling Products, Inc. (filed as Exhibit 2.3 to the Annual Report on Form 10-K filed on March 31, 1995 (the "1994 Form 10-K") and incorporated herein by reference) 2.4 Asset Purchase Agreement dated December 21, 1995, among Berry Tri-Plas, Tri-Plas, Inc. and Frank C. DeVore (filed as Exhibit 2.4 to the Annual Report on Form 10-K filed on March 28, 1996 (the "1995 Form 10-K") and incorporated herein by reference) 2.5 Asset Purchase Agreement dated January 23, 1996, between the Company and Alpha Products, Inc. (filed as Exhibit 2.5 to the 1995 Form 10-K and incorporated herein by reference) 2.6 Stock Purchase and Recapitalization Agreement dated as of June 12, 1996, by and among Holding, BPC Mergerco, Inc. ("Mergerco") and the other parties thereto (filed as Exhibit 2.1 to the Current Report on Form 8-K filed on July 3, 1996 (the "Form 8-K") and incorporated herein by reference) II-1 2.7 Preferred Stock and Warrant Purchase Agreement dated as of June 12, 1996, by and among Holding, Mergerco, Chase Venture Capital Associates, L.P. ("CVCA") and The Northwestern Mutual Life Insurance Company ("Northwestern") (filed as Exhibit 2.2 to the Form 8-K and incorporated herein by reference) 2.8 Agreement and Plan of Merger dated as of June 18, 1996, by and between Holding and Mergerco (filed as Exhibit 2.3 to the Form 8-K and incorporated herein by reference) 2.9 Certificate of Merger of Mergerco with and into Holding, dated as of June 18, 1996 (filed as Exhibit 2.9 to the Registration Statement on Form S-4 filed on July 17, 1996 (Registration No. 333-08313) (the "1996 Form S-4") and incorporated herein by reference) 2.10 Agreement and Plan of Reorganization dated as of January 14, 1997 (the "PackerWare Reorganization Agreement"), among the Company, PackerWare Acquisition Corporation, PackerWare Corporation and the shareholders of PackerWare (filed as Exhibit 2.1 to the Current Report on Form 8-K filed on February 4, 1997 (the "1997 8-K") and incorporated herein by reference) 2.11 Amendment to the PackerWare Reorganization Agreement dated as of January 20, 1997 (filed as Exhibit 2.2 to the 1997 8-K and incorporated herein by reference) 2.12 Asset Purchase Agreement dated as of January 17, 1997, among the Company, Container Industries and the shareholders of Container Industries (filed as Exhibit 2.12 to the Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (the "1996 Form 10-K") and incorporated herein by reference) 2.13 Agreement and Plan of Reorganization dated as of January 14, 1997, as amended on January 20, 1997, among the Company, PackerWare Acquisition Corporation, PackerWare Corporation and the Shareholders of PackerWare Corporation (filed as Exhibits 2.1 and 2.2 to the Current Report on Form 8-K filed February 3, 1997 and incorporated herein by reference) 2.14 Asset Purchase Agreement dated May 13, 1997, among the Company, Berry Design, Virginia Design Packaging Corp. and the shareholders of Virginia Design Packaging Corp. (filed as Exhibit 2.14 to the Annual Report on Form 10-K for the fiscal year ended December 27, 1997 (the "1997 Form 10-K") and incorporated herein by reference) 2.15 Agreement for the Sale and Purchase of the Entire Issued Share Capital of Norwich Injection Moulders Limited dated July 2, 1998, among the Company, NIM Holdings Limited and the persons listed on Schedule 1 thereto II-2 2.16 Stock Purchase Agreement dated June 18, 1999 among the Company, CPI Holding, Cardinal and the Shareholders of CPI Holding (filed as Exhibit 2.1 to the Current Report on Form 8-K filed on July 21, 1999 and incorporated herein by reference). 3.1 Amended and Restated Certificate of Incorporation of Holding (filed as Exhibit 3.1 to the 1996 Form S-4 and incorporated herein by reference) 3.2 By-laws of Holding (filed as Exhibit 3.2 to the Form S-1 and incorporated herein by reference) 3.3 Certificate of Incorporation of the Company (filed as Exhibit 3.3 to the Form S-1 and incorporated herein by reference) 3.4 By-laws of the Company (filed as Exhibit 3.4 to the Form S-1 and incorporated herein by reference) 3.5 Certificate of Incorporation of Berry Iowa (filed as Exhibit 3.5 to the Form S-1 and incorporated herein by reference) 3.6 By-laws of Berry Iowa (filed as Exhibit 3.6 to the Form S-1 and incorporated herein by reference) 3.7 Certificate of Incorporation of Berry Tri-Plas (filed as Exhibit 3.7 to the Form S-1 and incorporated herein by reference) 3.8 By-laws of Berry Tri-Plas (filed as Exhibit 3.8 to the Form S-1 and incorporated herein by reference) 3.9 Certificate of Amendment to the Certificate of Incorporation of Berry Tri-Plas (filed as Exhibit 3.9 to the 1996 Form 10-K and incorporated herein by reference) 3.10 Certificate of Designation, Preferences, and Rights of Series B Cumulative Preferred Stock of Holding (filed as Exhibit 3.10 to the 1997 Form 10-K and incorporated herein by reference) 3.11 Certificate of Incorporation of Berry Sterling (filed as Exhibit 3.11 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 29, 1998 and incorporated herein by reference) 3.12 By-laws of Berry Sterling (filed as Exhibit 3.12 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 29, 1998 and incorporated herein by reference) 3.13 Certificate of Incorporation of AeroCon (filed as Exhibit 3.13 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 29, 1998 and incorporated herein by reference) II-3 3.14 By-laws of AeroCon (filed as Exhibit 3.14 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 29, 1998 and incorporated herein by reference) 3.15 Certificate of Incorporation of PackerWare (filed as Exhibit 3.15 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 2, 1999) 3.16 By-laws of PackerWare (filed as Exhibit 3.16 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 2, 1999) 3.17 Certificate of Incorporation of Berry Design (filed as Exhibit 3.17 to the Registration Statement filed on Form S-4 (Registration No. 337-64599) on December 29, 1998 and incorporated herein by reference) 3.18 By-laws of Berry Design (filed as Exhibit 3.18 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 29, 1998 and incorporated herein by reference) 3.19 Certificate of Incorporation of Venture Holdings (filed as Exhibit 3.19 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 29, 1998 and incorporated herein by reference) 3.20 By-laws of Venture Holdings (filed as Exhibit 3.20 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 29, 1998 and incorporated herein by reference) 3.21 Certificate of Incorporation of Venture Midwest (filed as Exhibit 3.21 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December, 1999) 3.22 By-laws of Venture Midwest (filed as Exhibit 3.22 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 2, 1999) 3.23 Certificate of Incorporation Venture Southeast (filed as Exhibit 3.23 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 2, 1999 and incorporated herein by reference) 3.24 By-laws of Venture Southeast (filed as Exhibit 3.24 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 2, 1999 and incorporated herein by reference) 3.25 Memorandum of Association of NIM Holdings (filed as Exhibit 3.25 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 29, 1998 and incorporated herein by reference) II-4 3.26 Articles of Association of NIM Holdings (filed as Exhibit 3.26 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 29, 1998 and incorporated herein by reference) 3.27 Memorandum of Association of Norwich (filed as Exhibit 3.27 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 29, 1998 and incorporated herein by reference) 3.28 Articles of Association of Norwich (filed as Exhibit 3.28 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 29, 1998 and incorporated herein by reference) 3.29 Certificate of Incorporation of Knight Plastics (filed as Exhbit 3.29 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) on December 29, 1998 and incorporated herein by reference). 3.30 By-laws of Knight Plastics (filed as Exhibit 3.30 to the Registration Statement filed in Form S-4 (Registration No. 333-64599) on December 29, 1998 and incorporated herein by reference). 3.31 Certificate of Incorporation of CPI Holding Corporation (filed as Exhibit 3.31 to the Registration Statement (Registration No. 333-64599) in Form S-4 filed on December 2, 1999 and incorporated herein by reference) 3.32 By-laws of CPI Holding Corporation (filed as Exhibit 3.32 to the Registration Statement (Registration No. 333-64599) on Form S-4 filed on December 2, 1999 and incorporated herein by reference) 3.33 Certificate of Incorporation of Cardinal Packaging, Inc. (filed as Exhibit 3.33 to the Registration Statement (Registration No. 333-64529) on Form S-4 filed on December 2, 1999 and incorporated herein by reference) 3.34 Code of Regulations of Cardinal Packaging, Inc. (filed as Exhibit 3.34 to the Registration Statement (Registration No. 333-64529) on Form S-4 filed on December 2, 1999 and incorporated herein by reference) 3.35 Memorandum of Association of Norwich Acquisition Limited (filed as Exhibit 3.35 to the Registration Statement (Registration No. 333-64529) on Form S-4 filed on December 2, 1999 and incorporated herein by reference) 3.36 Articles of Association of Norwich Acquisition Limited (filed as Exhibit 3.36 to the Registration Statement (Registration No. 333-64529) on Form S-4 filed on December 2, 1999 and incorporated herein by reference) II-5 3.37 Certificate of Incorporated of Berry Plastics Acquisitions Corporation (filed as Exhibit 3.37 to the Registration Statement (Registration No. 333-64529) on Form S-4 filed on December 2, 1999 and incorporated herein by reference) 3.38 By-Laws of Berry Plastics Acquisition Corporation (filed as Exhibit 3.38 to the Registration Statement (Registration No. 333-64529) on Form S-4 filed on December 2, 1999 and incorporated herein by reference) 4.1 Indenture dated April 21, 1994 between the Company and United States Trust Company of New York, as Trustee (including the form of Note and Guarantees as Exhibits A and B thereto respectively) 4.2 Warrant Agreement between Holding and United States Trust Company of New York, as Warrant Agent (filed as Exhibit 4.2 to the Form S-1 and incorporated herein by reference) 4.3 Indenture dated as of June 18, 1996, between Holding and First Trust of New York, National Association, as Trustee (the "Trustee"), relating to Holding's Series A and Series B 12.5% Senior Secured Notes Due 2006 4.4 Pledge, Escrow and Disbursement Agreement dated as of June 18, 1996, by and among Holding, the Trustee and First Trust of New York, National Association, as Escrow Agent (filed as Exhibit 4.4 to the 1996 Form S-4 and incorporated herein by reference) 4.5 Holding Pledge and Security Agreement dated as of June 18, 1996, between Holding and First Trust of New York, National Association, as Collateral Agent (filed as Exhibit 4.5 to the 1996 Form S-4 and incorporated herein by reference) 4.6 Registration Rights Agreement dated as of June 18, 1996, by and among Holding and DLJ (filed as Exhibit 4.6 to the 1996 Form S-4 and incorporated herein by reference) 4.7 BPC Holding Corporation 1996 Stock Option Plan (filed as Exhibit 4.7 to the 1996 Form 10-K and incorporated herein by reference) 4.8 Form of Nontransferable Performance-Based Incentive Stock Option Agreement (filed as Exhibit 4.7 to the 1996 Form 10-K and incorporated herein by reference) 4.9 Indenture dated as of August 24, 1998 among the Company, the Guarantors and United States Trust Company of New York, as trustee (filed as Exhibit 4.9 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) and incorporated herein by reference) 4.10 Registration Rights Agreement dated as of August 24, 1998 by and among the Company, the Guarantors and DLJ (filed as Exhibit 4.10 to the Registration Statement filed on Form S-4 (Registration No. 333-64599) and incorporated herein by reference) II-6 4.11 Indenture dated as of July 6, 1999 among the Company, the Guarantors and United States Trust Company of New York , as trustee (previously filed as Exhibit 10.27 to this Registration Statement on August 23, 1999) 4.12 Registration Rights Agreement dated as of July 6, 1999 by and among the Company, the Guarantors, DLJ and Chase Securities, Inc. (previously filed as Exhibit 10.28 to this Registration Statement on August 23, 1999) 5 Opinion of O'Sullivan Graev & Karabell, LLP (including the consent of such firm) regarding the legality of the securities being offered 8 Opinion of O'Sullivan Graev & Karabell, LLP regarding the material United States Federal income tax consequences to the holders of the securities being offered 10.1 Second Amended and Restated Financing and Security Agreement dated as of July 2, 1998, as amended, by and among the Company, NIM Holdings, Norwich, Fleet Capital Corporation, General Electric Capital Corporation, Heller Financial, Inc. and NationsBank, N.A. 10.2 Employment Agreement dated December 24, 1990, as amended, between the Company and Martin R. Imbler ("Imbler") (filed as Exhibit 10.9 to the Form S-1 and incorporated herein by reference) 10.3 Amendment to Imbler Employment Agreement dated November 30, 1995 (filed as Exhibit 10.6 to the 1995 Form 10-K and incorporated herein by reference) 10.4 Amendment to Imbler Employment Agreement dated June 30, 1996 (filed as Exhibit 10.4 to the 1996 Form S-4 and incorporated herein by reference) 10.5 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) 10.6 Amendment to Beeler Employment Agreement dated November 30, 1995 (filed as Exhibit 10.8 to the 1995 Form 10-K and incorporated herein by reference) 10.7 Amendment to Beeler Employment Agreement dated June 30, 1996 (filed as Exhibit 10.7 to the 1996 Form S-4 and incorporated herein by reference) 10.8 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) 10.9 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) II-7 10.10 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) 10.11 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) 10.12 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) 10.13 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) 10.14 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) 10.15 Letter of Credit of NationsBank, N.A. dated April 16, 1997 10.16 Purchase Agreement dated as of June 12, 1996, between Holding and DLJ relating to the 12.5% Senior Secured Notes due 2006 (filed as Exhibit 10.22 to the 1996 Form S-4 and incorporated herein by reference) 10.17 Stockholders Agreement dated as of June 18, 1996, among Holding, Atlantic Equity Partners International II, L.P., CVCA and the other parties thereto (filed as Exhibit 10.23 to the 1996 Form S-4 and incorporated herein by reference) 10.18 Warrant to purchase Class B Common Stock of Holding dated June 18, 1996, issued to CVCA (Warrant No. 1) (filed as Exhibit 10.24 to the 1996 Form S-4 and incorporated herein by reference) 10.19 Warrant to purchase Class B Common Stock of Holding dated June 18, 1996, issued to CVCA (Warrant No. 2) (filed as Exhibit 10.25 to the 1996 Form S-4 and incorporated herein by reference) 10.20 Warrant to purchase Class B Common Stock of Holding dated June 18, 1996, issued to The Northwestern Mutual Life Insurance Company (Warrant No. 3) (filed as Exhibit 10.26 to the 1996 Form S-4 and incorporated herein by reference) 10.21 Warrant to purchase Class B Common Stock of Holding dated June 18, 1996, issued to The Northwestern Mutual Life Insurance Company (Warrant No. 4) (filed as Exhibit 10.27 to the 1996 Form S-4 and incorporated herein by reference) 10.22 Amended and Restated Stockholders Agreement dated June 18, 1996, among Holding and certain stockholders of Holding (filed as Exhibit 10.28 to the 1996 Form S-4 and incorporated herein by reference) II-8 10.23 Second Amended and Restated Management Agreement dated June 18, 1996, between First Atlantic Capital, Ltd. and the Company (filed as Exhibit 10.29 to the 1996 Form S-4 and incorporated herein by reference) 10.24 Warrant to purchase Class B Non-Voting Common Stock of BPC Holding Corporation, dated August 29, 1997, issued to Willard J. Rathbun (filed as Exhibit 10.30 to the 1997 Form 10-K and incorporated herein by reference) 10.25 Warrant to purchase Class B Non-Voting Common Stock of BPC Holding Corporation, dated August 29, 1997, issued to Craig Rathbun (filed as Exhibit 10.31 to the 1997 Form 10-K and incorporated herein by reference) 10.26 Purchase Agreement dated August 19, 1998 among the Company, the Guarantors and DLJ (filed as Exhibit 10.26 to the Registration Statement on Form S-4 filed September 29, 1998) 10.27 Purchase Agreement dated July 6, 1999 among the Company, the Guarantors, DLJ and Chase Securities Inc. (filed as Exhibit 10.27 to the Registration Statement on Form S-4 (file no. 333-64599) and incorporated herein by reference). 21 List of Subsidiaries (filed as Exhibit 21 to the Registration Statement on Form S-4 (Registration No. 333-645499) on December 2, 1999 and incorporated herein by reference) 23.1 Consent of O'Sullivan Graev & Karabell, LLP (included as part of its opinion filed as Exhibit 5 hereto) *23.2 Consent of Ernst & Young LLP, independent auditors *23.3 Consent of Deloitte & Touche LLP, independent auditors *23.4 Consent of Lovewell Blake, independent auditors 24 Powers of Attorney 25 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of United States Trust Company of New York, as Trustee (separately bound) 27 Financial Data Schedule 99.1 Form of Letter of Transmittal 99.2 Form of Notice of Guaranteed Delivery II-9 99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees 99.4 Form of Letter to Clients - ---------- * Filed herewith. (b) FINANCIAL STATEMENT SCHEDULES Report of Independent Auditors S-1 Schedule I -- Condensed Financial Information of Registrant S-2 Schedule II -- Valuation and Qualifying Accounts S-6 Schedules other than the above have been omitted because they are either not applicable or the required information has been disclosed in the financial statements or notes thereto. ITEM 22. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrants pursuant to the Corporation Law, the Certificate of Incorporation and By-laws, or otherwise, the Registrants have been advised that in the opinion of the Securities and Exchange Commission 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 Registrants of expenses incurred or paid by a director, officer or controlling person of the Registrants 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 Registrants 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. The Registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (a) To include any prospectus required by Section 10(a)(3) of the Securities Act; (b) 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; (c) 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 by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-10 The undersigned Registrants hereby undertake that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of that time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. The undersigned registrants hereby undertake to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Act. II-11 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. BPC HOLDING CORPORATION By: /s/ MARTIN R. IMBLER Martin R. Imbler President Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Chairman of the Board of Directors January 14, 2000 Roberto Buaron * - ---------------------------------------------- President and Director (Principal Executive Officer) January 14, 2000 Martin R. Imbler Executive Vice President, Chief Financial Officer, * Treasurer and Secretary (Principal Financial and - ---------------------------------------------- Accounting Officer) January 14, 2000 James M. Kratochvil * - ---------------------------------------------- Director January 14, 2000 David M. Clarke * - ---------------------------------------------- Director January 14, 2000 Lawrence G. Graev * - ---------------------------------------------- Director January 14, 2000 Donald J. Hofmann * - ---------------------------------------------- Director January 14, 2000 Joseph S. Levy * - ---------------------------------------------- Director January 14, 2000 Mathew J. Lori
By: /s/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-12 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. BERRY PLASTICS CORPORATION By: /s/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Chairman of the Board of Directors January 14, 2000 Roberto Buaron * President, Chief Executive Officer and Director - ---------------------------------------------- (Principal Executive Officer) January 14, 2000 Martin R. Imbler * - ---------------------------------------------- Executive Vice President, Chief Financial Officer, James M. Kratochvil Treasurer and Secretary (Principal Financial and Accounting Officer) January 14, 2000 * - ---------------------------------------------- Director January 14, 2000 Ira G. Boots * - ---------------------------------------------- Director January 14, 2000 David M. Clarke * - ---------------------------------------------- Director January 14, 2000 Lawrence G. Graev * - ---------------------------------------------- Director January 14, 2000 Donald J. Hofmann * - ---------------------------------------------- Director January 14, 2000 Mathew J. Lori * - ---------------------------------------------- Director January 14, 2000 Joseph S. Levy
By: /s/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-13 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. BERRY IOWA CORPORATION By: /s/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Chairman of the Board of Directors January 14, 2000 Roberto Buaron * President, Chief Executive Officer and Director - ---------------------------------------------- (Principal Executive Officer) January 14, 2000 Martin R. Imbler Executive Vice President, Chief Financial Officer, * Treasurer and Secretary (Principal Financial and - ---------------------------------------------- Accounting Officer) January 14, 2000 James M. Kratochvil * - ---------------------------------------------- Director January 14, 2000 Joseph S. Levy
By: /s/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-14 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. BERRY TRI-PLAS CORPORATION By: /s/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Chairman of the Board of Directors January 14, 2000 Roberto Buaron * President, Chief Executive Officer and Director - ---------------------------------------------- (Principal Executive Officer) January 14, 2000 Martin R. Imbler Executive Vice President, Chief Financial Officer, * Treasurer and Secretary (Principal Financial and - ---------------------------------------------- Accounting Officer) January 14, 2000 James M. Kratochvil * - ---------------------------------------------- Director January 14, 2000 Joseph S. Levy
By: /s/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-15 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. BERRY STERLING CORPORATION By: /s/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Chairman of the Board of Directors January 14, 2000 Roberto Buaron * President, Chief Executive Officer and Director - ---------------------------------------------- (Principal Executive Officer) January 14, 2000 Martin R. Imbler Executive Vice President, Chief Financial Officer, * Treasurer and Secretary (Principal Financial and - ---------------------------------------------- Accounting Officer) January 14, 2000 James M. Kratochvil * - ---------------------------------------------- Director January 14, 2000 Joseph S. Levy
By: /s/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-16 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. AEROCON, INC. By: /s/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE President, Chief Executive Officer and Chairman of * the Board of Directors (Principal Executive - ---------------------------------------------- Officer) January 14, 2000 Martin R. Imbler Executive Vice President, Chief Financial Officer, * Treasurer and Secretary (Principal Financial and - ---------------------------------------------- Accounting Officer) January 14, 2000 James M. Kratochvil * - ---------------------------------------------- Director January 14, 2000 Joseph S. Levy
By: /s/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-17 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. PACKERWARE CORPORATION By: /s/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Chairman of the Board of Directors January 14, 2000 Roberto Buaron * President, Chief Executive Officer and Director - ---------------------------------------------- (Principal Executive Officer) January 14, 2000 Martin R. Imbler Executive Vice President, Chief Financial Officer, * Treasurer and Secretary (Principal Financial and - ---------------------------------------------- Accounting Officer) January 14, 2000 James M. Kratochvil * - ---------------------------------------------- Director January 14, 2000 Joseph S. Levy
By: /s/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-18 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. BERRY PLASTICS DESIGN CORPORATION By: /s/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Roberto Buaron Chairman of the Board of Directors January 14, 2000 * - ---------------------------------------------- President, Chief Executive Officer and Director Martin R. Imbler (Principal Executive Officer) January 14, 2000 * Executive Vice President, Chief Financial Officer, - ---------------------------------------------- Treasurer and Secretary (Principal Financial and James M. Kratochvil Accounting Officer) January 14, 2000 * - ---------------------------------------------- Joseph S. Levy Director January 14, 2000
By: /S/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-19 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. VENTURE PACKAGING, INC. By: /S/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Roberto Buaron Chairman of the Board of Directors January 14, 2000 * - ---------------------------------------------- President, Chief Executive Officer and Director Martin R. Imbler (Principal Executive Officer) January 14, 2000 * Executive Vice President, Chief Financial Officer, - ---------------------------------------------- Treasurer and Secretary (Principal Financial and James M. Kratochvil Accounting Officer) January 14, 2000 * - ---------------------------------------------- Joseph S. Levy Director January 14, 2000
By: /S/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-20 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. VENTURE PACKAGING MIDWEST, INC. By: /s/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Roberto Buaron Chairman of the Board of Directors January 14, 2000 * - ---------------------------------------------- President, Chief Executive Officer and Director Martin R. Imbler (Principal Executive Officer) January 14, 2000 * Executive Vice President, Chief Financial Officer, - ---------------------------------------------- Treasurer and Secretary (Principal Financial and James M. Kratochvil Accounting Officer) January 14, 2000 * - ---------------------------------------------- Joseph S. Levy Director January 14, 2000
By: /S/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-21 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. VENTURE PACKAGING SOUTHEAST, INC. By: /s/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Roberto Buaron Chairman of the Board of Directors January 14, 2000 * - ---------------------------------------------- President, Chief Executive Officer and Director Martin R. Imbler (Principal Executive Officer) January 14, 2000 * Executive Vice President, Chief Financial Officer, - ---------------------------------------------- Treasurer and Secretary (Principal Financial and James M. Kratochvil Accounting Officer) January 14, 2000 * - ---------------------------------------------- Joseph S. Levy Director January 14, 2000
By: /s/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-22 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. NIM HOLDINGS LIMITED By: /s/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Chairman of the Board of Directors (Principal Martin R. Imbler Executive Officer) January 14, 2000 * - ---------------------------------------------- Director (Principal Financial and Accounting James M. Kratochvil Officer) January 14, 2000 * - ---------------------------------------------- Trevor D. Johnson Sales and Marketing Director January 14, 2000
By: /S/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-23 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. NORWICH INJECTION MOULDERS LIMITED By: /s/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Chairman of the Board of Directors (Principal Martin R. Imbler Executive Officer) January 14, 2000 * - ---------------------------------------------- Director (Principal Financial and Accounting James M. Kratochvil Officer) January 14, 2000 * - ---------------------------------------------- Trevor D. Johnson Sales and Marketing Director January 14, 2000 * - ---------------------------------------------- Alan R. Sandell Managing Director January 14, 2000 * - ---------------------------------------------- Ira G. Boots Director January 14, 2000
By: /S/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-24 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. KNIGHT PLASTICS, INC. By: /S/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Roberto Buaron Chairman of the Board of Directors January 14, 2000 * - ---------------------------------------------- President, Chief Executive Officer and Director Martin R. Imbler (Principal Executive Officer) January 14, 2000 * Executive Vice President, Chief Financial Officer, - ---------------------------------------------- Treasurer and Secretary (Principal Financial and James M. Kratochvil Accounting Officer) January 14, 2000 * - ---------------------------------------------- Joseph S. Levy Director January 14, 2000
By: /S/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-25 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. BERRY PLASTICS ACQUISITION CORPORATION By: /S/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Roberto Buaron Chairman of the Board of Directors January 14, 2000 * - ---------------------------------------------- President, Chief Executive Officer and Director Martin R. Imbler (Principal Executive Officer) January 14, 2000 * Executive Vice President, Chief Financial Officer, - ---------------------------------------------- Treasurer and Secretary (Principal Financial and James M. Kratochvil Accounting Officer) January 14, 2000 * - ---------------------------------------------- Joseph S. Levy Director January 14, 2000
By: /S/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-26 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. CPI HOLDING CORPORATION By: /S/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Roberto Buaron Chairman of the Board of Directors January 14, 2000 * - ---------------------------------------------- President, Chief Executive Officer and Director Martin R. Imbler (Principal Executive Officer) January 14, 2000 * Executive Vice President, Chief Financial Officer, - ---------------------------------------------- Treasurer and Secretary (Principal Financial and James M. Kratochvil Accounting Officer) January 14, 2000 * - ---------------------------------------------- Joseph S. Levy Director January 14, 2000
By: /S/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-27 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. CARDINAL PACKAGING, INC. By: /S/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Roberto Buaron Chairman of the Board of Directors January 14, 2000 * - ---------------------------------------------- President, Chief Executive Officer and Director Martin R. Imbler (Principal Executive Officer) January 14, 2000 * Executive Vice President, Chief Financial Officer, - ---------------------------------------------- Treasurer and Secretary (Principal Financial and James M. Kratochvil Accounting Officer) January 14, 2000 * - ---------------------------------------------- Joseph S. Levy Director January 14, 2000
By: /s/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-28 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of January, 2000. NORWICH ACQUISITION LIMITED By: /S/ MARTIN R. IMBLER Martin R. Imbler President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE * - ---------------------------------------------- Chairman of the Board of Directors (Principal Martin R. Imbler Executive Officer) January 14, 2000 * - ---------------------------------------------- Director (Principal Financial and Accounting James M. Kratochvil Officer) January 14, 2000 * - ---------------------------------------------- Trevor D. Johnson Sales and Marketing Director January 14, 2000 * - ---------------------------------------------- Alan R. Sandell Managing Director January 14, 2000 * - ---------------------------------------------- Ira G. Boots Director January 14, 2000
By: /S/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-29 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES We have audited the consolidated financial statements of BPC Holding Corporation as of January 2, 1999, and for each of the three years in the period ended January 2, 1999, and have issued our report thereon dated February 19, 1999 (included elsewhere in this Registration Statement). Our audits also included the financial statement schedules listed in Item 21(b) of this Registration Statement. These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Indianapolis, Indiana February 19, 1999 S-1 BPC HOLDING CORPORATION (PARENT COMPANY) SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS JANUARY 2, DECEMBER 27, 1999 1997 --------- ----------- (IN THOUSANDS) ASSETS Cash ............................................... 622 $ 708 Other assets (principally investment in subsidiary) (25,992) (31,808) Assets held in trust ............................... 6,679 18,933 Intangible assets .................................. 3,704 4,281 Due from Berry Plastics Corporation ................ 8,095 8,095 Other .............................................. -- -- --------- --------- Total assets ....................................... $ (6,892) $ 209 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities ................................ $ 1,240 $ 510 Accrued dividends .................................. 7,225 3,674 Long-term debt ..................................... 105,000 105,000 --------- --------- Total liabilities .................................. 113,465 109,184 Preferred stock .................................... 16,801 16,509 Class A common stock ............................... 4 4 Class B common stock ............................... 2 2 Class C common stock ............................... -- -- Treasury stock ..................................... 280 (22) Additional paid-in capital ......................... 45,611 49,374 Warrants ........................................... 3,511 3,511 Retained earnings (deficit) ........................ (185,923) (178,353) --------- --------- Total stockholders' equity (deficit) ............... (120,357) (108,975) --------- --------- Total liabilities and stockholders' equity (deficit) $ (6,892) $ 209 ========= ========= S-2 BPC HOLDING CORPORATION CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED ------------------------------------- JANUARY 2, DECEMBER 27, DECEMBER 28, 1999 1997 1996 --------- ----------- ----------- (IN THOUSANDS) Net sales ..................................... $ -- $ -- $ -- Cost of goods sold ............................ -- -- -- -------- -------- -------- Gross profit .................................. -- -- -- Operating expenses ............................ 749 220 3,304 Interest expense, net ......................... 12,720 11,560 6,294 -------- -------- -------- Loss before income taxes and equity in net income (loss) of subsidiary ................. (13,469) (11,780) (9,598) Equity in net income (loss) of subsidiary ..... 5,899 (2,631) 5,989 -------- -------- -------- Loss before income taxes ...................... (7,570) (14,411) (3,609) Income taxes .................................. -- -- (262) -------- -------- -------- Net loss ...................................... (7,570) (14,411) (3,347) Preferred stock dividends ..................... (3,551) (2,558) (1,116) Amortization of preferred stock discount ...... (292) (74) -- -------- -------- -------- Net loss attributable to common shareholders .. $(11,413) $(17,043) $ (4,463) ======== ======== ========
S-3 BPC HOLDING CORPORATION CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED -------------------------------------- JANUARY 2, DECEMBER 27, DECEMBER 28, 1999 1997 1996 --------- ----------- ----------- (IN THOUSANDS) Net income (loss) ....................... $ (7,570) $ (14,411) $ (3,347) Adjustments to reconcile net loss provided by operating activities: Net loss (income) of subsidiary ... (5,899) 2,631 (5,989) Amortization and non cash interest 500 726 441 Interest funded by assets held in trust ............................ 12,221 11,256 5,412 Non-cash compensation ............. -- -- 358 Changes in operating assets and liabilities ...................... 840 (208) 427 --------- --------- --------- Net cash provided by (used for) operating activities ........................... 92 (6) (2,698) Net cash provided by investing activities -- -- -- Net cash provided by financing activities: Exercise of management stock options .. -- -- 1,130 Proceeds from senior secured notes .... -- -- 105,000 --------- --------- --------- Proceeds from issuance of common and preferred stock and warrants .......... 80 325 67,369 --------- --------- --------- Rollover investments and share repurchases ........................... -- -- (125,219) Assets held in trust .................. -- -- (35,600) Net payments to warrant holders ....... -- -- (4,502) Debt issuance costs ................... -- -- (5,069) Other ................................. (258) -- (22) --------- --------- --------- Net cash from financing activities ...... (178) 325 3,087 --------- --------- --------- Net increase in cash and cash equivalents (86) 319 389 Cash and cash equivalents at beginning of year ............................... 708 389 -- --------- --------- --------- Cash and equivalents at end of year ..... $ 622 $ 708 $ 389 ========= ========= =========
S-4 Notes to Condensed Financial Statements (1) BASIS OF PRESENTATION. In the parent company-only financial statements, Holding's investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since date of acquisition. The parent company-only financial statements should be read in conjunction with Holding's consolidated financial statements, which are included beginning on page F-1. (2) GUARANTEE. Berry had approximately $218.1 million and $201.3 million of long-term debt outstanding at January 2, 1999 and December 27, 1997, respectively. Under the terms of the debt agreements, Holding has guaranteed the payment of all principal and interest. S-5 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTs (IN THOUSANDS)
BALANCE CHARGED CHARGED TO BALANCE AT TO OTHER DEDUCTIONS AT BEGINNING COSTS AND ACCOUNTS - - END OF DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE YEAR - ------------------------------ ---------- ---------- ------------ ------------ ---------- Year ended January 2, 1999: Allowance for doubtful accounts .................... $1,038 $ 875 $280(2) $ 542(1) $1,651 ====== ====== ====== ======== ====== Year ended December 27, 1997: Allowance for doubtful accounts .................... $ 618 $ 325 $358(2) $ 263(1) $1,038 ====== ====== ====== ======== ====== Year ended December 28, 1996: Allowance for doubtful accounts .................... $ 737 $ 322 $-- $ 441(1) $ 618 ====== ====== ====== ======== ======
(1) Uncollectible accounts written off, net of recoveries. (2) Primarily relates to purchase of accounts receivable and related allowance through acquisitions. S-6 EX-23.2 2 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Historical Financial Data" and "Experts" and to the use of our report dated February 19, 1999 with respect to BPC Holding Corporation and the use of our report dated May 19, 1999 with respect to the Knight Engineering and Plastics Division of Courtaulds Packaging Inc. in Amendment No. 2 to the Registration Statement (Form S-4) and related Prospectus of Berry Plastics Corporation for the registration of $75,000,000 of 11% Series B Senior Subordinated Notes due 2007. /s/ Ernst & Young LLP Indianapolis, Indiana January 13, 2000 EX-23.3 3 EXHIBIT 23.3 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 2 to Registration Statement No. 337-85739, relating to $75,000,000 of 11% Series B Senior Subordinated Notes due 2007, of Berry Plastics Corporation on Form S-4 of our report dated June 11, 1999 relating to the consolidated financial statements of CPI Holding, Inc. as of November 30, 1998 and 1997 and for the years ended November 30, 1998 and 1997 and for the period January 26, 1996, to November 30, 1996 appearing in the Prospectus, which is part of such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche LLP Cleveland, Ohio January 14, 2000 EX-23.4 4 EXHIBIT 23.4 NORWICH INJECTION MOULDERS LIMITED We consent to the reference to our firm under the caption "Experts" and to the use of our report dated 22 December 1997 relating to the financial statements of Norwich Injection Moulders Limited for the years ended October 31, 1997, 1996 and 1995 in this Amendment No. 2 to the Registration Statement (Form S-4) and related Prospectus of Berry Plastics Corporation for the registration of $75,000,000 of 11% Series B Senior Subordinated Notes due 2007. /s/ Lovewell Blake Norwich, England January 14, 2000 ================================================================================ NO DEALER, SALES PERSON OR ANY OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. 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 DATE SUBSEQUENT TO THE DATE HEREOF. --------------------------------------------------------------------- TABLE OF CONTENTS PAGE Available Information ........................... ii Summary of Prospectus ........................... 1 Risk Factors .................................... 12 Company History ................................. 20 The Exchange Offer .............................. 22 Capitalization .................................. 30 Pro Forma Condensed Consolidated Financial Statements ......................... 31 Selected Historical Financial Data .............. 35 Management's Discussion and Analysis of Financial Condition and Results of Operations ................................ 37 Business ........................................ 43 Management ...................................... 53 Principal Stockholders .......................... 60 Certain Transactions ............................ 62 Description of Certain Indebtedness ............. 66 Description of Notes ............................ 69 Material Federal Income Tax Considerations ............................... 90 Plan of Distribution ............................ 94 Legal Matters ................................... 94 Experts ......................................... 95 Index to Financial Statements ................... F-1 $25,000,000 BERRY PLASTICS CORPORATION 12 1/4% SERIES C SENIOR SUBORDINATED NOTES DUE 2004 ----------------- PROSPECTUS ----------------- DECEMBER 2, 1999 -----END PRIVACY-ENHANCED MESSAGE-----