-----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, N3DcgokrxPDb/q3GunLRmx4FjwHppvZ3gdISLmfZi0n0AOlBX41ANzeQIzgNLYsr n94tMR10EYlklAMbhaoxFQ== 0000890566-99-001373.txt : 19991101 0000890566-99-001373.hdr.sgml : 19991101 ACCESSION NUMBER: 0000890566-99-001373 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19991029 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: 333-64599 FILM NUMBER: 99737639 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: 333-64599-06 FILM NUMBER: 99737640 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: 333-64599-12 FILM NUMBER: 99737641 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: 333-64599-01 FILM NUMBER: 99737642 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: 333-64599-11 FILM NUMBER: 99737643 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: 333-64599-05 FILM NUMBER: 99737644 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: 333-64599-07 FILM NUMBER: 99737645 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: 333-64599-08 FILM NUMBER: 99737646 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: 333-64599-09 FILM NUMBER: 99737647 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: 333-64599-03 FILM NUMBER: 99737648 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: 333-64599-04 FILM NUMBER: 99737649 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: 333-64599-13 FILM NUMBER: 99737650 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: 333-64599-10 FILM NUMBER: 99737651 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: 333-64599-02 FILM NUMBER: 99737652 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: 333-64599-14 FILM NUMBER: 99737653 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: 333-64599-15 FILM NUMBER: 99737654 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERRY PLASTICS ACQUISITION CORP CENTRAL INDEX KEY: 0001094726 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-64599-17 FILM NUMBER: 99737655 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 ACQUISITION LTD CENTRAL INDEX KEY: 0001094729 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-64599-16 FILM NUMBER: 99737656 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 S-4/A 1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- AMENDMENT NO. 3 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 N/A (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: James M. Lurie, 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 SPECIFICIALLY 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. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. Subject to Completion, dated October 29, 1999 PROSPECTUS BERRY PLASTICS CORPORATION OFFER TO EXCHANGE UP TO $25,000,000 OF ITS 121/4% SERIES C SENIOR SUBORDINATED NOTES DUE 2004 FOR ANY AND ALL OUTSTANDING 121/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2004 ------------------------------------------------------------------------ | | | THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, | | ON NOVEMBER __, 1999, UNLESS EXTENDED | | | ----------------------------------------------------------------------- Berry Plastics Corporation, a Delaware corporation ("Berry," the "Company" or the "Issuer") and wholly owned subsidiary of BPC Holding Corporation, a Delaware corporation ("Holding"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (which together constitute the "Exchange Offer") to exchange $1,000 principal amount of 121/4% Series C Senior Subordinated Notes due 2004 (the "New Notes") of the Issuer for each $1,000 principal amount of the issued and outstanding 121/4% Series B Senior Subordinated Notes due 2004 (the "Old Notes", and the Old Notes and the New Notes, collectively, the "Notes") of the Issuer from the Holders (as defined herein) thereof. As of the date of this Prospectus, there is $25,000,000 aggregate principal amount of the Old Notes outstanding. The terms of the New Notes are identical in all material respects to the Old Notes, except that the New Notes have been registered under the Securities Act of 1933, as amended (the "Securities Act"), and therefore will not bear legends restricting their transfer and will not contain certain provisions providing for the payment of liquidated damages to the holders of the Old Notes under certain circumstances relating to the Registration Rights Agreement (as defined herein), which provisions will terminate as to all of the Notes upon the consummation of the Exchange Offer. Interest on the New Notes will accrue from April 15, 1999 and will be payable in cash semi-annually in arrears on October 15 and April 15 of each year, commencing October 15, 1999. Interest will be payable on the Old Notes accepted for exchange to, but not including, October 15, 1999. The New Notes will be unconditionally guaranteed (the "Note Guarantees") on a senior subordinated basis by Holding, Berry Iowa Corporation, a Delaware corporation and wholly owned subsidiary of the Company ("Berry Iowa"), Berry Tri-Plas Corporation, a Delaware corporation and wholly owned subsidiary of the Company ("Berry Tri-Plas"), Berry Sterling Corporation, a Delaware corporation and wholly owned subsidiary of the Company ("Berry Sterling"), AeroCon, Inc., a Delaware corporation and wholly owned subsidiary of the Company ("AeroCon"), PackerWare Corporation, a Delaware corporation and wholly owned subsidiary of the Company ("PackerWare"), Berry Plastics Design Corporation, a Delaware corporation and wholly owned subsidiary of the Company ("Berry Design"), Venture Packaging, Inc., a Delaware corporation and wholly owned subsidiary of the Company ("Venture Holdings"), Venture Packaging Midwest, Inc., a Delaware corporation and wholly owned subsidiary of Venture Holdings ("Venture Midwest"), Venture Packaging Southeast, Inc., a Delaware corporation and wholly owned subsidiary of Venture Holdings ("Venture Southeast"), NIM Holdings Limited, a company organized under the laws of England and Wales and wholly owned subsidiary of the Company ("NIM Holdings"), Norwich Injection Moulders Limited, a company organized under the laws of England and Wales and wholly owned subsidiary of NIM Holdings ("Norwich"), Knight Plastics, Inc., a Delaware corporation and wholly owned subsidiary of the Company ("Knight Plastics"), CPI Holding Corporation, a Delaware corporation and wholly owned subsidiary of the Company ("CPI Holding"), Cardinal Packaging, Inc., an Ohio corporation and wholly owned subsidiary of CPI Holding ("Cardinal"), Norwich Acquisition Limited, a company organized under the laws of England and Wales and wholly owned subsidiary of Norwich ("Norwich Acquisition") and Berry Plastics Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of the Company ("Berry Acquisition" and, collectively with Holding, Berry Iowa, Berry Tri-Plas, Berry Sterling, AeroCon, PackerWare, Berry Design, Venture Holdings, Venture Midwest, Venture Southeast, NIM Holdings, Norwich, Knight Plastics, CPI Holding, Cardinal and Norwich Acquisition the "Guarantors"). The New Notes will mature on April 15, 2004. On or after April 15, 1999, the New Notes will be redeemable at any time at the option of the Company, in whole or in part, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. In addition, in the event of a Change of Control (as defined herein), each holder of New Notes may require the Company to repurchase such holder's New 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. For a definition of the term "Change of Control," see "Description of New Notes -- Repurchase at the Option of Holders -- Change of Control." The New Notes will be unsecured senior subordinated obligations of the Company, ranking PARI PASSU with the $100 million of the Company's 121/4% Senior Subordinated Notes due 2004 (the "1994 Notes") and the $75 million of the Company's 11% Senior Subordinated Notes due 2007 (the "1999 Notes"), and will be subordinate in right of payment to all Senior Indebtedness (as defined herein) of the Company, which includes borrowings under the Credit Facility (as defined herein) and the Nevada Bonds (as defined herein). The 1994 Notes and the 1999 Notes constitute all of the indebtedness of Berry that is PARI PASSU with the Notes. The New Notes will be senior to any indebtedness which by its terms is subordinate to the New Notes, regardless of when such indebtedness is incurred. The Note Guarantees will be unconditional joint and several unsecured senior subordinated obligations of the Guarantors and will be subordinate in right of payment to all Senior Indebtedness of the Guarantors, including their guarantees of the Company's indebtedness under the Credit Facility. As of July 3, 1999, the aggregate amount of outstanding Senior Indebtedness of Berry would have been $89.0 million, the aggregate amount of outstanding total indebtedness of Berry would have been $290.5 million, including the 1994 Notes, and the indebtedness of the Guarantors senior to the Note Guarantees would have been $395.5 million. As of July 3, 1999, all indebtedness of the Company other than the Senior Indebtedness was PARI PASSU in right of payment to the Notes, and there was no indebtedness subordinated to the Notes. The Indenture (as defined herein) will permit Berry and its subsidiaries to incur additional indebtedness, including Senior Indebtedness, subject to certain limitations. The Indenture also provides that Berry and the Guarantors will not incur any additional indebtedness that is both subordinate in right of payment to any Senior Indebtedness and senior in right of payment to the Notes or the Note Guarantees, as the case may be. See "Description of Notes." Holding is a holding company and is entirely dependent on the declaration by Berry of dividends to pay its obligations, including its obligations on its Note Guarantee. Under the terms of the Credit Facility, Berry is severely restricted from declaring dividends to Holding. In addition, the indenture (the "1996 Indenture") governing the 1996 Notes (as defined herein) of Holding restricts the ability of Holding to make certain payments, including payments under its Note Guarantee. See "Risk Factors -- 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." CONTINUED ON NEXT PAGE. ------------------- SEE "RISK FACTORS" COMMENCING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING OLD 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 OCTOBER 29, 1999. The Old Notes were not registered under the Securities Act in reliance upon an exemption from the registration requirements thereof. In general, the Old 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. The New Notes are being offered hereby in order to satisfy certain obligations of the Issuer and the Guarantors contained in the Registration Rights Agreement (as defined herein). Based on interpretations by the staff of the Securities and Exchange Commission (the "Commission" or "SEC") set forth in no-action letters issued to third parties, the Issuer believes that the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of the Issuer 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 such New Notes are acquired in the ordinary course of such holder's business, such holder has no arrangement with any person to participate in the distribution of such New Notes and neither such holder nor any such other person is engaging in or intends to engage in a distribution of such New Notes. Notwithstanding the foregoing, each broker-dealer that receives New 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 New 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 New Notes received in exchange for such Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities (other than Old Notes acquired directly from the Issuer). The Issuer and the Guarantors have agreed that, for a period of 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." The Old Notes are designated for trading in the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market. There is no established trading market for the New Notes. The Issuer does not currently intend to list the New Notes on any securities exchange or to seek approval for quotation through any automated quotations system. Accordingly, there can be no assurance as to the development or liquidity of any market for the New Notes. The Issuer will not receive any proceeds from the Exchange Offer. The Issuer will pay all of the expenses incident to the Exchange Offer. Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn as provided herein at any time prior to the Expiration Date (as defined herein). The Exchange Offer is subject to certain customary conditions. This Prospectus has been prepared for use in connection with the Exchange Offer and may be used by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") in connection with offers and sales related to market-making transactions in the Notes. DLJ 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. See "Plan of Distribution." DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS THIS PROSPECTUS CONTAINS STATEMENTS THAT CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). THOSE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS PROSPECTUS AND INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY, PRIMARILY WITH RESPECT TO THE FUTURE OPERATING PERFORMANCE OF THE COMPANY. WITHOUT LIMITING THE FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. HOLDERS OF THE NOTES ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND MAY INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. VARIOUS ECONOMIC AND COMPETITIVE FACTORS COULD CAUSE ACTUAL RESULTS OR EVENTS TO DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. THE ACCOMPANYING INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, THE INFORMATION SET FORTH UNDER "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," IDENTIFIES IMPORTANT FACTORS THAT COULD CAUSE SUCH DIFFERENCES, INCLUDING THE COMPANY'S ABILITY TO PASS THROUGH RAW MATERIAL PRICE INCREASES TO ITS CUSTOMERS, ITS ABILITY TO SERVICE DEBT, THE AVAILABILITY OF PLASTIC RESIN, THE IMPACT OF CHANGING ENVIRONMENTAL LAWS AND CHANGES IN THE LEVEL OF THE COMPANY'S CAPITAL INVESTMENT. ALTHOUGH MANAGEMENT BELIEVES IT HAS THE BUSINESS STRATEGY AND RESOURCES NEEDED FOR IMPROVED OPERATIONS, FUTURE REVENUE AND MARGIN TRENDS CANNOT BE RELIABLY PREDICTED. ---------------------------------- Certain of the names and logos of our products referenced in this Prospectus are our trademarks. Each trade name, trademark or servicemarks of any other company appearing in this Prospectus is the property of its holder. i AVAILABLE INFORMATION The Issuer has filed with the Commission a Registration Statement on Form S-4 (together with all amendments, exhibits, schedules and supplements thereto, the "Registration Statement") under the Securities Act with respect to the New Notes being offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain portions of which have been omitted pursuant to the rules and regulations promulgated by the Commission. Statements made in this Prospectus as to the contents of any contract, agreement or other document are not necessarily complete. With respect to each such contract, agreement or other document filed or incorporated by reference as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description of the matter involved, and each such statement is qualified in its entirety by such reference. The Registration Statement may be inspected by anyone without charge at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material may also be obtained at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. Such materials can also be inspected on the Internet at http://www.sec.gov. The Company and Holding are subject to the informational reporting requirements of the Exchange Act. In accordance therewith, the Company and Holding file reports and other information with the Commission. Such materials filed by the Company and Holding with the Commission may be inspected, and copies thereof obtained, at the places, and in the manner, set forth above. In the event that the Issuer ceases to be subject to the informational reporting requirements of the Exchange Act, the Issuer has agreed that, so long as the Notes remain outstanding, it will file with the Commission and distribute to holders of the Notes copies of (i) 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 Issuer were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to annual information only, a report thereon by the Issuer's independent auditors and (ii) all reports that would be required to be filed with the Commission on Form 8-K if the Issuer were required to file such reports. The Issuer will also make such reports available to prospective purchasers of the Notes, securities analysts and broker-dealers upon their request. In addition, the Issuer has agreed that for so long as any of the Old Notes remain outstanding it will make available to any prospective purchaser of the Old Notes or beneficial owner of the Old Notes in connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities Act, until such time as the Issuer has either exchanged the Old Notes for New Notes or until such time as the holders thereof have disposed of such Old Notes pursuant to an effective registration statement filed by the Issuer. ii 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," "WE," "US," "OUR" AND SIMILAR TERMS REFER TO BERRY PLASTICS CORPORATION, ITS SUBSIDIARIES AND THEIR RESPECTIVE OPERATIONS, AND THE TERM "HOLDING" REFERS TO BPC HOLDING CORPORATION. THE FISCAL YEAR OF HOLDING AND BERRY 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 AND 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 COMPANY 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. 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, 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, including such well-known brand names as Faultless starch, Gillette personal care products, Pam cooking spray, Pledge furniture polish, Raid insect repellants, Rustoleum and Sherwin-Williams paints and Sure deodorant. Similarly, our containers are used for packaging a broad spectrum of consumer and commercial products, including Arch (Olin) pool chemicals, Elmer's home repair products, Hershey's cocoa, McDonald's children's meals, Milliken adhesives, Pillsbury cookie dough and promotional containers for a variety of customers, including the National Football League, Walt Disney and Warner-Brothers. Our drink cups are sold to fast food and family-dining restaurants, convenience stores, stadiums and retail stores. Our largest drink cup customers are Circle K, Coca-Cola, McDonald's, Pepsi-Cola and Steak 'n Shake. 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 1 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. 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 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, we believe that our post-molding capabilities are among the most modern and extensive in the industry. These 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. For a majority of our customers we are the sole or largest supplier of plastic injection-molded products. 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 among the largest in-house sales forces in our industry. Our sales force 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 certain 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 having to reduce our prices, either of which have a material adverse effect on our business and results of operation 2 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. 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 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. 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. 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. 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 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. 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. 3 In October 1998, we acquired 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. Since the acquisition, we have 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. 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 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. 4 THE EXCHANGE OFFER REGISTRATION RIGHTS AGREEMENT.......... The Old Notes were sold by us on August 24, 1998 to Donaldson, Lufkin & Jenrette Securities Corporation (the "Initial Purchaser"), who placed the Old Notes with institutional investors. In connection therewith, Berry, the Guarantors and the Initial Purchaser executed and delivered for the benefit of the holders of the Old Notes a registration rights agreement (the "Registration Rights Agreement") providing, among other things, for the Exchange Offer. THE EXCHANGE OFFER..................... New Notes are being offered in exchange for a like principal amount of Old Notes. As of the date hereof, $25,000,000 aggregate principal amount of Old Notes are outstanding. We will issue the New Notes to Holders promptly following the Expiration Date. See "Risk Factors -- Consequences of Failure to Exchange." EXPIRATION DATE........................ 5:00 p.m., New York City time, on October , 1999, unless the Exchange Offer is extended as provided herein, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. INTEREST............................... Each New Note will bear interest from October 15, 1999. Interest will be payable on the Old Notes accepted for exchange to, but not including, October 15, 1999. CONDITIONS TO THE EXCHANGE OFFER....... The Exchange Offer is subject to certain customary conditions, which may be waived by Berry. We reserve the right to amend, terminate or extend the Exchange Offer at any time prior to the Expiration Date upon the occurrence of any such condition. See "The Exchange Offer-- Conditions." PROCEDURES FOR TENDERING OLD NOTES..... Each Holder of Old Notes wishing to accept the Exchange Offer 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 such Letter of Transmittal, or such facsimile, or an Agent's Message (as defined herein) together with the Old Notes and any other required documentation to the exchange agent (the "Exchange Agent") at the address set forth herein. By executing the Letter of Transmittal or delivering an Agent's Message, each Holder will represent to us, among other things, that (i) the New Notes acquired pursuant to the Exchange Offer by the Holder and any beneficial owners of Old Notes are being obtained in the ordinary course of business of the person receiving such New Notes, (ii) neither the Holder nor such beneficial owner has an arrangement with any person to participate in the distribution of such New Notes, (iii) neither the Holder nor such beneficial owner nor any such other person is engaging in or intends to engage in a distribution of such New Notes and (iv) neither the Holder nor such beneficial owner is an "affiliate," as defined under Rule 405 promulgated under the Securities Act, of Berry. Each 5 broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities (other than Old Notes acquired directly from Berry), 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 New 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................................. Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such 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 his Old Notes, either make appropriate arrangements to register ownership of the Old 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 -- Procedures for Tendering." GUARANTEED DELIVERY PROCEDURES......... Holders of Old Notes who wish to tender their Old Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes, the Letter of Transmittal or an Agent's Message or any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures." WITHDRAWAL RIGHTS...................... Tenders may be withdrawn as provided herein 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 OLD NOTES AND DELIVERY OF We will accept for exchange any and NEW NOTES.............................. all Old Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The New 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." 6 USE OF PROCEEDS........................ There will be no cash proceeds to us from the exchange pursuant to the Exchange Offer. FEDERAL INCOME TAX CONSEQUENCES........ The exchange of Old Notes for New Notes will not be a taxable exchange for Federal income tax purposes. See "Certain Federal Income Tax Considerations." CONSEQUENCES OF FAILURE TO EXCHANGE.... Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old 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, Old 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 NEW NOTES The Exchange Offer applies to $25,000,000 aggregate principal amount of Old Notes. The terms of the New Notes are identical in all material respects to the Old Notes, except that the New Notes have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer and will not contain certain provisions providing for an increase in the interest rate on the Old Notes under certain 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 New Notes will evidence the same debt as the Old Notes and, except as set forth in the immediately preceding sentence, will be entitled to the benefits of the Indenture, under which both the Old Notes were, and the New Notes will be, issued. See "Description of New Notes." THE NEW NOTES.......................... $25 million in aggregate principal amount at maturity of 12 1/4% Series C Senior Subordinated Notes due 2004. MATURITY DATE.......................... April 15, 2004. INTEREST PAYMENT DATES................. October 15 and April 15 of each year, commencing on October 15, 1999. MANDATORY REDEMPTION................... We are not required to make mandatory redemption or sinking fund payments with respect to the New Notes. OPTIONAL REDEMPTION.................... On or after April 15, 1999, the 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 New Notes will be guaranteed by the Guarantors. The Note Guarantees will be unconditional joint and several obligations of each Guarantor and will be subordinated as described below under "Ranking." 7 RANKING................................ The New Notes will be unsecured senior subordinated obligations of Berry, will rank PARI PASSU with the 1994 Notes and the 1999 Notes and will be subordinate in right of payment to all Senior Indebtedness of Berry, which will include borrowings under the Credit Facility. The New Notes will be senior to any indebtedness which by its terms is subordinate to the New Notes, regardless of when such indebtedness is incurred. Each Note Guarantee will be subordinate in right of payment to all Senior Indebtedness of each respective Guarantor. Senior Indebtedness of Berry consists of borrowings under the Credit Facility and the Nevada Bonds. Senior Indebtedness of the Guarantors consists of their joint and several guarantee of the obligations of Berry under the Credit Facility and obligations with respect to the Nevada Bonds and, in the case of Holding, the 1996 Notes. As of July 3, 1999, the aggregate amount of outstanding Senior Indebtedness of Berry would have been $89.0 million, the aggregate amount of outstanding total indebtedness of the Company, including the 1994 Notes and the 1999 Notes, would have been $290.5 million, and the indebtedness of the Guarantors senior to the Note Guarantees would have been $395.5 million. As of July 3, 1999, all indebtedness of the Company other than the Senior Indebtedness was PARI PASSU in right of payment to the New Notes, and there was no indebtedness subordinated to the New Notes. CERTAIN COVENANTS...................... The Indenture pursuant to which the Old Notes were, and the New Notes will be, issued (the "Indenture") contains covenants, including, but not limited to, covenants with respect to the following matters: (i) limitations on the retention of proceeds from asset sales; (ii) limitations on the incurrence of additional indebtedness and the issuance of disqualified stock; (iii) limitations on restricted payments; (iv) limitations on transactions with affiliates; (v) limitations on liens; (vi) limitations on dividends and other payment restrictions affecting subsidiaries; and (vii) 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 New Notes upon a Change of Control, the Indenture does not contain any provisions specifically intended to protect Holders of the New Notes in the event of a future highly leveraged transaction involving Berry or any Guarantor. See "Description of Notes." 8 RISK FACTORS SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING OLD NOTES IN THE EXCHANGE OFFER, INCLUDING HIGHLY LEVERAGED CONDITION, OPERATING RESTRICTIONS, GROWTH AND RISKS RELATED TO ACQUISITIONS, LIMITED ABILITY OF HOLDING TO PERFORM UNDER NOTE GUARANTEE, HISTORICAL NET LOSSES, SUBORDINATION OF THE NOTES AND NOTE GUARANTEES, UNSECURED STATUS OF NOTES, RANKING OF NOTES WITH 1994 NOTES AND THE 1999 NOTES, FLUCTUATING INTEREST EXPENSE ON SENIOR INDEBTEDNESS, FRAUDULENT CONVEYANCE RISK, POSSIBLE ADVERSE EFFECT OF INCREASE IN RESIN PRICES, RELIANCE ON CERTAIN SUPPLIER, CONTROLLING STOCKHOLDERS, COMPETITION, ENVIRONMENTAL MATTERS, POTENTIAL LACK OF FUNDING FOR CHANGE OF CONTROL OFFER, LACK OF A PUBLIC MARKET FOR THE NEW NOTES, CONSEQUENCES OF FAILURE TO EXCHANGE, NECESSITY TO COMPLY WITH EXCHANGE OFFER PROCEDURES AND BLUE SKY RESTRICTIONS ON RESALE OF NEW NOTES. 9 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA The following table presents summary financial data for Holding and its subsidiaries. The summary historical financial data for fiscal 1994, fiscal 1995, fiscal 1996, fiscal 1997 and fiscal 1998 come from Holding's audited consolidated financial statements. Holding's and its subsidiaries' audited consolidated financial statements as of and for fiscal 1997 and fiscal 1998 and the audited consolidated statements 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 1999 Notes and 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.
PRO FORMA 26 WEEKS FISCAL PRO FORMA ENDED --------- --------- --------- --------- --------- FISCAL JULY 3, 1994 1995 1996 1997 1998 1998 1999 --------- --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) CONSOLIDATED OPERATIONS STATEMENT DATA: Net sales ................................ $ 106,141 $ 140,681 $ 151,058 $ 226,953 $ 271,830 $ 352,670 $ 188,317 Cost of goods sold ....................... 73,997 102,484 110,110 180,249 199,227 265,079 136,189 --------- --------- --------- --------- --------- --------- --------- Gross margin ............................. 32,144 38,197 40,948 46,704 72,603 87,591 52,128 Operating expenses ....................... 15,160 17,670 23,679 30,505 44,001 55,851 30,079 --------- --------- --------- --------- --------- --------- --------- Operating income ......................... 16,984 20,527 17,269 16,199 28,602 31,740 22,049 Other expenses(1) ........................ 184 127 302 226 1,865 1,861 778 Interest expense, net (2) ................ 10,972 13,389 20,075 30,246 34,556 45,604 22,174 --------- --------- --------- --------- --------- --------- --------- Income (loss) before income taxes and extraordinary charge ................. 5,828 7,011 (3,108) (14,273) (7,819) (15,725) (903) Income taxes (benefit) ................... 11 678 239 138 (249) 90 482 --------- --------- --------- --------- --------- --------- --------- Income (loss) before extraordinary charge ............................... 5,817 6,333 (3,347) (14,411) (7,570) (15,815) (1,385) Extraordinary charge(3) .................. 3,652 -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- --------- Net income (loss) ........................ $ 2,165 $ 6,333 $ (3,347) $ (14,411) $ (7,570) $ (15,815) $ (1,385) --------- --------- --------- --------- --------- --------- --------- CONSOLIDATED OTHER DATA: Adjusted EBITDA(4) ....................... $ 26,380 $ 31,569 $ 34,718 $ 40,268 $ 59,768 $ 77,526 $ 42,964 Adjusted EBITDA margin(5) ................ 24.9% 22.4% 23.0% 17.7% 22.0% 22.0% 22.8% Cash provided by operating activities ........................... 15,556 12,969 14,426 14,154 34,131 47,745 20,876 Cash used for investing activities ....... (9,495) (25,385) (14,639) (102,102) (52,120) (133,059) (90,258) Cash provided by financing activities ........................... 2,184 11,124 2,370 80,444 17,619 84,944 79,943 Depreciation and amortization(6) ......... 8,176 9,536 11,331 19,026 24,830 32,496 16,350 Capital expenditures ..................... 9,118 11,247 13,581 16,774 22,595 28,759 15,666 Ratios of earnings to fixed charges (7) .............................. 1.5x 1.5x -- -- -- -- -- BERRY PLASTICS DATA: Cash interest expense, net ..................... $ 9,795 $ 12,439 $ 12,854 $ 17,187 $ 20,569 $ 31,243 $ 14,699 Ratio of Adjusted EBITDA to cash interest expense, net........................................... 2.9x 2.5x 2.9x Ratio of net debt to Adjusted EBITDA............................................................. 3.6x 3.8x -- AT JULY 3, 1999 --------- --------- HISTORICAL PRO FORMA --------- --------- BERRY PLASTICS CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................................................................. $ 2,622 $ 2,622 Working capital........................................................................................... 12,597 24,620 Total assets.............................................................................................. 254,331 336,453 Total long-term debt, including current portion........................................................... 215,484 290,484 Stockholders' equity (deficit)............................................................................ (17,456) (17,456)
10 (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 $1,061 for the pro forma 26 weeks ended July 3, 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 certain 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 PRO FORMA FISCAL FORMA 26 WEEKS -------- -------- -------- -------- -------- FISCAL ENDED 1994 1995 1996 1997 1998 1998 JULY 3, 1999 -------- -------- -------- -------- -------- -------- ------------ (DOLLARS IN THOUSANDS) Operating income ....................................... $ 16,984 $ 20,527 $ 17,269 $ 16,199 $ 28,602 $ 31,740 $ 22,049 Depreciation and amortization .......................... 8,176 9,536 11,331 19,026 24,830 32,496 16,350 -------- -------- -------- -------- -------- -------- ------------ EBITDA ................................................. 25,160 30,063 28,600 35,225 53,432 64,236 38,399 One-time expenses: 1996 transaction compensation expenses .......... -- -- 2,762 -- -- -- -- Plant shutdown expenses ......................... -- -- 907 848 2,559 2,559 576 Acquisition integration expenses ................ 116 867 692 3,267 1,525 1,525 1,091 Litigation expenses related to drink cup patent . -- -- 650 100 631 631 -- Corporate expenses: Non-cash compensation expenses (benefit) ........ 358 (214) 358 -- 749 749 197 Management fees and expenses .................... 746 853 749 828 872 872 437 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 $ 42,964 -------- -------- -------- -------- -------- -------- ------------
(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 (i) income (loss) before income taxes, plus (ii) fixed charges consisting of interest on debt (including amortization of deferred financing fees), plus (iii) 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 $1,644 for the pro forma twenty-six weeks ended July 3, 1999. 11 RISK FACTORS IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY HOLDERS OF OLD NOTES BEFORE MAKING A DECISION TO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER. WE HAVE A SIGNIFICANT AMOUNT OF DEBT. We have now and will continue to have a large amount of debt. 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 1999 Notes. See "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources," "Description of Certain Indebtedness" 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, certain 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 certain covenants and meeting certain specified borrowing base prerequisites. See "Description of Certain Indebtedness - The Credit Facility." 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 12 expenditures, selling assets, restructuring or refinancing our debt (which could include 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 will restrict, among other things, our ability to: o incur additional debt; o pay dividends; o redeem capital stock; o create liens, dispose of certain assets, engage in mergers; o make contributions, loans or advances; and o enter into certain transactions with affiliates. The Credit facility and the indenture governing the 1994 Notes (the "1994 Indenture") and the Indenture governing the 1999 Notes (the "1999 Indenture") contain similar restrictions. If our cash flow and existing working capital are insufficient to fund our expenditures or to service our debt, including the Notes, the 1994 Notes, the 1999 Notes and borrowings under the Credit Facility, we would have to raise additional funds through capital contributions from 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 Notes, the 1994 Notes and the 1999 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 Certain Indebtedness" 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 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. 13 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. HOLDING HAS EXPERIENCED CONSOLIDATED NET LOSSES, AND EXPECTS TO CONTINUE TO DO SO. 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, 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. Holding expects that it will continue to experience consolidated net losses for the foreseeable future. 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. 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 Holding. In addition, the indenture governing the $105 million aggregate principal amount of Holding's 12 1/2 % Senior Secured Notes due 2006 (the "1996 Notes") limits the ability of Holding to make certain payments, including payments under its Guarantee. Accordingly, absent a substantial increase in our operating results and a refinancing of the 1996 Notes or an equity offering, we do not expect Holding to be able to perform under its Guarantee. In addition, without a substantial increase in our net income above historical levels, we anticipate that we will be unable to generate sufficient cash flow to permit a dividend to Holding under the limitations placed on us by our debt indentures in an amount sufficient to meet 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 Indebtedness, totaling $89.0 million on July 3, 1999. Our Senior Indebtedness currently includes borrowings under the Credit Facility and the Nevada 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 July 3, 1999, $35.8 million was available for 14 borrowing under the Credit Facility (subject to applicable borrowing base limitations), and there was no debt subordinated to the Notes. See "Description of Certain Other Indebtedness--The Credit Facility." The indenture permits us to incur additional senior debt under our credit facility provided that certain 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 the Credit Facility or certain other senior debt exist and are continuing and certain other conditions are satisfied. The Notes rank PARI PASSU with the 1994 Notes and the 1999 Notes and PARI PASSU with, or senior to, all other future subordinated debt of Berry. In addition, the Guarantees are subordinated to all existing and future senior debt of each Guarantor, including the guarantees under the Credit Facility, and, in the case of Holding, the 1996 Notes. In addition, Berry Plastics' and the Guarantors' respective obligations under the Credit Facility and the Nevada 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 and the Guarantors, respectively. The indenture will permit us to incur certain secured debt, including debt under the Credit Facility, which is secured by a lien on substantially all of the assets of Berry 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 and the Guarantors. In such event, the assets of Berry and the Guarantors remaining after repayment of such secured debt may be insufficient to satisfy our obligations with respect to the Notes. WE HAVE $100 MILLION IN PRINCIPAL AMOUNT OF NOTES OUTSTANDING THAT WILL BE PAID BEFORE THE NOTES IN THE EVENT OF CERTAIN ASSETS SALES. The 1994 Notes have a priority upon the payment of proceeds pursuant to certain asset sales. See "Description of Notes--Repurchase at the Option of Holders--Asset Sales." 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 certain of these suppliers but have not entered into a firm supply contract with any of our resin vendors. We may not be able to arrange for other sources of resin in the event of an industry-wide general shortage of resins used by us, or a shortage or discontinuation of certain types of grades of resin purchased from one or more of our suppliers. 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." 15 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 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 Holding or Berry 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 as a group beneficially own about 96.3% (on a voting common stock equivalent basis) of 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 certain local governments have adopted ordinances prohibiting or restricting the use or disposal of certain 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, certain 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 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 certain change of control events, we will be required, subject to certain conditions, to offer to purchase all outstanding Notes, 1994 Notes and 1999 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, Holding will also be required, subject to certain 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, the 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 the 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. The 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 the Credit Facility, all amounts outstanding thereunder may become due and payable. All debt of Berry under the Credit Facility is senior debt, which, as of July 3, 1999, on a pro forma basis giving effect to the acquisition of Cardinal and a $20.0 million concurrent increase in the Credit Facility, could have been as much as $132.5 million under the borrowing base calculation. The subordination provisions contained in the Indenture will prohibit us (if the holders of senior debt issue a notice to us 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 debt accelerate the maturity of the senior debt). We could, in the future enter 16 into certain 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 Certain Indebtedness" 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 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; 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 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. 17 LACK OF A PUBLIC MARKET FOR THE NEW NOTES The New Notes will constitute a new class of securities with no established trading market. We do not intend to list the New Notes on any national securities exchange or to seek the admission thereof to trading in the Nasdaq National Market. The Old Notes are designated for trading in the PORTAL market. We have been advised by DLJ that DLJ currently intends to make a market in the New Notes. DLJ is not obligated to do so, however, and any market-making activities with respect to the New 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 the pendency of any Shelf Registration Statement (as defined herein). Accordingly, no assurance can be given that an active public or other market will develop for the New Notes or as to the liquidity of the trading market for the New Notes. If a trading market does not develop or is not maintained, holders of the New Notes may experience difficulty in reselling the New Notes or may be unable to sell them at all. If a market develops for the New Notes, future trading prices of the New Notes will depend on many factors, including among other things, prevailing interest rates, Berry's and Holding's consolidated financial condition and results of operations and the market for similar notes. Depending on those and other factors, the New Notes may trade at a discount from their principal amount. CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Old Notes who do not exchange the Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old 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 Old 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 Old Notes under the Securities Act. In addition, any trading market for the Old Notes not exchanged for New Notes will be adversely affected to the extent that Old 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 New Notes issued pursuant to the Exchange Offer in exchange for Old 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 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 such New Notes are acquired in the ordinary course of such holder's business, such holder has no arrangement with any person to participate in the distribution of such New Notes and neither such holder nor any such other person is engaging in or intends to engage in a distribution of such New Notes. Notwithstanding the foregoing, each broker-dealer that receives New 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 New 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 New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities (other than Old Notes acquired directly from Berry). Berry 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, the ability of any Holder to resell the New Notes is subject to applicable state securities laws as described in "Risk Factors -- Blue Sky Restrictions on Resale of New Notes." NECESSITY TO COMPLY WITH EXCHANGE OFFER PROCEDURES To participate in the Exchange Offer, and to avoid the restrictions on transfer of the Old Notes, Holders of Old Notes must transmit a properly completed Letter of Transmittal or an Agent's Message, including all other documents required by such 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 (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal or (ii) a timely confirmation of a book-entry transfer of such Old 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 (iii) the Holder must comply with the guaranteed delivery procedures described herein. The method of delivery of the Old Notes and the Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the Holder. 18 Neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to notify Holders of defects or irregularities with respect to tenders of Old Notes. See "The Exchange Offer." BLUE SKY RESTRICTIONS ON RESALE OF NEW NOTES In order to comply with the securities laws of certain jurisdictions, the New Notes may not be offered or resold by any holder 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 New Notes in any such jurisdictions. However, an exemption is generally available for sales to registered broker-dealers and certain institutional buyers. Other exemptions under applicable state securities laws may also be available. 19 COMPANY HISTORY HISTORY Imperial Plastics, the Company's predecessor, was established in 1967 in Evansville, Indiana. Berry Plastics, Inc. ("Old Berry") was formed in 1983 to purchase substantially all of the assets of Imperial Plastics. In 1988, Old Berry acquired Gilbert Plastics of New Brunswick, New Jersey, a leading manufacturer of aerosol overcaps, and subsequently relocated Gilbert Plastics' production to Old Berry's Evansville, Indiana facility. In 1990, the Company and Holding, the holder of 100% of the outstanding capital stock of the Company, were formed to purchase the assets of Old Berry. We acquired substantially all of the assets (the "Mammoth Acquisition") of the Mammoth Containers division of Genpak Corporation in February 1992, adding plants in Forest City, North Carolina (which we subsequently sold) and Iowa Falls, Iowa. In March 1995, Berry Sterling, a newly formed, wholly owned subsidiary of Berry, acquired substantially all of the assets of Sterling Products, Inc. (the "Sterling Products Acquisition"), a producer of injection molded plastic drink cups and lids. We believe that the Sterling Products Acquisition gave us immediate penetration into a rapidly expanding plastic drink cup market. In December 1995, Berry Tri-Plas (formerly Berry-CPI Corp.) acquired substantially all of the assets of Tri-Plas, Inc. (the "Tri-Plas Acquisition"), a manufacturer of injection molded containers and lids, and added manufacturing plants in Charlotte, North Carolina and York, Pennsylvania. We believe that the Tri-Plas Acquisition gave us an immediate presence in the polypropylene container product line, which is mainly used for food and "hot fill" applications. In January 1996, we acquired the assets relating to the plastic drink cup product line and decorating equipment of Alpha Products, Inc., a subsidiary of Aladdin Industries, Inc. The addition of these assets complemented the drink cup product line acquired in the Sterling Products Acquisition. In January 1997, we acquired PackerWare Corporation of Lawrence, Kansas and certain assets of Container Industries, Inc. of Pacoima, California. In May 1997, Berry Design acquired substantially all of the assets of Virginia Design Packaging Corp. of Suffolk, Virginia. In August 1997, we acquired Venture Packaging, Inc. of Monroeville, Ohio. See "Summary of Prospectus - --Acquisitions." 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. 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 the Knight Engineering and Plastics Division of Courtaulds Packaging Inc. for about $18 million. Knight Plastics, 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 Plastics reported net sales of $23.8 million. Since the acquisition, we have significantly reduced its manufacturing and operating costs, principally by closing one of its two manufacturing plants. 1999 ACQUISITION In July 1999, we acquired Cardinal for about $72.0 million, including related acquisition costs. 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. For the year ended November 30, 1998, Cardinal reported net sales of $54.0 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. 20 THE 1996 TRANSACTION On June 18, 1996, Holding consummated the transaction described below (the "1996 Transaction"). BPC Mergerco, Inc. ("Mergerco") was organized by 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 Stock Purchase and Recapitalization 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 and Warrant Purchase Agreement dated as of June 12, 1996, CVCA and the Northwestern Mutual Life Insurance Company (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, (i) each share of 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, (ii) 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 (constituting approximately 19% of the post-merger common stock of the surviving corporation) and (iii) each share of common stock and preferred stock and each warrant of Mergerco was converted into one share of common stock, one share of preferred stock and one warrant of the surviving corporation, respectively. 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 offering in April 1994 by Berry of $100 million aggregate principal amount of the 1994 Notes (such transaction being 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 aggregate consideration paid to the sellers of the equity interests in Holding, including the holders of the 1994 Warrants, was approximately $119.6 million in cash and was determined based on arms'-length negotiations with the new investors. In order to finance the 1996 Transaction, including the payment of related fees and expenses: (i) Holding issued 12.50% Senior Secured Notes due 2006 (with such Notes being exchanged in October 1996 for the 12.50% Series B Senior Secured Notes due 2006 (the "1996 Notes")) for net proceeds 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 1996 Notes); (ii) the Common Stock Purchasers, the Preferred Stock Purchasers and certain members of management made equity and rollover investments in the aggregate amount of $70.0 million (which amount included rollover investments of approximately $7.1 million by certain members of management and $3.0 million by an existing institutional shareholder); and (iii) Holding received an aggregate of approximately $0.9 million in connection with the exercise of certain management stock options to purchase common stock of Holding. In connection with the 1996 Transaction, International, CVCA, certain other institutional investors and certain members of management entered into the New Stockholders Agreement pursuant to which certain stockholders, among other things, (i) were granted certain registration rights and (ii) under certain circumstances, have the right to force a sale of Holding. See "Certain Transactions -- Stockholders Agreements." 21 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Old Notes were sold by Berry on August 24, 1998 to the Initial Purchaser, who placed the Old Notes with institutional investors. In connection therewith, Berry, the Guarantors and the Initial Purchaser entered into the Registration Rights Agreement, pursuant to which Berry and the Guarantors agreed, for the benefit of the Holders of the Old Notes, that Berry and the Guarantors would, at their sole cost, among other things, (i) within 90 days following the original issuance of the Old 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 identical in all material respects to the series of Old Notes (except that such New Notes would not contain terms with respect to transfer restrictions) and (ii) cause such Registration Statement to be declared effective under the Securities Act within 150 days following the original issuance of the Old Notes. Upon the effectiveness of the Registration Statement, Berry will offer, pursuant to this Prospectus, to the Holders of Transfer Restricted Securities (as defined herein) who are able to make certain representations the opportunity to exchange their Transfer Restricted Securities for a like principal amount of New 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 Old Notes are registered on the books of Berry or any other person who has obtained a properly completed bond power from the registered holder. Berry has not requested, and does not intend to request, an interpretation by the staff of the Commission with respect to whether the New 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 believes that New 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 such New Notes (other than any such holder that is an "affiliate" Berry 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 such New 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 New Notes and neither such holder nor any other such person is engaging in or intends to engage in a distribution of such New 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 or who tenders in the Exchange Offer for the purpose of participating in a distribution of the New 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 New 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 New 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 New 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 the Company). Berry and the Guarantors have agreed that, for a period of 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 (i) Berry 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 (ii) any holder of Transfer Restricted Securities notifies Berry 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 New 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 or an affiliate of Berry, Berry and the Guarantors will file with the Commission a shelf registration statement (the "Shelf Registration Statement") to cover resales of the Notes by the holders thereof who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. Berry and the Guarantors will 22 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 Old Note (together with any related note guarantees) until (i) the date on which such Old Note has been exchanged by a person other than a broker-dealer for a New Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange Offer of an Old Note for a New Note, the date on which such New 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, (iii) the date on which such Old Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Old Note is distributed to the public pursuant to Rule 144 under the Securities Act. The Registration Rights Agreement provides that (i) Berry and the Guarantors will file the Registration Statement with the Commission on or prior to 90 days after the original issuance of the Old Notes, (ii) Berry will use its best efforts to have the Registration Statement declared effective by the Commission on or prior to 150 days after the original issuance of the Old Notes, (iii) unless the Exchange Offer would not be permitted by applicable law or Commission policy, Berry 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, New Notes in exchange for all Old Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file the Shelf Registration Statement, Berry 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 Statement to be declared effective by the Commission on or prior to 90 days after such obligation arises. If (a) Berry 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, (b) any of such registration statements is not declared effective by the Commission on or prior to the dated specified for such effectiveness (the "Effectiveness Target Date"), or (c) Berry and the Guarantors fail to consummate the Exchange Offer within 30 business days of the Effectiveness Target Date with respect to the Registration Statement, or (d) 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 (a) through (d) above a "Registration Default"), then Berry and the Guarantors will pay Liquidated Damages to each Holder of Old 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 Old 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 Old 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 Old Notes. All accrued Liquidated Damages will be paid by Berry and the Guarantors on each Damages Payment Date to the Global Note Holder (as defined herein) by wire transfer of immediately available funds or by Federal funds check and to Holders of Certificated Securities (as defined herein) 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 Old Notes will be required to make certain representations to Berry and the Guarantors 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 Old Notes included in the Shelf Registration Statement and benefit from the provisions regarding Liquidated Damages set forth above. The summary herein of certain 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 Old Notes are designated for trading in the PORTAL market. To the extent Old Notes are tendered and accepted in the Exchange Offer, the principal amount of outstanding Old Notes will decrease with a resulting decrease in the liquidity in the market therefor. Following the consummation of the Exchange Offer, Holders of Old Notes who were eligible to participate in the Exchange Offer but who did not tender their Old Notes will not be entitled to further rights under the Registration Rights Agreement and such Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for the Old Notes could be adversely affected. 23 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 will accept any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. Berry will issue $1,000 principal amount of New Notes in exchange for each $1,000 principal amount of outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in integral multiples of $1,000. The form and terms of the New Notes will be identical in all material respects to the form and terms of the Old Notes, except that the New Notes have been registered under the Securities Act and therefore will not bear legends restricting their transfer and will not contain certain provisions providing for an increase in the interest rate on the Old Notes under certain circumstances relating to the Registration Rights Agreement, which provisions will terminate upon the consummation of the Exchange Offer. The New Notes will evidence the same debt as the Old Notes and will be entitled to the benefits of the Indenture under which the Old Notes were, and the New Notes will be, issued. As of the date of this Prospectus, $25,000,000 aggregate principal amount of the Old Notes are outstanding. Berry has fixed the close of business on September , 1999 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 were registered Holders of the Old Notes. Holders of the Old Notes do not have any appraisal or dissenters' rights under the Delaware General Corporation Law (the "DGCL") or the Indenture in connection with the Exchange Offer. Berry 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 shall be deemed to have accepted validly tendered Old Notes when, as and if Berry has given oral notice (confirmed in writing) or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering Holders for the purpose of the exchange of Old Notes. If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, any such unaccepted Old Notes will be returned, without expense, to the tendering Holder thereof as promptly as practicable after the Expiration Date. Holders who tender Old 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 Old Notes pursuant to the Exchange Offer. Berry will pay all charges and expenses, other than certain 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 September , 1999, unless Berry, 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 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 reserves the right, in its sole discretion, (i) to delay accepting any Old 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 (ii) to amend the terms of the Exchange Offer in any manner. 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 to constitute a material change, Berry will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered Holders, and Berry will extend the Exchange Offer for a period of five to 10 24 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 may choose to make public announcement of any delay, extension, termination or amendment of the Exchange Offer, Berry 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 NEW NOTES The New Notes will bear interest from April 15, 1999. Interest will be payable on the Old Notes accepted for exchange to, but not including, April 15, 1999. PROCEDURES FOR TENDERING The tender of Old Notes by a Holder thereof pursuant to one of the procedures set forth below and the acceptance thereof by Berry will constitute a binding agreement between such Holder and Berry 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 September , 1999, to all Holders of Old Notes known to Berry and the Exchange Agent. Only a Holder of the Old Notes may tender such Old Notes in the Exchange Offer. A Holder who wishes to tender any Old 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 (i) the certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date or (iii) the Holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the Old 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 the Book-Entry Transfer Facility to, and received by, the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering Old 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 may enforce such agreement against such participant. THE METHOD OF DELIVERY OF OLD 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 TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO BERRY. Any beneficial owner whose Old 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 Old Notes, either make appropriate arrangements to register ownership of the Old 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. 25 Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined herein) unless the Old Notes tendered pursuant thereto are tendered (i) by a registered Holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 promulgated under the Exchange Act (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered Holder of any Old Notes listed therein, such Old 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 Old Notes. If the Letter of Transmittal or any Old 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, evidence satisfactory Berry 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 Old Notes will be determined by Berry in its sole discretion, which determination will be final and binding. Berry reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Berry's acceptance of which would, in the opinion of counsel for Berry, be unlawful. Berry also reserves the right to waive any defects, irregularities or conditions of tender as to particular Old 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 Old Notes must be cured within such time as Berry shall determine. Although Berry intends to notify Holders of defects or irregularities with respect to tenders of Old Notes, neither Berry, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that Berry 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, among other things, that (i) the New Notes acquired by the Holder and any beneficial owners of Old Notes pursuant to the Exchange Offer are being obtained in the ordinary course of business of the persons receiving such New Notes, (ii) neither the Holder nor such beneficial owner has an arrangement with any person to participate in the distribution of such New Notes, (iii) neither the Holder nor such beneficial owner nor any such other person is engaging in or intends to engage in a distribution of such New Notes and (iv) neither the Holder nor any such other person is an "affiliate," as defined under Rule 405 promulgated under the Securities Act, of Berry. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities (other than Old Notes acquired directly from Berry), 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 New 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 Old Notes at the Book-Entry Transfer Facility 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 the Book-Entry Transfer Facility's system may make book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Old Notes may be effected through book-entry 26 transfer at the Book-Entry Transfer Facility, 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 Old Notes and (i) whose Old Notes are not immediately available or (ii) who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date may effect a tender if: (a) the tender is made through an Eligible Institution; (b) 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 Old Notes and the principal amount of Old 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 Old 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 (c) 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 Old Notes in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other document 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 Old Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS To withdraw a tender of Old 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 (i) specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the certificate number or numbers and principal amount of such Old Notes), (iii) be signed by the Holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee with respect to the Old Notes register the transfer of such Old Notes into the name of the persons withdrawing the tender and (iv) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. If certificates for Old 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 Old 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 the Book-Entry Transfer Facility to be credited with the withdrawn Old 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 in its sole discretion, which determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no New Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Properly withdrawn Old Notes may be retendered by following one of the procedures described above under "The Exchange Offer -- Procedures for Tendering" at any time prior to the Expiration Date. Any Old 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 27 without cost to such Holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Old Notes). CONDITIONS Notwithstanding any other term of the Exchange Offer, Berry shall not be required to accept for exchange, or exchange New Notes for, any Old Notes, and may terminate the Exchange Offer as provided herein before the acceptance of such Old Notes, if: (a) the Exchange Offer shall violate applicable law or any applicable interpretation of the staff of the Commission; or (b) any action or proceeding is instituted or threatened in any court or by any governmental agency that might materially impair the ability of Berry to proceed with the Exchange Offer or any material adverse development has occurred in any existing action or proceeding with respect to Berry; or (c) any governmental approval has not been obtained, which approval Berry shall deem necessary for the consummation of the Exchange Offer. If Berry determines in its sole discretion that any of the conditions are not satisfied, Berry may (i) refuse to accept any Old Notes and return all tendered Old Notes to the tendering Holders (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility), (ii) extend the Exchange Offer and retain all Old Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of Holders to withdraw such Old Notes (see "The Exchange Offer -- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Old Notes which have not been withdrawn. If such waiver constitutes a material change to the Exchange Offer, Berry will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered Holders, and Berry 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 BY FACSIMILE: BY HAND BEFORE 4:30 P.M.: MAIL: (212) 780-0592 United States Trust Company United States Trust Company of Attention: of New York New York Customer Service 111 Broadway P.O. Box 843 New York, New York 10006 Cooper Station Attention: Lower Level New York, New York 10276 Corporate Trust Window Attention: Corporate Trust Services CONFIRM BY BY OVERNIGHT COURIER AND BY TELEPHONE TO: HAND AFTER 4:30 P.M. ON THE (800) 548-6565 EXPIRATION DATE: United States Trust Company of New York 770 Broadway New York, New York 10003 28 FEES AND EXPENSES The expenses of soliciting tenders will be borne by Berry. 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 and our affiliates. Berry 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, 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. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. Berry will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates representing New Notes or Old 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 Old Notes tendered, or if tendered Old 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 Old 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 New Notes will be recorded at the same carrying value as the Old Notes as reflected in Berry'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 Old Notes will be amortized over the term of the New Notes. 29 CAPITALIZATION The following table sets forth the consolidated capitalization of Holding and its subsidiaries at July 3, 1999 and the pro forma capitalization of Holding and its subsidiaries as of such date after giving effect to acquisition of Cardinal and the issuance of the 1999 Notes. You should read the information in the table below in conjunction with the historical consolidated financial statements of Holding and the related notes included elsewhere in this prospectus.
AT JULY 3, 1999 ---------------------- HISTORICAL PRO FORMA ---------- ---------- (DOLLARS IN THOUSANDS) Long-term debt, including current portion: BERRY CORPORATION: Revolving credit facility ................................... $ 23,835 $ 23,835 Term loans .................................................. 61,151 61,151 Nevada Bonds ................................................ 4,000 4,000 Capital lease obligations ................................... 740 740 1994 Notes .................................................. 100,000 100,000 1998 Notes .................................................. 25,000 25,000 1999 Notes .................................................. -- 75,000 Debt premium ................................................ 758 758 ---------- ---------- Total Berry long-term debt, including current portion ..................................................... 215,484 290,484 HOLDING: 1996 Notes .................................................. 105,000 105,000 ---------- ---------- Total consolidated long-term debt, including current portion 320,484 395,484 Total stockholders' equity (deficit) ............................. (120,667) (120,667) ---------- ---------- Total capitalization ....................................... $ 199,817 $ 274,817 ========== ==========
30 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma condensed consolidated statement of operations and condensed consolidated balance sheet of Holding (collectively, the "Pro Forma Statements") give effect to (1) our acquisition of Cardinal and issuance of the 1999 Notes (2) our acquisitions of Knight and Norwich (the 1998 Acquisitions) and (3) our issuance of the Notes and the application of the proceeds therefrom as if the transactions had occurred as of the beginning of the respective periods for the pro forma statement of operations data and other pro forma data, and, in the case of the 1999 Notes and our acquisition of Cardinal, as if the transactions had occurred on July 3, 1999 for the pro forma balance sheet data. Fiscal year data reflect Cardinal's financial data for its fiscal year ended November 30, 1998. Six month period data reflect Cardinal's financial data for its period ended May 31, 1999. The Pro Forma Statements do not purport to represent what 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 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 Holding and related notes thereto included elsewhere in this prospectus. HOLDING PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FISCAL YEAR ENDED JANUARY 2, 1999
CARDINAL PRO FORMA ACQUISITION FOR THE AND 1999 1998 ACQUISITIONS HOLDING NOTES ACQUISITIONS AND 1999 OFFERING HISTORICAL ADJUSTMENTS ADJUSTMENTS NOTES ADJUSTMENTS PRO FORMA ------------ ----------- -------------- -------------- ----------- --------- (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 8,625(2) 1,697(7) 44,878 726(11) 45,604 ------------ ----------- -------------- -------------- ----------- --------- Income (loss) before income taxes (7,819) (5,880) (1,300) (14,999) (726) (15,725) Income taxes (benefit) .......... (249) --(3) 339(8) 90 -- 90 ------------ ----------- -------------- -------------- ----------- --------- Net income (loss) ............... $ (7,570) $ (5,880) $ (1,639) $ (15,089) $ (726) $ (15,815) ============ =========== ============== ============== =========== ========= OTHER DATA: Depreciation and amortization ... $ 24,830 $ 5,880(4) $ 1,838(9) $ 32,496 $ -- $ 32,496 BERRY DATA: Cash interest expense, net ...... $ 20,569 $ 8,250(5) $ 1,670(10) $ 30,489 $ 753 $ 31,243 Total interest expense, net ..... 21,835 8,625 1,697 32,157 726(11) 32,883
31 BPC HOLDING CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS 26 WEEKS ENDED JULY 3, 1999 CARDINAL ACQUISITION AND 1999 HOLDING NOTES HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- (DOLLARS IN THOUSANDS) Net sales ............................... $159,852 $ 28,465 $ 188,317 Cost of goods sold ...................... 112,782 23,407 136,189 -------- -------- --------- Gross margin ............................ 47,070 5,058 52,128 Operating expenses ...................... 25,828 4,251(1) 30,079 -------- -------- --------- Operating income ........................ 21,242 807 22,049 Other expenses .......................... 778 -- 778 Interest expense, net ................... 17,860 4,314(2) 22,174 -------- -------- --------- Income (loss) before income taxes ....... 2,604 (3,507) (903) Income taxes ............................ 482 -- 482 -------- -------- --------- Net income (loss) ....................... $ 2,122 $ (3,507) $ (1,385) ======== ======== ========= OTHER DATA: Depreciation and amortization ........... $ 14,110 $ 3,372(4) $ 16,350 BERRY DATA: Cash interest expense, net .............. $ 10,574 4,125(5) $ 14,699 Total interest expense, net ............. 11,196 4,314 15,510 32 BPC HOLDING CORPORATION NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL 26 WEEKS YEAR ENDED ENDED JANUARY 2, 1999 JULY 3, 1999 --------------- --------------- (DOLLARS IN THOUSANDS) CARDINAL ACQUISITION AND ISSUANCE OF 1999 NOTES 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) Add incremental interest expense .................................. 8,625 4,314 --------------- --------------- Adjusted interest expense ......................................... $ 8,625 $ 4,314 =============== =============== (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) Add incremental cash interest ..................................... 8,250 4,125 --------------- --------------- Adjusted net cash interest expense ................................ $ 8,250 $ 4,125 =============== =============== NORWICH AND KNIGHT PLASTICS 1998 ACQUISITION 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 ............ 1,649 --------------- Adjusted interest expense ......................................... $ 1,697 =============== (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 ===============
33
FISCAL YEAR ENDED JANUARY 2, 1999 --------------- (DOLLARS IN THOUSANDS) (10)Actual net cash interest expense.................................. $ 48 Add incremental net cash interest expense from acquisitions........ 1,622 --------------- Adjusted net cash interest expense................................. $ 1,670 =============== OFFERING ADJUSTMENTS: (11)Adjustment of net interest expense: Interest on the Notes.............................................. $ 2,041 Interest on debt reduction......................................... (1,288) Amortization of premium on Notes................................... (159) Amortization of deferred financing costs associated with the offering of the Notes........... 132 --------------- Change in net interest expense..................................... $ 726 ===============
34 BPC HOLDING CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT JULY 3, 1999 -------------------------------------------------- CARDINAL ACQUISITION AND 1999 HOLDING NOTES HISTORICAL ADJUSTMENTS(1) PRO FORMA --------------- --------------- --------------- (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents ............................... $ 2,993 $ 31 $ 3,024 Accounts receivable ..................................... 40,842 6,910 47,752 Inventories ............................................. 32,314 8,043 40,357 Other current assets .................................... 2,658 628 3,286 --------------- --------------- --------------- Total current assets ................................. 78,807 15,612 94,419 Assets held in trust ....................................... 252 -- 252 Property and equipment ..................................... 120,271 31,956 152,227 Intangible assets .......................................... 55,950 34,596 90,546 Other assets ............................................... 3,129 112 3,241 --------------- --------------- --------------- Total assets ......................................... $ 258,409 $ 82,276 $ 340,685 =============== =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt ....................... $ 20,297 -- $ 20,297 Accounts payable ........................................ 20,664 4,205 24,869 Accrued liabilities ..................................... 26,075 157 26,232 --------------- --------------- --------------- Total current liabilities ............................ 67,036 4,362 71,398 Long-term debt: Industrial revenue bonds (Nevada) ....................... 4,000 -- 4,000 Term loans .............................................. 61,151 -- 61,151 Revolving line of credit ................................ 23,835 -- 23,835 Capital lease obligations ............................... 740 -- 740 1994 Notes .............................................. 100,000 -- 100,000 1998 Notes .............................................. 25,000 -- 25,000 1999 Notes .............................................. -- 75,000 75,000 1996 Notes .............................................. 105,000 -- 105,000 Debt premium ............................................ 758 -- 758 Less: current portion .................................. (20,297) -- (20,297) --------------- --------------- --------------- Total long-term debt ................................. 300,187 75,000 375,187 Other liabilities .......................................... 11,853 2,914 14,767 --------------- --------------- --------------- Total liabilities .................................... 379,076 82,276 461,352 Stockholders' equity: Total stockholders' equity (deficit) ................. (120,667) -- (120,667) --------------- --------------- --------------- Total liabilities and stockholders' equity (deficit) . $ 258,409 $ 82,276 $ 340,685 =============== =============== ===============
35 BPC HOLDING CORPORATION NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (1) The aggregate purchase price of the Cardinal acquisition is expected to be $72,000 (including $2,500 of fees and expenses related to the acquisition). In addition, debt issuance costs associated with the 1999 Notes were $3,000. The preliminary allocation of the purchase price to historical assets and liabilities of Cardinal was as follows: AT JULY 3, 1999 ----------------------- (Dollars in thousands) Net assets at predecessor historical costs... $ 19,814 Elimination of intangible assets............. (14,743) Extinguishment of debt....................... 33,065 Decrease in other liabilities................ 2,268 Deferred debt issuance costs................. 3,000 Excess of cost over net assets acquired...... 31,596 ----------------------- $ 75,000 ======================= 36 SELECTED HISTORICAL FINANCIAL DATA The following selected financial data of Holding and its subsidiaries as of and for the five fiscal years ended January 2, 1999 are derived from the consolidated financial statements of Holding that have been audited by Ernst & Young LLP, independent auditors. The following selected consolidated financial data for the 26 weeks ended June 27, 1998 and July 3, 1999 are derived from the unaudited condensed consolidated financial statements of 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 26 weeks ended July 3, 1999 are not necessarily indicative of the results that may be achieved for 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.
TWENTY-SIX WEEKS FISCAL ENDED -------- -------- --------- --------- --------- --------- --------- JUNE 27, JULY 3, 1994 1995 1996 1997 1998 1998 1999 -------- -------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net sales ..................................... $106,141 $140,681 $ 151,058 $ 226,953 $ 271,830 $ 136,317 $ 159,852 Cost of goods sold ............................ 73,997 102,484 110,110 180,249 199,227 100,016 112,782 -------- -------- --------- --------- --------- --------- --------- Gross margin .................................. 32,144 38,197 40,948 46,704 72,603 36,301 47,070 Operating expenses ............................ 15,160 17,670 23,679 30,505 44,001 20,725 25,828 -------- -------- --------- --------- --------- --------- --------- Operating income .............................. 16,984 20,527 17,269 16,199 28,602 15,576 21,242 Other expenses(1) ............................. 184 127 302 226 1,865 430 778 Interest expense, net (2) ..................... 10,972 13,389 20,075 30,246 34,556 16,866 17,860 -------- -------- --------- --------- --------- --------- --------- Income (loss) before income taxes and extraordinary charge ........................ 5,828 7,011 (3,108) (14,273) (7,819) (1,720) 2,604 Income taxes (benefit) ........................ 11 678 239 138 (249) 26 482 -------- -------- --------- --------- --------- --------- --------- Income (loss) before extraordinary charge ...................................... 5,817 6,333 (3,347) (14,411) (7,570) (1,746) 2,122 Extraordinary charge(3) ....................... 3,652 -- -- -- -- -- -- -------- -------- --------- --------- --------- --------- --------- Net income (loss) ........................... $ 2,165 $ 6,333 $ (3,347) $ (14,411) $ (7,570) $ (1,746) $ 2,122 ======== ======== ========= ========= ========= ========= ========= Preferred stock dividends ................... $ -- $ -- $ 1,116 $ 2,558 $ 3,551 $ 1,783 $ 1,962 Common stock dividends ...................... 50,000 -- -- -- -- -- -- BALANCE SHEET DATA (AT END OF PERIOD): Working capital ............................... $ 13,393 $ 13,012 $ 15,910 $ 20,863 $ 4,762 $ 18,763 $ 11,771 Fixed assets .................................. 38,103 52,441 55,664 108,218 120,005 105,260 120,721 Total assets .................................. 91,790 103,465 145,798 239,444 255,317 231,171 258,409 Total debt .................................... 112,287 111,676 216,046 306,335 323,298 299,855 320,484 Stockholders' equity (deficit) ................ (38,838) (32,484) (97,550) (108,975) (120,357) (112,563) (120,667) OTHER DATA: Adjusted EBITDA(4) ............................ $ 26,380 $ 31,569 $ 34,718 $ 40,268 $ 59,768 $ 30,066 $ 37,653 Adjusted EBITDA margin ........................ 24.9% 22.4% 23.0% 17.7% 22.0% 22.1% 23.6% Cash provided by operating activities ......... 15,556 12,969 14,426 14,154 34,131 14,380 16,136 Cash used for investing activities ............ (9,495) (25,385) (14,639) (102,102) (52,120) (7,759) (13,053) Cash provided by (used for) financing activities .................................. 2,184 11,124 2,370 80,444 17,619 (6,629) (2,402) Depreciation and amortization(5) .............. 8,176 9,536 11,331 19,026 24,830 11,783 14,110 Capital expenditures .......................... 9,118 11,247 13,581 16,774 22,595 7,854 13,461 Ratio of earnings to fixed charges(6) ......... 1.5x 1.5x -- -- -- -- 1.1x
(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 $884 and $872 for the thirteen weeks ended June 27, 1998 and July 3, 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. 37 (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 certain 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:
TWENTY-SIX WEEKS FISCAL ENDED -------- -------- --------- --------- --------- --------- --------- JUNE 27, JULY 3, 1994 1995 1996 1997 1998 1998 1999 -------- -------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) Operating income ........................................ $ 16,984 $ 20,527 $ 17,269 $ 16,199 $ 28,602 $ 15,576 $ 21,242 Depreciation and amortization ........................... 8,176 9,536 11,331 19,026 24,830 11,783 14,110 -------- -------- --------- --------- --------- --------- --------- EBITDA .................................................. 25,160 30,063 28,600 35,225 53,432 27,359 35,352 One-time expenses related to acquisitions: 1996 transaction compensation expenses ........ -- -- 2,762 -- -- -- -- Acquisition integration expenses .............. 116 867 692 3,267 1,525 1,035 1,091 Plant shutdown expenses ....................... -- -- 907 848 2,559 1,328 576 Litigation expenses related to drink cup patent -- -- 650 100 631 -- -- Corporate expenses: Non-cash compensation expenses (benefit) ...... 358 (214) 358 -- 749 (91) 197 Management fees and expenses .................. 746 853 749 828 872 435 437 -------- -------- --------- --------- --------- --------- --------- Adjusted EBITDA ......................................... $ 26,380 $ 31,569 $ 34,718 $ 40,268 $ 59,768 $ 30,066 $ 37,653 ======== ======== ========= ========= ========= ========= =========
(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 (i) income (loss) before income taxes, plus (ii) fixed charges consisting of interest on debt (including amortization of deferred financing fees), plus (iii) 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 $2,046 for the 26 weeks ended June 27, 1998. 38 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 26 WEEKS ENDED JULY 3, 1999 COMPARED TO 26 WEEKS ENDED JUNE 27, 1998 NET SALES. Net sales increased $23.6 million, or 17%, to $159.9 million for the 26 weeks ended July 3, 1999 from $136.3 million for the 26 weeks ended July 27, 1998 with an approximate 2% decrease in net selling prices due primarily to contractual decreases associated with lower raw material costs. Plastic packaging product net sales increased $19.6 million from the 26 weeks ended July 27, 1998. Within this segment, the addition of Norwich and Knight provided net sales for the 26 weeks ended July 3, 1999 of $7.3 million and $9.6 million, respectively. In addition, overcaps sales, excluding Knight, increased $2.1 million. Drink cup sales for the 26 weeks ended July 3, 1999 were $3.0 million off the 26 weeks ended July 27, 1998 due to a $3.5 million promotion during the 26 weeks ended July 27, 1998. Container sales increased $0.1 million from the 26 weeks ended July 27, 1998 despite the Company's decision to exit certain low margin business. Custom sales, including tooling, increased $3.4 million from the 26 weeks ended July 27, 1998 with a large promotion in the 26 weeks ended July 3, 1999. Plastic housewares product sales for the 26 weeks ended July 27, 1998 increased $4.0 million from the 26 weeks ended July 3, 1999 due to strong internal growth including several new products. GROSS MARGIN. Gross margin increased by $10.8 million to $47.1 million (29% of net sales) for the 26 weeks ended July 3, 1999 from $36.3 million (27% of net sales) from the 26 weeks ended July 27, 1998. This increase of 30% includes the combined impact of the added Norwich and Knight sales volume, acquisition integration, productivity improvement initiatives, and the cyclical impact of lower raw material costs compared to the 26 weeks ended July 27, 1998. 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 1998 with the majority of the business being transferred to the Charlotte, North Carolina plant. In addition, we closed the Arlington Heights, Illinois facility, which was acquired in the Knight acquisition, in 1999 with the majority of the business being transferred to the Woodstock, Illinois plant. 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 $1.5 million to $8.6 million for the 26 weeks ended July 3, 1999 from $7.1 million for the 26 weeks ended July 27, 1998 principally as a result of expanded sales coverage and increased marketing expenses. General and administrative expenses increased by $3.1 million to $11.9 million for the 26 weeks ended July 3, 1999 from $8.8 million for the prior 26 weeks ended July 27, 1998. The increase is primarily attributable to the Norwich and Knight acquisitions and increased accrued bonus expenses. One-time transition expenses for the 26 weeks ended July 3, 1999 include $0.6 million related to the shutdown of the Anderson and Arlington Heights facilities and $1.1 million related to acquisitions. One-time transition expenses for 26 weeks ended July 27, 1998 were $1.1 million related to acquisitions and $1.3 million related to the Anderson plant consolidation. INTEREST EXPENSE. Interest expense increased $0.6 million to $18.0 million for the 26 weeks ended July 3, 1999 compared to $17.4 million for the 26 weeks ended July 27, 1998 primarily due to additional borrowings to support the Norwich Moulders and Knight acquisitions. INCOME TAX. Our income tax expense was $0.5 million for the 26 weeks ended July 3, 1999. We continue to operate in a net operating loss carryforward position for Federal income tax purposes. NET INCOME (LOSS). Net income for the 26 weeks ended July 3, 1999 of $2.1 million improved $3.8 million from a net loss of $1.7 million for the 26 weeks ended June 27, 1999 for the reasons discussed above. 39 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 Packaging. 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 (20.6% of net sales) in 1997 to $72.6 million (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 (16.2% of net sales), compared with $30.5 million (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 (12.7% of net sales) compared to $30.2 million (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. 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 40 continued market strength of base products and the acquisitions of Venture Packaging, 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 (27.1% of net sales) in 1996 to $46.7 million (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 (13.4% of net sales), compared with $23.7 million (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, primarily as a result of the business acquisitions that we made in 1997 ($3.3 million). 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 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 (13.3% of net sales) compared to $20.1 million (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 Holding, which occurred in June 1996. The recapitalization of 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 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. INCOME TAX MATTERS 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 Holding indefinitely to reduce future years' federal income taxes. LIQUIDITY AND CAPITAL RESOURCES We have a credit facility for a senior secured line of credit. Giving effect to the $20.0 million increase in our credit facility in connection with the Cardinal acquisition, the credit facility provides for aggregate borrowings up to a maximum of about $142.9 million including: (1) a $70.0 million revolving line of credit, subject to a 41 borrowing base formula; (2) a (pound)1.5 million revolving line of credit, subject to a borrowing base; (3) a $58.6 million term loan facility; (4) a (pound)3.8 million term loan facility; and (5) a $5.6 million standby letter of credit to support our and our subsidiaries' obligations under the Nevada Bonds. The debt under the Credit Facility is guaranteed by our parent, Holding, and our subsidiaries. The credit facility requires us to comply with specified financial ratios and tests, including a minimum Tangible Capital Funds (as defined in the credit facility) test, maximum leverage ratio, interest coverage ratio, debt service coverage ratio and a fixed charge coverage ratio. At April 3, 1999, our credit facility required us to have Tangible Capital Funds of not less than $22.5 million and a maximum leverage ratio of 4.0 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 tests may change on a quarterly basis. These covenants were waived as of July 3, 1999, as a result of the Cardinal acquisition. See "Description of Certain Indebtedness--The Credit Facility". The 1994 Indenture, the 1996 Indenture, the 1999 Indenture and the Indenture restrict our ability to incur additional debt and contain other provisions that could limit our liquidity. At July 3, 1999, on a pro forma basis giving effect to the acquisition of Cardinal and a $20.0 million concurrent increase in the credit facility, we had unused borrowing capacity under the credit facility's borrowing base of $35.8 million, which is not considered additional indebtedness under the 1994 Indenture, 1996 Indenture, 1999 Indenture or the 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 a decreased consolidated net loss in 1998 and additional depreciation and amortization as the result of acquisitions in 1997 and 1998. Net cash provided by operating activities was $16.1 million for the 26 weeks ended July 3, 1999, an increase of $1.7 million from the 26 weeks ended June 27, 1998. The increase is primarily the result of improved operating performance with income before depreciation and amortization increasing $6.1 million from the 26 weeks ended June 27, 1998. Net working capital charges (defined as accounts receivable, inventories, prepaid expenses, other receivables, accounts payable and accrued expenses) decreased net cash $4.8 million from the 26 weeks ended June 17, 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. 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 $25.8 million, including about $8.1 million for building and systems which includes a major plant renovation, $10.5 million for molds, $4.2 million for molding and printing machines, and $3.0 million for miscellaneous accessory equipment. Capital expenditures for the 26 weeks ended July 3, 1999 included $5.5 million for molds, $0.7 million for molding and printing machines, $4.4 million for buildings and systems, and $2.9 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 used by financing activities was $2.4 million for the 26 weeks ended July 3, 1999, representing a decrease of $4.2 million from the 26 weeks ended June 27, 1998. This decrease can be attributed to a decrease in borrowings from the revolving line of credit as a result of the improved operating performance noted above. Increased working capital needs occur whenever we experience strong incremental demand or a significant rise in the cost of raw material, particularly plastic resin. However, we anticipate that our cash interest, working capital and capital expenditure requirements for 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 1999 Notes and the Notes restrict, and the Credit Facility prohibits, our ability to pay any dividend or make any distribution of funds to Holding to satisfy interest and other obligations on the 1996 Notes. Based upon historical operating results, without a substantial increase in the net income of Berry, we anticipate that we will be unable to generate sufficient net income to permit a dividend to Holding in an amount sufficient to meet 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, 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 42 thereof. After June 15, 2001 or in the event that 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 Holding to consummate a refinancing or equity offering. In addition, we have now and will continue to have a large amount of debt which may limit our or Holding's ability to consummate a refinancing or equity offering. At July 3, 1999, our cash balance was $3.0 million and, on a pro forma basis giving effect to the acquisition of Cardinal and a $20 million concurrent increase in our credit facility, we had unused borrowing capacity under our credit facility's borrowing base of about $35.8 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. Except for Cardinal, the most recent acquired business, Knight Plastics, was converted to our applications on March 1, 1999. We plan to convert Cardinal to our applications by November 1999. 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 $2.5 million. 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 1999. We believe that we have an effective program in place to resolve all internal Year 2000 issues. An inventory of computer based systems has been compiled and verified through testing and supplier verification. All identified non-compliant equipment and software will be corrected before December 1999. The current estimated cost for this resolution is $110,000. These systems include personal computers, postage machines, plant automation and telephone system components. 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 are in the process of being completed: o We are identifying key suppliers, which include suppliers of raw material, banking, transportation, service, and utility providers and surveying these suppliers as to their Year 2000 status; 43 o We are identifying which suppliers are not compliant or at risk; and o We are engaging in risk assessment and contingency planning for these key suppliers. We have identified 304 "key suppliers" that we have surveyed to determine their Year 2000 status. The following is a summary of this survey as of October 22, 1999. Number of Supplier Response Suppliers ----------------- --------- o Fully Year 2000 203 compliant o Compliant by third 30 quarter 1999 o Compliant by fourth 34 quarter 1999 o Second request for 32 information o No response 4 o Company will not 1 respond We are in the process of following up with all companies that were to be compliant by the third and fourth quarter of 1999 to determine their current status. By the end of November 1999, we will have completed our survey and put into place any contingency plans. The amount of potential liability and lost revenue due to Year 2000 issues cannot be reasonably estimated at this time. We will continue to work throughout the year to minimize any Year 2000 risks. 44 BUSINESS 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. 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, 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, including such well-known brand names as Faultless starch, Gillette personal care products, Pam cooking spray, Pledge furniture polish, Raid insect repellants, Rustoleum and Sherwin-Williams paints and Sure deodorant. Similarly, our containers are used for packaging a broad spectrum of consumer and commercial products, including Arch (Olin) pool chemicals, Elmer's home repair products, Hershey's cocoa, McDonald's children's meals, Milliken adhesives, Pillsbury cookie dough and promotional containers for a variety of customers, including the National Football League, Walt Disney and Warner Brothers. Our drink cups are sold to fast food and family-dining restaurants, convenience stores, stadiums and retail stores. Our largest drink cup customers are Circle K, Coca-Cola, McDonald's, Pepsi-Cola and Steak 'n Shake. 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. 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 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, we believe that our post-molding capabilities are among the most modern and extensive in the industry. These capabilities include printing, labeling, assembly, packing and distribution. 45 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. For a majority of our customers we are the sole or largest supplier of plastic injection-molded products. 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 among the largest in-house sales forces in our industry. Our sales force 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 certain 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. 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. 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 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. 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 46 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 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. 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 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: 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: 47
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 Commission standards for child safety Pool and other chemicals Pry-off Containers having a tight lid-fit and 4 oz. to 2 gallons Building products, adhesives, other requiring an opening device industrial uses Dairy Thinwall containers in traditional dairy 6 oz. to 1.25 gallons, Cultured dairy products including market 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. rectangular shapes Food, deli, sauces, salads 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 certain 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. 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 48 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 (e.g., plates, bowls, pitchers and tumblers) and plastic lawn and garden products (primarily outdoor flower pots). 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. 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. 49 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 lowers warehousing and shipping costs (due to more efficient use of space). 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. 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 (excluding specialty resins), of which 70% was high density polyethylene, 12% linear low density polyethylene and 18% polypropylene. 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. 50 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 supplies." 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 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 (including contamination caused by prior owners and operators of such sites) or the off-site disposal of hazardous substances. 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 certain 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 certain 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, 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. 51 In December 1996, the Department of Environmental Quality estimated that Oregon had met its recycling goal of 25% for 1997 (based on 1996 data), 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. 52 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 Owned Manufacturing Ontario, CA....... 10.0 200,000 Manufacturing Leased (expires 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 Minneapolis, MN... 3.0 110,000 Manufacturing Leased (expires December 1999) 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 York, PA.......... 10.0 40,000 Manufacturing Leased (expires 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 and/or our subsidiary Berry Sterling have been litigating two lawsuits that involve United States Patent No. Des. 362,368 (the "368" Patent). 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 declatory judgement 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 declatory judgement 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 judgement 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 April 29, 1998, Berry Sterling filed a Notice of Appeal of the Court's judgement and the denial by the Court. On April 29, 1998, Berry Sterling filed a Notice of Appeal of the Court's judgement and the denial of its motion to set aside the jury's verdict. Oral argument for the appeal took place on January 5, 1999. 53 On August 30, 1999, the United States Court of Appeals for the Federal Circuit (the "Federal Circuit") decided Berry Sterling's appeal in the Pescor Plastics case. The Federal Circuit affirmed the jury's finding that the '368 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 judgement against Berry Sterling (included cost and applicable interest) in the Pescor case is $24,171.26. 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 '368 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. 54 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information with respect to the executive officers, directors and certain key personnel of our parent, Holding and its subsidiaries:
NAME AGE TITLE ENTITY - ------------------------------------ ----- ------------------------------------------- ----------------- Roberto Buaron(1)(4)................ 52 Chairman and Director Berry and Holding Martin R. Imbler(1)(4).............. 51 President, Chief Executive Officer Berry and Director President and Director Holding Ira G. Boots........................ 45 Executive Vice President - Operations and Berry Director James M. Kratochvil................. 42 Executive Vice President, Chief Financial Berry Officer, Treasurer and Secretary Executive Vice President - Chief Financial Holding Officer and Secretary R. Brent Beeler..................... 46 Executive Vice President, Sales and Berry Marketing Randy Hobson........................ 32 Vice President - Sales and Marketing Berry Ruth Richmond....................... 36 Vice President - Planning and Berry Administration and Assistant Secretary David Weaver........................ 36 Vice President and Plant Manager - Berry Lawrence Fredrick A. Heseman................. 46 Vice President and Plant Manager - Berry Evansville Bruce J. Sims....................... 49 Vice President - Sales and Marketing, Berry Housewares George A. Willbrandt................ 54 Vice President - Sales and Marketing Berry Lawrence G. Graev(2)(3)............. 54 Director Berry and Holding Joseph S. Levy(2)(3)................ 31 Vice President, Assistant Secretary and Berry and Holding Director Donald J. Hofmann, Jr.(1)(2)(3)(4).. 41 Director Berry and Holding Mathew J. Lori...................... 35 Director Berry and Holding David M. Clarke..................... 48 Director Berry and Holding
- --------------------------------- (1) Member of the Stock Option Committee of Holding. (2) Member of the Audit Committee of Holding. (3) Member of the Audit Committee of Berry. (4) Member of the Compensation Committee of Berry. ROBERTO BUARON has been Chairman and a Director of Berry since it was organized in December 1990. He has also served as Chairman and a Director of 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 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 since January 1991. He has also served as a Director of Holding since January 1991, and as President of 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. 55 IRA G. BOOTS has been Executive Vice President-Operations, and a Director of Berry 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 in December 1997. He formerly served as Vice President, Chief Financial Officer and Secretary of Berry since 1991, and as Treasurer of Berry since May 1996. He was also promoted to Executive Vice President, Chief Financial Officer and Secretary of Holding in December 1997. He formerly served as Vice President, Chief Financial Officer and Secretary of 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 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 since June 1998. Mr. Hobson was Marketing Manager-Containers for Berry 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 Holding and Berry since April 1998. Ms. Richmond has been Vice President-Planning and Administration of Berry 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 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 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 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. GEORGE A. WILLBRANDT was promoted to Vice President-Sales and Marketing of Berry 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 and Holding since August 1995. Mr. Graev is the Chairman of the law firm of O'Sullivan Graev & Karabell, LLP of New York, where he has been a partner since 1974. Mr. Graev is also a Director of First Atlantic. JOSEPH S. LEVY has been Vice President and Assistant Secretary of Berry and Holding since April 1995. Mr. Levy has been a Director of 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 Holding and Berry 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., 56 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 Holding and Berry 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 Holding and Berry 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 Holding has an Audit Committee and a Stock Option Committee, and the Board of Directors of Berry 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 Holding 1996 Stock Option Plan. The Compensation Committee makes recommendations to the Board of Directors of Berry concerning salaries and incentive compensation for our officers and employees. 57 EXECUTIVE COMPENSATION The following table sets forth a summary of the compensation paid by Berry to our Chief Executive Officer and our four other most highly compensated executive officers (collectively, the "Named Executive Officers") for services rendered in all capacities to Berry during fiscal 1998, 1997 and 1996. SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION SECURITIES FISCAL ----------------- UNDERLYING OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION(1) - ------------------------------ ------ -------- -------- ------------ --------------- Martin R. Imbler........................... 1998 $327,397 $ 46,697 -- $1,650 President and Chief Executive Officer 1997 307,396 87,623 -- 1,520 1996 292,078 128,993 8,472 595,848 Ira G. Boots............................... 1998 176,631 39,024 -- 1,650 Executive Vice President - Operations 1997 151,691 72,868 -- 1,520 1996 145,735 94,205 5,214 239,335 James M. Kratochvil........................ 1998 142,483 30,413 -- 1,650 Executive Vice President, Chief Financial 1997 119,459 56,307 -- 1,520 Officer, Treasurer and Secretary 1996 112,614 72,796 3,259 120,427 R. Brent Beeler............................ 1998 145,218 32,621 -- 1,650 Executive Vice President - Sales and 1997 125,973 60,554 -- 1,520 Marketing 1996 121,108 72,796 3,259 120,427 George A. Willbrandt...................... 1998 182,823 39,024 -- 1,650 Vice President - Sales and Marketing 1997 214,788 -- -- 11,303 1996 182,077 100,000 -- 201,420
- ------------------------ (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 Named Executive Officers at January 2, 1999. FISCAL YEAR-END OPTION VALUES(1)
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE- OPTIONS AT FISCAL YEAR-END MONEY OPTIONS AT 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
DiRECTOR COMPENSATION Directors receive no cash consideration for serving on the Board of Directors of Holding or Berry, but directors are reimbursed for out-of-pocket expenses incurred in connection with their duties as directors. - ------------------------ (1) None of Holding's capital stock is currently publicly traded. The values reflect management's estimate of the fair market value of the Class B Nonvoting Common Stock of Holding at January 2, 1999. (2) All options granted to management of Berry Plastics are exercisable for shares of Class B Nonvoting Common Stock, par value $.01 per share, of Holding. 58 EMPLOYMENT AGREEMENTS We have an employment agreement with Mr. Imbler that expires on June 30, 2001. Base compensation under the agreement for fiscal 1998 was $327,397. The agreement also provides for an annual performance bonus of $50,000 to $175,000 based upon Berry's attainment of certain 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. 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 1998 base compensation of $176,631 for Mr. Boots, $142,483 for Mr. Kratochvil, $145,218 for Mr. Beeler and $182,823 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. 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 certain 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 (other than Mr. Willbrandt, who would receive one year's salary), and (2) certain 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 1998 were determined by the Compensation Committee in accordance with their respective employment agreements. All other compensation decisions with respect to officers of Berry 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 Holding in 1996, the Management Agreement was amended to provide for a fee for services rendered in connection with certain transactions equal to the lesser of (1) 1% of the total transaction value and (2) $1,250,000 for any such transaction consummated plus out-of-pocket expenses in respect of such transaction, whether or not consummated. Also in connection with the recapitalization of Holding in 1996, 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 Packaging. 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 Plastics. 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 Holding and Berry, 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 Holding to First Atlantic Capital in connection with the recapitalization of Holding or any of the fees paid with respect to the acquisitions described above. First Atlantic Capital is engaged by Atlantic 59 Equity Partners International II to provide certain 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 Holding prior to the consummation of the recapitalization of Holding in 1996, received about $67.6 million from the sale of its common stock in Holding and warrants to purchase common stock. First Atlantic is engaged by Atlantic Equity Partners to provide certain 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 Holding. See "Certain Transactions." In connection with the recapitalization of Holding in 1996, Mr. Imbler, a director of Berry and Holding, received about $5.9 million, Douglas E. Bell, a former director of Berry, received about $2.5 million, Mr. Boots, a director of Berry, received about $2.4 million, and Messrs. Beeler and Kratochvil, officers of Berry, each received about $1.3 million from their sale of certain equity interests in Holding. In connection with the offering in April 1994 of the 1994 Notes (the "1994 Transaction"), we paid a $50.0 million dividend on our common stock to Holding, and Holding distributed that amount to its holders of equity interests. In connection therewith, Holding agreed to pay cash bonuses, upon the occurrence of certain events, to the members of management who held options under 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 Holding. As a result of the recapitalization of 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 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 Holding's Common Stock to Atlantic Equity Partners International II, Chase Venture Capital Associates and certain other equity investors (collectively, the "Common Stock Purchasers") and the sale of $15.0 million of Holding's 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 Holding in the 1996 Transaction. STOCK OPTION PLAN Employees, directors and certain independent consultants of Berry and its subsidiaries are entitled to participate in the 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 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 Holding, in its sole discretion, determines. The Stock Option Committee of the Board of Directors of Holding administers all aspects of the Stock Option Plan. The Stock Option Committee selects which of Berry' 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 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 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 60 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, 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 Named Executive Officers 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. 61 PRINCIPAL STOCKHOLDERS All of our outstanding capital stock is owned by Holding. The following table sets forth certain information regarding the ownership of the capital stock of Holding with respect to the following: o each person known by Holding to own beneficially more than 5% of the outstanding shares of any class of its voting capital stock; o each of Holding's directors; o the Named Executive Officers; 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.
PERCENTAGE OF ALL SHARES OF CLASSES OF SHARES OF PERCENTAGE OF NONVOTING COMMON VOTING VOTING COMMON STOCK(1) STOCK NAME AND ADDRESS OF COMMON STOCK(1) COMMON ----------------------------------- (FULLY- BENEFICIAL OWNER CLASS A CLASS B STOCK CLASS A CLASS B CLASS C 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 Holding. 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, and 1,000,000 shares of Preferred Stock, $.01 par value. Of the 2,500,000 shares of common stock of 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 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 Holding held by Atlantic Equity Partners International 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 Holding held by Atlantic Equity Partners International II. Buaron Holdings disclaims any beneficial ownership of any shares of capital 62 stock owned by Atlantic Equity Partners International II, including the shares of common stock of 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 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 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 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 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 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 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 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 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. 63 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 certain 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 Holding in 1996, 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 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. First Atlantic received advisory fees of about $695,000 for services provided with respect to the Cardinal acquisition. Mr. Buaron, the Chairman and a director of Holding and Berry, 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 Holding to First Atlantic Capital in connection with the recapitalization of 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 certain 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 Holding prior to the consummation of the recapitalization of Holding in 1996, received about $67.6 million from the sale of its common stock in Holding and warrants to purchase common stock. First Atlantic is engaged by Atlantic Equity Partners to provide certain 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 Holding. THE 1996 TRANSACTION On June 18, 1996, our parent, 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 Holding. Pursuant to a Stock Purchase and Recapitalization Agreement dated as of June 12, 1996, certain 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 (the "Preferred Stock Purchasers") purchased shares of preferred stock of BPC Mergerco and warrants (the "1996 Warrants") to purchase shares of common stock of BPC Mergerco. Immediately after the purchase of the common stock, the preferred stock and the 1996 Warrants of BPC Mergerco, BPC Mergerco merged with and into Holding, with 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 Holding and certain 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 64 stock of Holding, a majority of which was held by members of management, were converted into shares of common stock of the surviving corporation (constituting about 19% of the post-merger common stock of the surviving corporation) and (3) each share of common stock, each share of preferred stock and each 1996 Warrant to purchase one share of common stock of Mergerco were converted into one share of common stock, one share of preferred stock and one warrant to purchase one share of common stock of the surviving corporation, respectively. 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 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 Holding, including the holders of the 1994 Warrants, was about $119.6 million in cash. The shares of Class A Common Stock and Class B Common Stock that were cashed out in the Merger were valued based on arms' length negotiations with the new investors. In order to finance the recapitalization of Holding, including the payment of related fees and expenses: (1) Holding issued the 1996 Notes for net proceeds of about $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 1996 Notes); (2) the Common Stock Purchasers, the Preferred Stock Purchasers and certain members of management made equity and rollover investments in the aggregate amount of $70.0 million (which 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) Holding received an aggregate of about $0.9 million in connection with the exercise of management stock options to purchase common stock of Holding. In connection with the recapitalization of Holding, Atlantic Equity Partners International II, Chase Venture Capital Associates, certain other institutional investors and certain members of management entered into a Stockholders Agreement pursuant to which certain stockholders, among other things, (1) were granted certain registration rights and (2) under certain circumstances, have the right to force a sale of Holding. MANAGEMENT In connection with the recapitalization of 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 certain equity interests in Holding. In connection with the 1994 Transaction, we paid a $50.0 million dividend on our common stock to Holding, and Holding distributed that amount to its holders of equity interests. In connection therewith, Holding agreed to pay cash bonuses, upon the occurrence of certain events, to the members of management who held options under 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 Holding. As a result of the recapitalization of Holding in 1996, bonuses were paid to Mr. Imbler in the 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 Holding, Holding entered into a Stockholders Agreement dated as of June 18, 1996 (the "Stockholders Agreement") with the Common Stock Purchasers, certain Management Stockholders (as defined herein) 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 New 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 (who are currently 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 (who is currently Mr. Clarke); (2) in the case of certain Common Stock Purchasers, to subscribe for a proportional share of future equity issuances by Holding; (3) under certain 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 Holding or a sale of Holding subsequent to the fifth anniversary of the closing of the recapitalization of Holding and (4) under certain circumstances and in the case of a majority in interest of the institutional holders, to cause the initial public offering of equity securities of Holding or a sale of Holding subsequent to the sixth anniversary of the 65 closing of the recapitalization of Holding. Provisions under the Stockholders Agreement also (1) prohibits Holding from taking certain 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 certain events, the consent of Atlantic Equity Partners International II), including certain transactions between Holding and any subsidiary, on the one hand, and First Atlantic Capital or any of its affiliates, on the other hand; (2) obligates Holding to provide certain Common Stock Purchasers with financial and other information regarding Holding and to provide access and inspection rights to all Common Stock Purchasers; and (3) restricts transfers of equity by the Common Stock Purchasers, subject to certain 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 certain circumstances the Preferred Stock Purchasers (and their transferees) have tag-along rights with respect to the 1996 Warrants and the common stock of Holding issuable upon exercise of the 1996 Warrants. Under specified circumstances and subject to certain 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 Holding's expense, of their shares of common stock of Holding. Under certain 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 Holding's expense, of their shares of common stock of Holding. The Stockholders Agreement provides that if Holding proposes to register any of its securities, either for its own account or for the account of other stockholders, Holding will be required to notify all Common Stock Purchasers and to include in such registration the shares of common stock of Holding requested to be included by them. All shares of common stock of 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 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 Holding in 1996, if an underwritten public offering of equity securities of 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 Holding in 1996; o the twentieth anniversary of the closing of the recapitalization of Holding in 1996; and o a sale of Holding. In addition, the Stockholders Agreement provides that certain 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 Holding and/or to approve certain actions by Holding will terminate under specific circumstances. Holding is also party to the Amended and Restated Stockholders Agreement dated June 18, 1996 (the "Management Stockholders Agreement"), with Atlantic Equity Partners International II and all management shareholders including, among others, Messrs. Imbler, Boots, Kratochvil, Beeler, and Willbrandt (collectively, the "Management Stockholders"). 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 Holding or Atlantic Equity Partners II upon the consummation of certain transactions; 66 o grant the Management Stockholders certain rights of co-sale in connection with sales by Atlantic Equity Partners International II; o grant Holding rights to repurchase capital stock from the Management Stockholders upon the occurrence of certain events; and o require the Management Stockholders to offer shares to Holding prior to any permitted transfer. CHASE SECURITIES INC. In connection with the recapitalization of 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 Holding and Berry, received a fee of $500,000 for arranging the sale of $15.0 million of Holding's Common Stock to certain of the Common Stock Purchasers and the sale of $15.0 million of 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 Holding in the recapitalization of Holding. LEGAL SERVICES Mr. Graev is the Chairman 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 Holding in connection with certain 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 1999 Notes, the 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 CERTAIN INDEBTEDNESS HOLDING 1996 NOTES On June 18, 1996, Holding, as part of a recapitalization, 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. 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, 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 under the 1996 Indenture 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 1996 Notes, to pay principal of and premium, if any, thereon. The balance in the escrow account as of December 27, 1997 was $18.9 million. The 1996 Notes rank senior in right of payment to all existing and future subordinated indebtedness of Holding, including Holding's subordinated guarantee of the 1994 Notes and the Notes and PARI PASSU in right of payment with all Senior Indebtedness of Holding. The 1996 Notes are effectively subordinated to all existing and future Senior Indebtedness of Berry, including borrowings under the Credit Facility, the Nevada Bonds and the South Carolina Bonds. BERRY 1994 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 and 100,000 warrants to purchase 1.13237 shares of Class A Common Stock, $.00005 par value, of 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 from the sale of the 1994 Notes, after expenses, were $93.0 million. Berry is not required to make mandatory redemption or sinking fund payments with respect to the 1994 Notes. Subsequent to April 15, 1999, the 1994 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 1994 Indenture, each holder of 1994 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 rank PARI PASSU with the 1999 Notes and the Notes and PARI PASSU with or senior in right of payment to all existing and future subordinated indebtedness of Berry. The 1994 Notes rank junior in right of payment to all existing and future Senior Indebtedness of Berry, including borrowings under the Credit Facility, and the Nevada Bonds. The 1994 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. BERRY 1999 NOTES On July 6, 1999, Berry completed an offering of $75.0 million aggregate principal amount of 11% Berry Plastics Corporation Senior Subordinated Notes due 2007. The 1999 Notes mature on July 15, 2007 and interest is payable semi-annually on January 15 and July 15 of each year, commencing on January 15, 2000. The 1999 Notes are unconditionally guaranteed on a senior subordinated basis by the Guarantors. Berry is not required to make mandatory redemption or sinking fund payments with respect to the 1999 Notes. Subsequent to July 15, 2003, the 1999 Notes may be redeemed at the option of Berry, in whole or in part, at redemption prices ranging from 105.5% 68 in 2003 to 100% in 2006 and thereafter. Upon a change in control, as defined in the 1999 Indenture, each holder of 1999 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 1999 Notes rank PARI PASSU with the 1994 Notes and the Notes and PARI PASSU with or senior in right of payment to all existing and future subordinated indebtedness of Berry. The 1999 Notes rank junior in right of payment to all existing and future Senior Indebtedness of Berry, including borrowings under the Credit Facility, and the Nevada Bonds. The 1999 Indenture contains certain covenants which, among other things, limit Berry and its subsidiaries' ability to incur debt, merge or consolidate, sell, loose or transfer assets, make dividend payments and engage in transaction with affiliates. THE CREDIT FACILITY We are party to a financing and security agreement (the "Security Agreement") providing for up to $142.9 million of borrowings (the "Credit Facility") including: o a $70.0 million revolving line of credit, subject to a borrowing base formula. At July 3, 1999, on a pro forma basis giving effect to the acquisition of Cardinal and a $20.0 million concurrent increase, we had unused borrowing capacity under our Credit Facility's revolving line of credit of about $35.8 million; o a (pound)1.5 million revolving line of credit, subject to a borrowing base; o a $58.6 million term loan facility; o a (pound)3.8 million term loan facility; and o a $5.6 million standby letter of credit facility to support our and our subsidiaries' obligations under the Nevada Bonds. The debt under our Credit Facility is guaranteed by 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 Facility. 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 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 certain financial ratios and compliance with certain financial tests and limitations; (a) Tangible capital funds must be greater than the following amounts as of the end of the respective fiscal quarter: 69 3rd 1999 $92.0 million 4th 1999 $92.0 million 1st 2000 $92.0 million 2nd 2000 $103.5 million 3rd 2000 $103.5 million 4th 2000 $115.0 million 1st 2001 $115.0 million 2nd 2001 $128.5 million all thereafter $142.0 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 charged ratio of at least 1.0 at 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 (the "Nevada Issuer"), pursuant to which we have agreed to pay to the Nevada Issuer amounts sufficient to pay principal, interest and any premium on the Nevada Industrial Revenue Bonds (the "Nevada Bonds"). The Nevada 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 each April 1 until maturity, are collateralized by irrevocable letters of credit issued by NationsBank under our Credit Facility and mature in April 2007. 70 DESCRIPTION OF NOTES GENERAL 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 as the word "Holding" refers to BPC Holding Corporation and not to any of its subsidiaries. The Old Notes were, and the New Notes will be, issued pursuant to an Indenture (the "Indenture") between the Company and United States Trust Company of New York, as trustee (the "Trustee"), and the Old Notes were, and the New Notes will be, guaranteed, on a senior subordinated basis, by the Guarantors. The terms of the New Notes are identical in all material respects to the Old Notes, except that the New Notes have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer and will not contain certain provisions providing for an increase in the interest rate on the Old Notes under certain circumstances relating to the Registration Rights Agreement, which provisions will terminate upon the consummation of the Exchange Offer. 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 "Trust Indenture Act"). The Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the Trust Indenture Act for a complete statement thereof. The following summary of certain provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. A copy of the Indenture is available as set forth under "Available Information." The definitions of certain terms used in the following summary are set forth below under "-- Certain Definitions." The Notes rank PARI PASSU with the 1994 Notes and the 1999 Notes and PARI PASSU with or senior in right of payment to all existing and future subordinated Indebtedness of the Company. The Notes rank 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. Each Guarantor's Note Guarantee ranks PARI PASSU with or senior in right of payment to all existing and future subordinated Indebtedness of such Guarantor and ranks junior in right of payment to all existing and future Senior Indebtedness of such Guarantor, including such Guarantor's Guarantee of borrowings under the Credit Facility and the Nevada Bonds. The terms of the Notes are identical in all material respects to the terms of the 1994 Notes and the 1999 Notes, except that the 1994 Notes have a priority upon the payment of proceeds pursuant to an Asset Sale. Since the Notes will be issued pursuant to a separate indenture from the 1994 Notes, holders of the Notes will vote as a separate class from holders of the 1994 Notes and the 1999 Notes. PRINCIPAL, MATURITY AND INTEREST The Notes are unsecured obligations of the Company, limited in aggregate principal amount to $100.0 million, of which $25.0 million was issued in the Offering, and will mature on April 15, 2004. Interest on the Notes accrues at the rate of 12 1/4% per annum and will be payable semi-annually in arrears on October 15 and April 15, commencing on October 15, 1998, to Holders of record on the immediately preceding October 1 and April 1. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance. Additional Notes ("Additional Notes") may be issued from time to time after the Offering, subject to the provisions of the Indenture described below under the caption "--Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock." The Notes and any Additional Notes subsequently issued will be treated as a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months. Principal and interest and Liquidated Damages, if any, on the Notes is payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest and Liquidated Damages, if any, may be made by check mailed to the Holders of the Notes at their respective addresses set forth in the register of Holders of Notes. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes will be issued in denominations of $1,000 and integral multiples thereof. 71 OPTIONAL REDEMPTION The Notes are not redeemable at the Company's option prior to April 15, 1999. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, 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 April 15 of the years indicated below: YEAR PERCENTAGE ---- ---------- 1999................................... 106.125% 2000................................... 104.083% 2001................................... 102.042% 2002 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 (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase (the "Change of Control Payment"). 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 such notice is mailed (the "Change of Control Payment Date"); (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; (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. 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 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 72 following a Change of Control, the Company shall 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. As noted above, one of the events that constitutes a Change of Control under the Indenture is a sale, lease or transfer of all or substantially all of Holding's or the Company's assets. The Indenture is 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 with respect to Restricted Payments, to find alternative uses for the proceeds of such sale. Pursuant to the terms of the Indenture, however, the Company could be required to make an Asset Sale Offer in such 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 events similar to a Change of Control will constitute an event of default thereunder. Upon the occurrence of an event of default under the Credit Facility, all amounts outstanding thereunder may become due and payable. At July 3, 1999, on a pro forma basis giving effect to the acquisition of Cardinal and a $20.0 million concurrent increase in our Credit Facility, the Credit Facility provided for borrowings up to $142.9 million. 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." The provisions of the Indenture may not afford Holders of Notes the right to require the Company to 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, if such transaction is not a transaction defined as a "Change of Control." 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 Purchaser. 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. "CHANGE OF CONTROL" means the occurrence of any of the following: (i) 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 such term is used in Section 13(d)(3) of the Exchange Act) (other than the Principal and his Related Parties (as defined herein)), (ii) the adoption of a plan relating to the liquidation or dissolution of Holding or the Company, (iii) the acquisition by any person or group (as such term is used in Section 13(d)(3) of the Exchange Act) (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 73 to the Initial Public Offering, (iv) the acquisition by any person or group (as such term is used in Section 13(d)(3) of the Exchange Act) (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 the Initial Public Offering or (v) the first day on which a majority of the members of the Board of Directors of Holding are not Continuing Directors. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of Holding who (i) was a member of such Board of Directors on the Issuance Date or (ii) 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. "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. "PRINCIPAL" means Roberto Buaron. "RELATED PARTY" means with respect to the Principal (A) any spouse, sibling or descendant of such Principal (whether or not such relationship arises from birth, adoption or marriage or despite such relationship being dissolved by divorce) or (B) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding a controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (A). "STOCK EXCHANGE" means the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market. ASSET SALES The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, conduct an Asset Sale (as defined herein), unless (x) the Company (or the Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (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 $1 million) of the assets sold or otherwise disposed of and (y) at least 75% of the consideration therefor received by the Company or such Subsidiary is in the form of cash; PROVIDED, HOWEVER, that the amount of (A) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet or in the notes thereto), of the Company or any Subsidiary (other than liabilities that are by their terms subordinated to the Notes or any Guarantee thereof) that are assumed by the transferee of any such assets and (B) any notes or other obligations received by the Company or any such Subsidiary from such transferee that are immediately converted by the Company or such Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. Within 180 days after any Asset Sale, the Company may apply the Net Proceeds from such Asset Sale to either (a) permanently reduce Senior Indebtedness, or (b) make an investment in another business or capital expenditure or other long-term/tangible assets, in each case, in the same or a similar line of business as the Company was engaged in on the Issuance Date. 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 first sentence of this paragraph will be deemed to constitute "Excess Proceeds." If the aggregate amount of Excess Proceeds exceeds $5 million, upon completion of the Asset Sale Offer required under the 1994 Indenture, the Company shall make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes, that is an integral multiple of $1,000, that may be purchased out of the Excess Proceeds, if any, remaining upon completion of the Asset Sale Offer required under the 1994 Indenture, at an offer price in cash in an amount equal to 101% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes 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 surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased in the manner described under the caption "Selection and Notice" below. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset to zero. The Indenture will also provide that the Company will comply with the requirements of Rule 74 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 Notes in connection with an Asset Sale. "ASSET SALE" means (i) the sale, lease, conveyance or other disposition of any property or assets of the Company or any Subsidiary (including by way of a sale-and-leaseback) other than sales of inventory in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company shall be governed by the provisions of the Indenture described above under the caption "--Change of Control" and the provisions described below under the caption "-- Certain Covenants -- Merger, Consolidation or Sale of Assets"), or (ii) the issuance or sale of Equity Interests of any of its Subsidiaries, in the case of either clause (i) or (ii) above, whether in a single transaction or a series of related transactions, (a) that have a fair market value in excess of $250,000, or (b) for net proceeds in excess of $250,000. For purposes of this definition, the term "Asset Sale" shall not include (i) the transfer of assets by the Company to a Wholly Owned Subsidiary of the Company or by a Wholly Owned Subsidiary of the Company to the Company or to another Wholly Owned Subsidiary of the Company, (ii) any Restricted Payment, dividend or purchase or retirement of Equity Interests permitted under the covenant entitled "Restricted Payments" or (iii) the issuance or sale of Equity Interests of any Subsidiary of the Company, PROVIDED that such Equity Interests are issued or sold in consideration for the acquisition of assets by such Subsidiary or in connection with a merger or consolidation of another Person into such Subsidiary. 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 an 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, selection of Notes for purchase or redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, 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, PROVIDED that 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 redeemed at its registered address. If any Note is to be purchased or redeemed in part only, the notice of redemption that relates to such 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 any Note purchased or redeemed in part will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the purchase or redemption date, interest ceases to accrue on Notes or portions thereof purchased or called for redemption. SUBORDINATION The payment of principal of, and premium, if any, interest and Liquidated Damages, if any, on, the Notes will be subordinated in right of payment, as set forth in the Indenture, to the prior payment in full of all Senior Indebtedness of the Company, whether outstanding on the Issuance Date or thereafter incurred. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of Senior Indebtedness of the Company will be entitled to receive payment in full of all Obligations due in respect of 75 such Senior Indebtedness (including interest after the commencement of any such 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 and, until all such Obligations with respect to Senior Indebtedness of the Company are paid in full, any distribution to which the Holders of Notes would otherwise be entitled shall be made to the holders of Senior Indebtedness of the Company (except that Holders of Notes may receive securities that are subordinated, at least to the same extent as are the Notes, to Senior Indebtedness and to any securities issued in exchange for any such Senior Indebtedness). The Company also may not make any payment upon or in respect of the Notes (except in such subordinated securities) if (a) a default in the payment when due, whether upon acceleration or otherwise, of the principal of, premium, if any, or interest on any Senior Indebtedness of the Company occurs and is continuing or (b) any other default occurs and is continuing with respect to any Designated Senior Indebtedness and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or from, or on behalf of, the holders of any such Designated Senior Indebtedness. Payments on the Notes may and shall be resumed (i) in the case of a payment default, upon the date on which such default is cured or waived and (ii) 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. The Indenture further requires that the Company 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 the insolvency or liquidation 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. The Indenture provides that 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. The aggregate amount of Senior Indebtedness of the Company outstanding at July 3, 1999 would have been approximately $89.0 million. As of July 3, 1999, all Indebtedness of the Company other than the Senior Indebtedness was PARI PASSU in right of payment to the Notes, and there would have been no Indebtedness of the Company subordinated to the Notes. Subject to certain financial tests, the Indenture does not limit the amount of additional Indebtedness, including Senior Indebtedness, that the Company and its Subsidiaries can incur. See "-- Certain Covenants." NOTE GUARANTEES The Company's obligations under the Notes, including the Company's payment obligations, are unconditionally guaranteed, jointly and severally (each, a "Note Guarantee" and, together, the "Note Guarantees"), by the Guarantors. Rights of Holders of Notes pursuant to each such Note Guarantee are subordinated to the Senior Indebtedness of each of the Guarantors in the same manner as the rights of Holders of Notes are subordinated to those of the Senior Indebtedness of the Company. Accordingly, the Note Guarantee of each Guarantor is subordinated to the prior payment in full of all Senior Indebtedness of such Guarantor, which at July 3, 1999 was approximately $290.5 million of Senior Indebtedness, and the amounts for which such Guarantor will be liable under its Guarantees issued from time to time with respect to Senior Indebtedness. As of July 3, 1999, all indebtedness of the Guarantors other than the Senior Indebtedness was PARI PASSU in right of payment to the Note Guarantees, and there would have been no Indebtedness of the Guarantors subordinated to the Note Guarantees. The obligations of each Guarantor under its Note Guarantee is limited to the extent necessary to insure that it does not constitute a fraudulent conveyance under applicable law. The Indenture provides that no Guarantor shall consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person whether or not affiliated with such Guarantor unless (i) subject to the provisions of the following paragraph and certain other provisions of the Indenture, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form reasonably satisfactory to the Trustee, under its Note 76 Guarantee and the Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) in the case of any Guarantor other than Holding, such Guarantor, or any Person formed by or surviving any such consolidation or merger, (A) will have Consolidated Net Worth (immediately after giving effect to such transaction), equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction and (B) will be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio to incur, immediately after giving effect to such transaction, at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant entitled "Incurrence of Indebtedness and Issuance of Disqualified Stock." The Indenture provides that in the event of a sale or other disposition of all or substantially all of the assets of any Guarantor (other than Holding), by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the Capital Stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be released and relieved of any obligations under its Note Guarantee; PROVIDED that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture. See "-- Repurchase at the Option of Holders -- Asset Sales." CERTAIN COVENANTS RESTRICTED PAYMENTS The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the Company's or any of its 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 Subsidiary of the Company that is a Guarantor); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Subsidiary or other Affiliate of the Company (other than any such Equity Interests owned by the Company or any Wholly Owned Subsidiary of the Company that is a Guarantor); (iii) purchase, redeem or otherwise acquire or retire for value any Indebtedness (other than the 1994 Notes, the Notes and Indebtedness between or among the Company and its Subsidiaries or between or among such Subsidiaries) that is PARI PASSU with or subordinated to the Notes or any Note Guarantee; (iv) directly or indirectly make any loan or advance to, or make any payment to, Holding; or (v) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (v) above being collectively referred to as "Restricted Payments"), unless, at the time of such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (b) 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 entitled "Incurrence of Indebtedness and Issuance of Disqualified Stock;" and 77 (c) such Restricted Payment, (A) in the case of any Restricted Payment other than as defined by clause (i) above, together with the aggregate of all other Restricted Payments made by the Company and its Subsidiaries after April 21, 1994 (including Restricted Payments permitted by the next succeeding paragraph (other than such Restricted Payments permitted by clauses (iv), (v) and (vi) of the next succeeding paragraph)) or (B) in the case of any Restricted Payment defined by clause (i) above, together with the aggregate of all other Restricted Payments made by the Company and its Subsidiaries after April 21, 1994 (including Restricted Payments permitted by the next succeeding paragraph (other than Restricted Payments permitted by clauses (iv) and (v) of the next succeeding paragraph)) is less than the sum of (x) 50% of the sum 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 that began after April 21, 1994 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, 100% of such deficit), plus (y) 100% of the aggregate net cash proceeds received by the Company from the issue or sale since April 21, 1994 of Equity Interests of the Company or of debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Stock or debt securities that have been converted into Disqualified Stock). The foregoing provisions do not prohibit (i) 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; (ii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); (iii) the defeasance, redemption or repurchase of PARI PASSU or subordinated Indebtedness in a Permitted Refinancing; (iv) 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; (v) a Restricted Payment to Holding to pay its operating and administrative expenses including, without limitation, directors fees, legal and audit expenses, the Commission compliance expenses and corporate franchise and other taxes, not to exceed in any fiscal year $500,000; (vi) a Restricted Payment to Holding to pay management fees not to exceed $750,000 in any fiscal year of the Company; (vii) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of Holding pursuant to any management equity subscription agreement or stock option agreement in effect as of April 21, 1994; PROVIDED, HOWEVER, that (a) the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $1 million and (b) no Default or Event of Default shall have occurred and be continuing immediately after such transaction; and (viii) Investments by the Company in joint ventures or similar projects in a business similar to that conducted by the Company and its Subsidiaries on the Issuance Date in an aggregate amount not to exceed $1 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 Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable with respect to (collectively, "incur" and correlatively, an "incurrence" of) any Indebtedness (including Acquired Debt) and that 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 or issue shares of 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 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 the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. In addition, the Indenture provides that each of the following Indebtedness must be subordinated in right of payment to the Notes or the Note Guarantees, as the case may be, at least to the same extent as the Notes are subordinated to 78 Senior Indebtedness: (A) all Indebtedness that does not provide for all interest payments to be made in cash; (B) all Indebtedness of the Company to any of its Subsidiaries; and (C) any Indebtedness of the Company and its Subsidiaries if, at the time of incurrence thereof, Indebtedness of the Company and the Guarantors that is PARI PASSU in right of payment to the Notes and the Note Guarantees (including, on a pro forma basis, the Indebtedness to be incurred) exceeds $100 million other than the 1994 Notes and the Notes. The foregoing limitations do not apply to (a) revolving credit Indebtedness and letters of credit pursuant to the Credit Facility in an aggregate principal amount not to exceed at any one time outstanding the greater of (i) $60 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 repayments after April 21, 1994 that permanently reduce the commitment under the Credit Facility, and (ii) the Borrowing Base; (b) the Existing Indebtedness; (c) the Notes (other than any Additional Notes) or any Note Guarantee; (d) the incurrence by the Company or any of its Subsidiaries of Refinancing Indebtedness; PROVIDED, HOWEVER, that such Refinancing Indebtedness is a Permitted Refinancing; (e) Indebtedness between or among the Company and any of its Wholly Owned Subsidiaries that are Guarantors; (f) Indebtedness from the Company to Holding PROVIDED that the advances evidenced by such Indebtedness are permitted under the covenant entitled "Restricted Payments;" (g) 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 (h) the incurrence by the Company or its Subsidiaries of Indebtedness (in addition to Indebtedness permitted by any other clause of this paragraph) in an aggregate principal amount at any time outstanding not to exceed the sum of $1 million at any one time. Notwithstanding anything to the contrary, the Indenture provides that the Company and its Subsidiaries will not be permitted to incur any additional Senior Indebtedness unless it is secured. LIENS The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly (i) create, incur, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by the Company or any Subsidiary, or any income or profits therefrom or (ii) assign or convey any right to receive income therefrom, in any such case to secure any Indebtedness (other than Senior Indebtedness of the Company or Senior Indebtedness of a Guarantor permitted to be incurred pursuant to the Indenture) unless contemporaneously therewith or prior thereto, effective provision is made (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) whereby the Notes or a Note Guarantee are secured equally and ratably with such other Indebtedness (or if such other Indebtedness is subordinated to the Notes or a Note Guarantee, the Notes or a Note Guarantee, as the case may be, are secured on a basis with the same relative priority to such other Indebtedness). DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (a)(i) pay dividends or make any other distributions to the Company or any of its Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits, or (ii) pay any indebtedness owed to the Company or any of its Subsidiaries, (b) make loans or advances to the Company or any of its Subsidiaries or (c) transfer any of its properties or assets to the Company or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reasons of (i) Existing Indebtedness as in effect on the Issuance Date, (ii) the Credit Facility as in effect on the Issuance Date, 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 the Credit Facility as in effect on the Issuance Date, (iii) the 1994 Indenture and the 1994 Notes, (iv) the Indenture and the Notes, (v) applicable law, (vi) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its 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 79 permitted by the terms of the Indenture, (vii) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (viii) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (c) above on the property so acquired, or (ix) permitted Refinancing Indebtedness, 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 Indenture provides that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person unless (i) the Company is the surviving 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; (ii) 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 a supplemental indenture in a form reasonably satisfactory to the Trustee, under the Notes and the Indenture; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) 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 (A) will have Consolidated Net Worth (immediately after the transaction) equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) 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 covenant entitled "Incurrence of Indebtedness and Issuance of Disqualified Stock." TRANSACTIONS WITH AFFILIATES The Indenture provides that the Company will not, and will not permit any of its 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 of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with a Person who was not an Affiliate and (b) the Company delivers to the Trustee (i) with respect to any Affiliate Transaction involving aggregate payments in excess of $2 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (a) above and that such Affiliate Transaction is approved by a majority of the Board of Directors and (ii) with respect to any Affiliate Transaction involving aggregate payments in excess of $5 million, an opinion as to the fairness to the Company or such Subsidiary from a financial point of view issued by an investment banking firm of national standing; PROVIDED, HOWEVER, that (i) any employment agreement entered into by the Company or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (ii) transactions between or among the Company and/or its Subsidiaries, (iii) Restricted Payments permitted by the provisions of the Indenture described above under the covenant "Restricted Payments" and (iv) the advisory fee being paid to First Atlantic in connection with the Offering, in each case, shall not be deemed Affiliate Transactions. NO SENIOR SUBORDINATED INDEBTEDNESS The Indenture provides that (i) 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 and senior in any respect in right of payment to the Notes, and (ii) 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 GUARANTEES 80 The Indenture provides that (i) if the Company or any of its Subsidiaries shall transfer or cause 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 pursuant to the provisions of the covenant entitled "Restricted Payments"), any assets, businesses, divisions, real property or equipment having a book value in excess of $1 million to any Subsidiary that is not a Guarantor or (ii) if the Company or any of its Subsidiaries shall acquire another Subsidiary having (a) total assets with a book value in excess of $1 million or (b) Consolidated Cash Flow in excess of $1 million, then such transferee or acquired Subsidiary 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. 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 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 thereon 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 (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. EVENTS OF DEFAULT AND REMEDIES The Indenture provides that each of the following constitutes an Event of Default: (i) 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); (ii) 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); (iii) failure by the Company to comply with the provisions described under the covenants "Repurchase at the Option of Holders -- Change of Control," "Repurchase at the Option of Holders -- Asset Sales," "Certain Covenants -- Restricted Payments" or "Certain Covenants - -- Incurrence of Indebtedness and Issuance of Disqualified Stock"; (iv) failure by the Company or the Guarantors for 60 days after notice to comply with any of its other agreements in the Indenture or the Notes; (v) 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 Issuance Date, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness (a "Payment Default") 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 million or more; (vi) failure by the Company, Holding or any of their respective Subsidiaries to pay final judgments aggregating in excess of $2 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) 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 (viii) certain events of bankruptcy or insolvency with respect to the Company, Holding or any of their respective Subsidiaries. If any 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 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 (1) the day which is five business days after notice of acceleration is given to the Company and the lender under the Credit Facility or (2) the date of acceleration of the Indebtedness under the Credit Facility. Notwithstanding the foregoing, 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 without further action or notice. Under certain circumstances, the Holders of at least a majority in aggregate principal amount of the outstanding 81 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) if it determines that withholding notice is in their interest. In the case of any Event of Default occurring on or after April 15, 1999 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 April 15, 1999 by reason of any willful action (or inaction) 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 April 15, 1999, 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 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 on, or the principal of, any Note held by a non-consenting Holder. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, 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 Note Guarantees, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note 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. Such waiver may not be effective to waive liabilities under the Federal securities laws and it is the view of the Commission that such a waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its and the Guarantors' obligations discharged with respect to the outstanding Notes and the Note Guarantees ("Legal Defeasance") except for (i) 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, (ii) 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, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's and the Guarantors' obligations in connection therewith and (iv) 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 ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, 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, (i) 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, 82 if any, on the outstanding Notes; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the IRS a ruling or (b) since the Issuance Date, 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; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States 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; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or an 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 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; (v) such Legal Defeasance or Covenant Defeasance shall 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; (vi) the Company shall have delivered to the Trustee an opinion of counsel to the effect that after the day on which all applicable preference periods 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; (vii) 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 (viii) the Company shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. 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. 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): (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver, (ii) 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, (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) 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), (v) make any Note payable in money other than that stated in the Notes, (vi) 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, (vii) waive a redemption payment with respect to any Note, (viii) make any change to the subordination provisions of the Indenture that adversely affects Holders, (ix) except pursuant to the terms of the Indenture, release 83 any Guarantor from its obligations under its Note Guarantee, or change any Note Guarantee in any manner that would adversely affect Holders, or (x) make any change in the foregoing amendment and waiver provisions. Notwithstanding the foregoing, without the consent of any Holder of Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or any Guarantors' obligations to Holders of the Notes in the case of a merger or consolidation, 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 covenant entitled "Additional Guarantees") or that does not adversely affect the legal rights under the Indenture of any such Holder, to provide for the issuance of Additional Notes in accordance with the provisions set forth in the Indenture or 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 The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, the Guarantors or any Affiliate of the Company or the Guarantors, 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 (which shall not be cured), 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. BOOK-ENTRY; DELIVERY, FORM AND TRANSFER The Old Notes were offered and sold to qualified institutional buyers in reliance on Rule 144A ("Rule 144A Notes"). Except as set forth below, Notes will be issued in registered, global form in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. The Rule 144A Notes were, and the New Notes will be, represented by one or more Notes in registered, global form without interest coupons (collectively, the "Rule 144A Global Notes" or the "Global Notes"). The Global Notes will be deposited upon issuance with the Trustee as custodian for The Depository Trust Company, in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below. Except as set forth below, the Global Notes may be transferred, in whole and not in part, only 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 certificated form except in the limited circumstances described below. See "-- Exchange of Book-Entry Notes for Certificated Notes." Except in the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to receive physical delivery of Certificated Notes (as defined herein). Rule 144A Notes (including beneficial interests in the Rule 144A Global Notes) are subject to certain restrictions on transfer and bear a restrictive legend. In addition, transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants, which may change from time to time. Initially, the Trustee will act as Paying Agent and Registrar. The Notes may be presented for registration of transfer and exchange at the offices of the Registrar. DEPOSITORY PROCEDURES 84 The following description of the operations and procedures of DTC is provided solely as a matter of convenience. These operations and procedures are solely within the control of the settlement system and are subject to changes by it from time to time. 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 (collectively, the "Participants") 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 (including the Initial Purchaser), 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 (collectively, the "Indirect Participants"). 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, (i) upon deposit of the Global Notes, DTC will credit the accounts of Participants with portions of the principal amount of the Global Notes and (ii) ownership of such 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 interests in the Global Notes). Investors in the Rule 144A Global Notes may hold their interests therein directly through DTC, if they are Participants in such system, or indirectly through organizations which are Participants in such system. All interests in a Global Note may be subject to the procedures and requirements of DTC. 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 and certain banks, the ability of a person having beneficial interests in a Global Note to pledge such interests to persons or entities 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. 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 premium, if any, Liquidated Damages, if any, and interest 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 such payments and for any and all other purposes whatsoever. Consequently, neither the Company, the Trustee nor any agent of the Company or the Trustee has or will have any responsibility or liability for (i) 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 (ii) 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, in amounts proportionate to their respective holdings in the principal amount of beneficial interest in the relevant security as shown on the records of DTC unless DTC has reason to believe it will not receive payment on such payment date. 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. 85 Interests in the Global Notes are expected to be eligible to trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such interests will, therefore, settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its Participants. See "-- Same Day Settlement and Payment." Transfers between Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same day funds. 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. Neither the Company nor the Trustee nor any of their respective agents will have any responsibility for the performance by DTC, or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES A Global Note is exchangeable for definitive Notes in registered certificated form ("Certificated Notes") if (i) DTC (x) notifies the Company that it is unwilling or unable to continue as depositary for the Global Notes and the Company thereupon fails to appoint a successor depositary or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Certificated Notes or (iii) 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 request but only 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 therein 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) and will bear an applicable restrictive legend, if any, unless the Company determines otherwise in compliance with applicable law. EXCHANGE OF CERTIFICATED NOTES FOR BOOK-ENTRY NOTES Notes issued in certificated form may not be exchanged for beneficial interests in any Global Note unless the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that such transfer will comply with the appropriate transfer restrictions, if any, applicable to such Notes. SAME DAY SETTLEMENT AND PAYMENT The Indenture requires that payments in respect of the Notes represented by the Global Notes (including principal, premium, if any, interest and Liquidated Damages, if any) be made by wire transfer of immediately available funds to the accounts specified by the Global Note holder. With respect to Notes in certificated form, the Company will make all payments of principal, premium, if any, interest and Liquidated Damages, if any, by wire transfer of immediately available funds to the accounts specified by the Holders thereof or, if no such account is specified, by mailing a check to each such Holder's registered address. The Company expects that secondary trading in any certificated Notes will also be settled in immediately available funds. 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: (i) Indebtedness of any other Person existing at the time such other Person merged with or into or became a Subsidiary of such specified Person, including Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or 86 becoming a Subsidiary of such specified Person and (ii) 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" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), 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 Person shall be deemed to be control. Neither Chase Bank, The CIT Group/Equity Investments, Inc., nor their respective Affiliates will be deemed an Affiliate of the Company or any of its Subsidiaries for purposes of this definition by reason of its direct or indirect beneficial ownership of 15% or less of the Common Stock of Holding or by reason of any employee thereof being appointed to the Board of Directors of Holding. "BORROWING BASE" means, as of any date, an amount equal to the sum of (a) 85% of the face amount of all accounts receivable owned by the Company and its Subsidiaries as of such date that are not more than 90 days past due, and (b) 65% of the book value (calculated on a FIFO 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 such 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 (i) United States dollars, (ii) 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, (iii) 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 million, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition. "CONSOLIDATED CASH FLOW" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (a) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing Consolidated Net Income), plus (b) provision for taxes based on income or profits of such Person for such period, to the extent such provision for taxes was included in computing Consolidated Net Income, plus (c) Consolidated Interest Expense of such Person for such period to the extent such expense was deducted in computing Consolidated Net Income, plus (d) Consolidated Depreciation and Amortization Expense of such Person for such period to the extent such expense was deducted in computing Consolidated Net Income, plus (e) 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. 87 "CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any period, the sum of (a) consolidated interest expense of such Person and its 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), (b) commissions, discounts and other fees and charges paid or accrued with respect to letters of credit and bankers' acceptance financing, and (c) interest actually paid by such Person or its Subsidiaries under a Guarantee of Indebtedness of any other Person. "CONSOLIDATED NET INCOME" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; PROVIDED, that (i) the Net Income of any Person that is not a 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 referent Person or a Wholly Owned Subsidiary thereof that is a Guarantor, (ii) the Net Income of any Person that is a Subsidiary (other than a Wholly Owned Subsidiary) shall be included only to the extent of the amount of dividends or distributions paid to the referent Person or a Wholly Owned Subsidiary thereof that is a Guarantor, (iii) 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 and (iv) the cumulative effect of a change in accounting principles shall be excluded. "CONSOLIDATED NET WORTH" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of Preferred Stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such Preferred Stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 16 months after the acquisition of such business) subsequent to April 21, 1994 in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "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. "CREDIT FACILITY" means the Second Amended and Restated Financing and Security Agreement dated as of July 2, 1998, by the Company and NationsBank, N.A., 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 (i) the Senior Bank Indebtedness and (ii) any other Senior Indebtedness (a) permitted to be incurred under the Indenture the principal amount of which is $15 million or more and (b) 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 July 15, 2004. "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 under the Credit Facility) in existence on the Issuance Date, until such amounts are repaid. 88 "FIXED CHARGES" means, with respect to any Person for any period, the sum of (a) Consolidated Interest Expense of such Person for such period, whether paid or accrued, to the extent such expense was deducted in computing Consolidated Net Income and (b) the product of (i) all cash dividend payments (and non-cash dividend payments in the form of securities (other than Disqualified Stock) of an issuer) on any series of Preferred Stock of such Person, times (ii) 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, 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 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 Company or any of its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues 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 (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption of Preferred Stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. For purposes of making the computation referred to above, acquisitions, dispositions and discontinued operations (as determined in accordance with GAAP) that have been made by the Company or any of its Subsidiaries, including all mergers and consolidations, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be calculated on a pro forma basis assuming that all such acquisitions, dispositions, discontinued operations, mergers and consolidations (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 Issuance Date. "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, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "GUARANTORS" means each of (i) Holding, Berry Iowa, Berry Tri-Plas, Berry Sterling, AeroCon, PackerWare, Berry Design, Venture Holdings, Venture Midwest, Venture Southeast, NIM Holdings, Norwich, Knight Plastics, Cardinal, CPI Holding, Norwich Acquisition and Berry Acquisition and (ii) any other Person 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 Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "INDEBTEDNESS" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and also includes, to the extent not otherwise included, the Guarantee of any Indebtedness of such Person or any other Person. "INVESTMENTS" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees), advances or capital contributions (excluding 89 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. "ISSUANCE DATE" means the closing date for the sale and original issuance of the Notes. "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 Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding, however, 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 excluding 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 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 (after taking into account any available tax credits or deductions and any tax sharing arrangements), 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 or adjustment in respect of the sale price of such asset or assets. "OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "PERMITTED INVESTMENTS" means (a) any Investments in the Company or in a Wholly Owned Subsidiary of the Company and that is engaged in the same or a similar line of business as the Company and its Subsidiaries were engaged in on the Issuance Date and (b) any Investments in Cash Equivalents. "PERMITTED REFINANCING" means Refinancing Indebtedness if (a) the principal amount of Refinancing Indebtedness does not exceed the principal amount of Indebtedness so extended, re-financed, renewed, replaced, defeased or refunded (plus the amount of premiums, accrued interest and reasonable expenses incurred in connection therewith); (b) the Refinancing Indebtedness 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; and (c) the Refinancing Indebtedness 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. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "PREFERRED STOCK" means any Equity Interest with preferential right in the payment of dividends or liquidation or any Disqualified Stock. "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 clauses (a) and (b) of the covenant entitled "Incurrence of Indebtedness and Issuance of Disqualified Stock." "RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment. 90 "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 (i) the Senior Bank Indebtedness and (ii) 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. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness shall not include (w) any liability for Federal, state, local or other taxes owed or owing by the Company or a Guarantor, as the case may be, (x) 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, (y) any trade payables or (z) any Indebtedness that is incurred in violation of the Indenture. "SUBSIDIARY" means, with respect to any Person, 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. "TAX SHARING AGREEMENT" means that certain Tax Sharing Agreement, as in effect on the closing date of the Offering, between the Company and Holding. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (x) 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 (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the due date of such payment, by (b) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED SUBSIDIARY" of any Person means a 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 Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person. 91 MATERIAL FEDERAL INCOME TAX CONSIDERATIONS The following is a summary prepared by O'Sullivan Graev & Karabell, LLP, special counsel to the Company ("Special Counsel"), of certain 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. The following constitutes the opinion of Special Counsel, and based upon the assumptions and subject to the qualifications and limitations set forth herein, this summary fairly presents the material Federal income tax considerations relevant to the exchange of Old Notes for New Notes pursuant to the Exchange Offer and to the ownership of the Notes. 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. This summary deals only with holders that will hold Notes as "capital assets" (within the meaning of Section 1221 of the Code) and that are (i) citizens or residents of the United States, (ii) corporations, partnerships and other business entities created or organized under the laws of the United States, (iii) estates the income of which is subject to United States Federal income taxation regardless of its source and (iv) 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. 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, initial purchasers of the Notes who purchase the Notes at a premium 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 (the "IRS") 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 CERTAIN 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. EXCHANGE OF OLD NOTES FOR NEW NOTES The exchange of Old Notes for New Notes pursuant to the Exchange Offer should not be considered a taxable exchange for Federal income tax purposes because the New Notes should not constitute a material modification of the terms of the Old Notes. Accordingly, such exchange should have no Federal income tax consequences to holders of Old Notes, and a holder's basis and holding period in a New Note will be the same as such holder's adjusted tax basis in the Old 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 the Company's 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) 92 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 a premium. 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 the Company 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, the Company 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 the Company will be deemed to exercise its option to redeem the Notes in a manner that minimizes the yield on the Notes. The Company may redeem the Notes in certain circumstances, pursuant to the terms of the Notes. See "Description of the Notes -- Optional Redemption." The Company believes that, although its option to redeem could be deemed exercised for the purposes of the OID regulations at certain dates, any such deemed exercise would not result in OID because the original cost of the Notes would exceed any such deemed redemption price. Therefore, there is no OID. 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 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 (i) 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 (ii) 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. 93 LIQUIDATED DAMAGES The Company 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 (i) fails to furnish or certify its correct taxpayer identification number to the payer in the manner required, (ii) is notified by the IRS that it has failed to report payments of interest and dividends properly or (iii) 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. 94 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 New Notes issued pursuant to the Exchange Offer in exchange for Old 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 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 such New Notes are acquired in the ordinary course of such holder's business, such holder has no arrangement with any person to participate in the distribution of such New Notes and neither such holder nor any such other person is engaging in or intends to engage in a distribution of such New Notes. Accordingly, any holder who is an affiliate of Berry or any holder using the Exchange Offer to participate in a distribution of the New 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 New 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 New 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 New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities (other than Old Notes acquired directly from Berry). Berry 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 January, 2000 (90 days from the date of this Prospectus), all dealers effecting transactions in the New Notes may be required to deliver a prospectus. Berry will not receive any proceeds from any sale of New Notes by broker-dealers. New Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be 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 New Notes. Any broker-dealer that resells New 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 New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New 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 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 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 and the Guarantors have agreed to indemnify the Initial Purchaser 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 DLJ in connection with offers and sales related to market-making transactions in the Notes. DLJ 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 will not receive any of the proceeds of such sales. DLJ has no obligation to make a market in the Notes and may discontinue its market-making activities at any time without notice, at its sole discretion. The Company has agreed to indemnify DLJ against certain liabilities, including liabilities under the Securities Act, and to contribute to payments which DLJ might be required to make in respect thereof. LEGAL MATTERS The validity of the Notes offered hereby will be passed upon for the Company by O'Sullivan Graev & Karabell, LLP, New York, New York. Lawrence G. Graev, a director of the Company, is the Chairman of O'Sullivan Graev & Karabell, LLP. See "Certain Transactions -- Legal Services." 95 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 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, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. 96 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 Condensed Consolidated Balance Sheets at July 3, 1999 and January 2, 1999........................................... F-22 Condensed Consolidated Statements of Operations for the Thirteen and Twenty-Six Weeks ended July 3, 1999 and June 27, 1998..............................F-24 Condensed Consolidated Statements of Cash Flows for the Twenty-Six Weeks ended July 3, 1999 and June 27, 1998....... F-25 Notes to Condensed Consolidated Financial Statements................................................................ F-26 CPI HOLDING, INC. AUDITED FINANCIAL STATEMENTS Report of Independent Auditors...................................................................................... F-30 Consolidated Balance Sheets at November 30, 1998 and 1997........................................................... F-31 Consolidated Statements of Income for the three years in the period ended November 30, 1998......................... F-33 Consolidated Statements of Mandatorily Redeemable Preferred Stock and Shareholders' Equity for the three years in the period ended November 30, 1998....................................................................... F-34 Consolidated Statements of Cash Flows for the three years in the period ended November 30, 1998..................... F-37 Notes to Consolidated Financial Statements ......................................................................... F-38 CPI HOLDING, INC. UNAUDITED INTERIM FINANCIAL STATEMENTS Condensed Consolidated Balance Sheet at May 31, 1999................................................................ F-46 Condensed Consolidated Statements of Operations for the 26 weeks ended May 31, 1999 and 1998........................ F-48 Condensed Consolidated Statements of Cash Flows for the 26 weeks ended May 31, 1999 and 1998........................ F-49 Notes to Condensed Consolidated Financial Statements................................................................ F-50 KNIGHT ENGINEERING AND PLASTICS DIVISION OF COURTAULDS PACKAGING, INC. AUDITED FINANCIAL STATEMENTS Report of Independent Auditors...................................................................................... F-52 Balance Sheet at March 31, 1998..................................................................................... F-53 Statement of Operations for the year ended March 31, 1998........................................................... F-54 Statement of Cash Flows for the year ended March 31, 1998........................................................... F-55 Notes to Financial Statements ...................................................................................... F-56 KNIGHT ENGINEERING AND PLASTICS DIVISION OF COURTAULDS PACKAGING, INC. UNAUDITED INTERIM FINANCIAL STATEMENTS Condensed Balance Sheet at September 30, 1998....................................................................... F-58 Condensed Statements of Operations for the six months ended September 30, 1998 and 1997............................. F-59 Condensed Statements of Cash Flows for the six months ended September 30, 1998 and 1997............................. F-60 Notes to Condensed Financial Statements............................................................................. F-61 NORWICH INJECTION MOULDERS LIMITED AUDITED FINANCIAL STATEMENTS Report of Independent Auditors...................................................................................... F-62 Profit and Loss Account for the three years in the period ended October 31, 1997.................................... F-65 Balance Sheet at October 31, 1997, 1996, and 1995................................................................... F-66 Cash Flow Statement for the three years in the period ended October 31, 1997........................................ F-67
F-1 Notes to the Accounts............................................................................................... F-68 NORWICH INJECTION MOULDERS LIMITED UNAUDITED INTERIM FINANCIAL STATEMENTS Profit and Loss Accounts for the 6 months ended April 30, 1998 and 1997............................................. F-81 Balance Sheet at April 30, 1998..................................................................................... F-82 Cash Flow Statements for the 6 months ended April 30, 1998 and 1997................................................. F-83 Notes to the Accounts............................................................................................... F-84
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 CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS) JULY 3, JANUARY 2, 1999 1999 ---------- ---------- (Unaudited) ASSETS Current assets: Cash and cash equivalents .......................... $ 2,993 $ 2,318 Accounts receivable (less allowance for doubtful accounts of $1,507 at July 3, 1999 and $1,651 at January 2, 1999) .............................. 40,842 29,951 Inventories: Finished goods ................................... 23,967 23,146 Raw materials and supplies ....................... 8,347 8,556 -------- ---------- 32,314 31,702 Prepaid expenses and other receivables ............. 2,575 1,665 Income taxes recoverable ........................... 83 577 -------- ---------- Total current assets .................................. 78,807 66,213 Assets held in trust .................................. 252 6,679 Property and equipment: Land ............................................... 7,762 7,769 Buildings and improvements ......................... 39,047 38,960 Machinery, equipment and tooling ................... 140,801 141,054 Automobiles and trucks ............................. 1,405 1,386 Construction in progress ........................... 21,766 11,780 -------- ---------- 210,781 200,949 Less accumulated depreciation ...................... 90,510 80,944 -------- ---------- 120,271 120,005 Intangible assets: Deferred financing and origination fees, net ....... 9,765 10,327 Covenants not to compete, net ...................... 4,068 4,404 Excess of cost over net assets acquired, net ....... 41,971 44,536 Deferred acquisition costs ......................... 146 20 -------- ---------- 55,950 59,287 Deferred income taxes ................................. 2,758 2,758 Other ................................................. 371 375 -------- ---------- Total assets .......................................... $258,409 $ 255,317 ======== ========== F-22 CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
JULY 3, JANUARY 2, 1999 1999 --------- ---------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable ....................................... $ 20,664 $ 18,059 Accrued expenses and other liabilities ................. 8,590 9,944 Accrued interest ....................................... 3,795 4,166 Employee compensation and payroll taxes ................ 12,156 8,953 Income taxes ........................................... 1,534 941 Current portion of long-term debt ...................... 20,297 19,388 --------- ---------- Total current liabilities ................................. 67,036 61,451 Long-term debt, less current portion ...................... 300,187 303,910 Accrued dividends on preferred stock ...................... 9,188 7,225 Deferred income taxes ..................................... 472 497 Other liabilities ......................................... 2,193 2,591 --------- ---------- 379,076 375,674 Stockholders' equity (deficit): Series A Preferred Stock; 800,000 shares authorized; 600,000 shares issued and outstanding (net of discount of $2,624 at July 3, 1999 and $2,770 at January 2, 1999) ................................... 11,947 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 56,842 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; 1,770 shares Class B Nonvoting Common Stock; and 167 shares Class C Nonvoting Common Stock .............................................. (296) (280) Additional paid-in capital ............................ 43,502 45,611 Warrants .............................................. 3,511 3,511 Retained earnings (deficit) ........................... (183,801) (185,923) Accumulated other comprehensive loss .................. (536) (83) --------- ---------- Total stockholders' equity (deficit) ...................... (120,667) (120,357) --------- ---------- Total liabilities and stockholders' equity (deficit) ...... $ 258,409 $ 255,317 ========= ==========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. F-23 BPC HOLDING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS OF DOLLARS)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED -------------------- ---------------------- JULY 3, JUNE 27, JULY 3, JUNE 27, 1999 1998 1999 1998 -------- -------- --------- --------- (Unaudited) Net sales ......................... $ 82,392 $ 69,586 $ 159,852 $ 136,317 Cost of goods sold ................ 58,259 50,768 112,782 100,016 -------- -------- --------- --------- Gross margin ...................... 24,133 18,818 47,070 36,301 Operating expenses: Selling ....................... 4,323 3,487 8,553 7,112 General and administrative .... 5,845 4,400 11,883 8,799 Research and development ...... 633 347 1,175 743 Amortization of intangibles ... 1,275 828 2,550 1,708 Other ......................... 711 1,230 1,667 2,363 -------- -------- --------- --------- Operating income .................. 11,346 8,526 21,242 15,576 Other income and expense: Loss on disposal of property and equipment ............... 169 297 778 430 -------- -------- --------- --------- Income before interest and income taxes .......................... 11,177 8,229 20,464 15,146 Interest: Expense ....................... (8,736) (8,776) (18,022) (17,441) Income ........................ 62 337 162 575 -------- -------- --------- --------- Income (loss) before income taxes . 2,503 (210) 2,604 (1,720) Income tax expense ................ 289 13 482 26 -------- -------- --------- --------- Net income (loss) ................. 2,214 (223) 2,122 (1,746) Preferred stock dividends ......... (998) (869) (1,962) (1,783) Amortization of preferred stock discount ........................ (73) (73) (146) (146) -------- -------- --------- --------- Net income (loss) attributable to Common Stockholders ............... $ 1,143 $ (1,165) $ 14 $ (3,675) ======== ======== ========= =========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. F-24 BPC HOLDING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS) TWENTY-SIX WEEKS ENDED ---------------------- JULY 3, JUNE 27, 1999 1998 --------- --------- (Unaudited) OPERATING ACTIVITIES Net income (loss) .................................... $ 2,122 $ (1,746) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation ................................... 11,560 10,075 Non-cash interest expense ...................... 872 884 Amortization ................................... 2,550 1,708 Interest funded by assets held in trust ........ 6,427 6,393 Loss on sale of property and equipment ......... 778 430 Changes in operating assets and liabilities: Accounts receivable, net .................... (11,058) (5,565) Inventories ................................. (636) 1,950 Prepaid expenses and other receivables ...... (910) 534 Other assets ................................ (126) (169) Payables and accrued expenses ............... 4,557 (114) --------- --------- Net cash provided by operating activities ............ 16,136 14,380 INVESTING ACTIVITIES Additions to property and equipment .................. (13,461) (7,854) Proceeds from disposal of property and equipment ..... 408 95 --------- --------- Net cash used for investing activities ............... (13,053) (7,759) FINANCING ACTIVITIES Proceeds from long-term borrowings ................... 7,672 -- Payments on long-term borrowings ..................... (10,058) (6,524) Payment of refinancing fees .......................... -- (46) Purchase of stock from management .................... (16) (59) --------- --------- Net cash used for financing activities ............... (2,402) (6,629) Effect of exchange rate changes on cash .............. (6) -- --------- --------- Net increase (decrease) in cash and cash equivalents .......................................... 675 (8) Cash and cash equivalents at beginning of period ..... 2,318 2,688 --------- --------- Cash and cash equivalents at end of period ........... $ 2,993 $ 2,680 ========= ========= SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. F-25 BPC HOLDING CORPORATION AND SUBSIDIARIES 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 BPC Holding Corporation and its subsidiaries (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"), and Knight Plastics, Inc. 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 on 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 facility (see Note 3). 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 pro forma results listed below are unaudited and reflect purchase accounting adjustments assuming the Norwich Moulders and Knight acquisitions occurred on December 28, 1997. THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED JUNE 27, 1998 JUNE 27, 1998 -------------------- ---------------------- Net sales ................. $ 78,976 $ 155,012 Loss before income taxes .. (646) (2,956) Net loss .................. (717) (3,098) 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. F-26 3. LONG-TERM DEBT Long-term debt consists of the following: JULY 3, JANUARY 2, 1999 1999 -------- ------------ Holding 12.50% Senior Secured Notes ............... $105,000 $ 105,000 Berry 12.25% Senior Subordinated Notes ............ 125,000 125,000 Term loans ........................................ 61,151 71,243 Revolving line of credit .......................... 23,835 16,162 Nevada Industrial Revenue Bonds ................... 4,000 4,500 Capital leases .................................... 740 561 Debt premium, net ................................. 758 832 -------- ------------ 320,484 323,298 Less current portion of long-term debt ............ 20,297 19,388 -------- ------------ $300,187 $ 303,910 ======== ============ The current portion of long-term debt consists of $19.6 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. The debt under our credit facility is guaranteed by BPC Holding and substantially all of our subsidiaries. As of July 3, 1999, the credit facility provided an aggregate commitment of about $119.7 million including (i) $50.0 million revolving line of credit (which was increased by $20.0 million concurrently with the Cardinal acquisition - See Note 7), subject to a borrowing base formula; (ii) (pound)1.5 million revolving line of credit, subject to a borrowing base ("UK Revolver"); (iii) $56.0 million term loan facility; (iv) (pound)3.6 million term loan facility ("UK Term Loan"); and (v) $5.6 million standby letter of credit facility to support our and our subsidiaries' obligations under our Nevada Industrial Revenue Bonds. At July 3, 1999, we had unused borrowing capacity under our credit facility's revolving line of credit of about $28.9 million. 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 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 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 (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. 4. BERRY PLASTICS CORPORATION SUMMARY FINANCIAL INFORMATION The following summarizes financial information of Holding's wholly-owned subsidiary, Berry Plastics Corporation, and its subsidiaries. F-27 JULY 3, JANUARY 2, 1999 1999 --------- ---------- CONSOLIDATED BALANCE SHEETS Current assets ...................................... $ 78,436 $ 65,590 Property and equipment - net of accumulated depreciation ...................................... 120,271 120,005 Other noncurrent assets ............................. 55,624 58,716 Current liabilities ................................. 65,839 60,210 Noncurrent liabilities .............................. 205,948 210,093 Equity (deficit) .................................... (17,456) (25,992)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED ----------------------- ----------------------- JULY 3, JUNE 27, JULY 3, JUNE 27, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- CONSOLIDATED STATEMENT OF OPERATIONS Net sales ............................ $ 82,392 $ 69,586 $ 159,851 $ 136,317 Cost of goods sold ................... 58,259 50,768 112,782 100,016 Income before income taxes ........... 5,946 2,888 9,465 4,571 Net income ........................... 5,655 2,875 8,989 4,546
The following summarizes parent company only financial information of Berry: JULY 3, JANUARY 2, 1999 1999 --------- ---------- CONSOLIDATED BALANCE SHEETS Current assets ...................................... $ 40,328 $ 28,579 Property and equipment - net of accumulated depreciation ........................................ 48,937 48,220 Investment in/due from subsidiaries ................. 122,100 120,230 Other noncurrent assets ............................. 14,947 15,629 Current liabilities ................................. 44,970 41,325 Noncurrent liabilities .............................. 198,798 197,325 Equity (deficit) .................................... (17,456) (25,992)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED -------------------- ---------------------- JULY 3, JUNE 27, JULY 3, JUNE 27, 1999 1998 1999 1998 --------- --------- --------- --------- CONSOLIDATED STATEMENT OF OPERATIONS Net sales .............................. $ 40,675 $ 37,263 $ 76,207 $ 72,408 Cost of goods sold ..................... 26,187 24,375 48,642 47,554 Income before income taxes ............. 5,946 2,888 9,465 4,571 Net income ............................. 5,655 2,875 8,989 4,546
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 plastic 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 F-28 "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 TWENTY-SIX WEEKS ENDED ------------------------ ------------------------ JULY 3, JUNE 27, JULY 3, JUNE 27, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net sales: Plastic packaging products ............. $ 75,279 $ 62,259 $ 140,443 $ 120,897 Plastic housewares products ............ 7,113 7,327 19,409 15,420 Adjusted EBITDA: Plastic packaging products ............. 18,349 14,572 33,912 27,172 Plastic housewares products ............ 982 1,317 3,741 2,896 Reconciliation of Adjusted EBITDA to income (loss) before income taxes: Adjusted EBITDA for reportable segments ............................. $ 19,331 $ 15,889 $ 37,653 $ 30,068 Net interest expense ................... (8,674) (8,439) (17,860) (16,866) Depreciation ........................... (5,687) (5,187) (11,560) (10,075) Amortization ........................... (1,275) (828) (2,549) (1,708) Loss on disposal of property and equipment ........................ (169) (297) (778) (430) One-time expenses ...................... (711) (1,120) (1,667) (2,264) Stock option market value adjustment ........................... (94) (10) (198) (10) Management fees ........................ (218) (218) (437) (435) ---------- ---------- ---------- ---------- Income (loss) before income taxes ................................ $ 2,503 $ (210) $ 2,604 $ (1,720) ========== ========== ========== ==========
6. COMPREHENSIVE INCOME Comprehensive income (loss) was $1.7 million and $(0.2) million for the thirteen weeks ended July 3, 1999 and June 27, 1998, respectively, and $1.6 million and $(1.7) million for the twenty-six weeks ended July 3, 1999 and June 27, 1998, respectively. 7. SUBSEQUENT EVENTS On July 6, 1999, Berry acquired all of the outstanding capital stock of CPI Holding Corporation, the parent company of Cardinal Packaging, Inc., for aggregate consideration of approximately $72.0 million, including acquisition related costs. The purchase was financed through the issuance by Berry of $75.0 million of 11% Senior Subordinated Notes. F-29 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-30 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-31 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-32 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-33 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-34 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-35 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-36 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-37 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-38 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-39 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-40 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-41 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-42 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-43 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-44 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-45 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-46 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-47 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-48 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-49 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-50 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-51 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-52 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-53 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-54 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-55 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-56 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-57 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-58 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-59 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-60 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-61 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-62 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-63 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-64 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-65 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-66 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-67 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-68 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-69 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-70 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-71 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-72 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-73 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-74 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 ======= ======= =======
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. F-75 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS (CONTINUED) 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 ========== ========== ======== 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) ========== ======== ========
F-76 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS (CONTINUED) 21. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT (CONTINUED) 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) ======== ======== ======== 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) ========== ========== ========== ==========
F-77 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS (CONTINUED) 22. ANALYSIS OF CHANGES IN NET DEBT (CONTINUED)
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. 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. F-78 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS (CONTINUED) 24. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) 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 ========== ========== ========== 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 F-79 NORWICH INJECTION MOULDERS LIMITED NOTES TO THE ACCOUNTS (CONTINUED) 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-80 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-81 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-82 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-83 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-84 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-85 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-86 ================================================================================ 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 ...................... Summary of Prospectus ...................... Risk Factors ............................... Company History ............................ The Exchange Offer ......................... Capitalization ............................. Pro Forma Condensed Consolidated Financial Statements .................... Selected Historical Financial Data ......... Management's Discussion and Analysis of Financial Condition and Results of Operations ........................... Business ................................... Management ................................. Principal Stockholders ..................... Certain Transactions ....................... Description of Certain Indebtedness ........ Description of Notes ....................... Material Federal Income Tax Considerations .......................... Plan of Distribution ....................... Legal Matters .............................. Experts .................................... Index to Financial Statements ...........F-1 $25,000,000 BERRY PLASTICS CORPORATION 12 1/4% SERIES C SENIOR SUBORDINATED NOTES DUE 2004 ----------------- PROSPECTUS ----------------- , 1999 ================================================================================ 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), 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, Kansas General Corporation Code, Ohio General Corporation Law, South Carolina Business Corporation Act 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) 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) II-1 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 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) II-2 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 3.12 By-laws of Berry Sterling 3.13 Certificate of Incorporation of AeroCon 3.14 By-laws of AeroCon 3.15 Articles of Incorporation of PackerWare 3.16 By-laws of PackerWare 3.17 Certificate of Incorporation of Berry Design 3.18 By-laws of Berry Design 3.19 Certificate of Incorporation of Venture Holdings 3.20 By-laws of Venture Holdings 3.21 Articles of Incorporation of Venture Midwest 3.22 Code of Regulations of Venture Midwest 3.23 Articles of Incorporation for a Statutory Close Corporation of Venture Southeast 3.24 By-laws of Venture Southeast 3.25 Memorandum of Association of NIM Holdings 3.26 Articles of Association of NIM Holdings 3.27 Memorandum of Association of Norwich 3.28 Articles of Association of Norwich 3.29 Certificate of Incorporation of Knight Plastics 3.30 By-laws of Knight Plastics 4.1 Form of Indenture 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) (filed as Exhibit 4.1 to the Form S-1 and incorporated herein by reference) 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 II-3 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 4.10 Registration Rights Agreement dated as of August 24, 1998 by and among the Company, the Guarantors and DLJ ***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-4 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) 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) II-5 10.26 Purchase Agreement dated August 19, 1998 among the Company, the Guarantors and DLJ *10.27 Purchase Agreement dated July 6, 1999 among the Company, the Guarantors, DLJ and Chase Securities Inc. 10.28 Indenture dated as of July 6, 1999 among the Company, the Guarantors and United States Trust Company of New York , as trustee (filed as Exhibit 10.27 of the S-4 of the Company filed on August 20, 1999 and incorporated herein by reference). 10.29 Registration Rights Agreement dated as of July 6, 1999 by and among the Company, the Guarantors, DLJ and Chase Securities, Inc. (filed as Exhibit 10.28 to the S-4 of the Company filed on August 20, 1999 and incorporated herein by reference). 21 List of Subsidiaries ***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 99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees 99.4 Form of Letter to Clients - ------------------- * Filed herewith. ** Previously filed. *** To be filed by amendment. (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. II-6 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. 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 II-7 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-8 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 29th day of October, 1999. 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. 3 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 Roberto Buaron Directors October 29, 1999 * President and Director ____________________________ (Principal Executive Officer) October 29, 1999 Martin R. Imbler Executive Vice President, Chief Financial Officer, Treasurer and Secretary * (Principal Financial and ____________________________ Accounting Officer) October 29, 1999 James M. Kratochvil * ____________________________ Director October 29, 1999 David M. Clarke * ____________________________ Director October 29, 1999 Lawrence G. Graev * ____________________________ Director October 29, 1999 Donald J. Hofmann * ____________________________ Director October 29, 1999 Joseph S. Levy II-9 * ____________________________ Director October 29, 1999 Mathew J. Lori *By: /s/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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. 3 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 Roberto Buaron Directors October 29, 1999 President, Chief Executive * Officer and Director ___________________________ (Principal Executive Martin R. Imbler Officer) October 29, 1999 Executive Vice President, Chief Financial Officer, * Treasurer and Secretary ___________________________ (Principal Financial and James M. Kratochvil Accounting Officer) October 29, 1999 * ___________________________ Director October 29, 1999 Joseph S. Levy *By: /s/ JAMES M. KRATOCHVIL James M. Kratochvil Attorney-in-fact II-11 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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 Roberto Buaron Directors October 29, 1999 President, Chief Executive * Officer and Director ___________________________ (Principal Executive Martin R. Imbler Officer) October 29, 1999 Executive Vice President, Chief Financial Officer, * Treasurer and Secretary ___________________________ (Principal Financial and James M. Kratochvil Accounting Officer) October 29, 1999 * ___________________________ Director October 29, 1999 Joseph S. Levy *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. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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. 3 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 Roberto Buaron Directors October 29, 1999 President, Chief Executive * Officer and Director ___________________________ (Principal Executive Martin R. Imbler Officer) October 29, 1999 Executive Vice President, Chief Financial Officer, * Treasurer and Secretary ___________________________ (Principal Financial and James M. Kratochvil Accounting Officer) October 29, 1999 * ___________________________ Director October 29, 1999 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. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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. 3 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 Martin R. Imbler Officer) October 29, 1999 Executive Vice President, Chief Financial Officer, * Treasurer and Secretary ___________________________ (Principal Financial and James M. Kratochvil Accounting Officer) October 29, 1999 * ___________________________ Director October 29, 1999 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. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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. 3 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 Roberto Buaron Directors October 29, 1999 President, Chief Executive * Officer and Director ___________________________ (Principal Executive Martin R. Imbler Officer) October 29, 1999 Executive Vice President, Chief Financial Officer, * Treasurer and Secretary ___________________________ (Principal Financial and James M. Kratochvil Accounting Officer) October 29, 1999 * ___________________________ Director October 29, 1999 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. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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. 3 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 Roberto Buaron Directors October 29, 1999 President, Chief Executive * Officer and Director ___________________________ (Principal Executive Martin R. Imbler Officer) October 29, 1999 Executive Vice President, Chief Financial Officer, * Treasurer and Secretary ___________________________ (Principal Financial and James M. Kratochvil Accounting Officer) October 29, 1999 * ___________________________ Director October 29, 1999 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. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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. 3 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 Roberto Buaron Directors October 29, 1999 President, Chief Executive * Officer and Director ___________________________ (Principal Executive Martin R. Imbler Officer) October 29, 1999 Executive Vice President, Chief Financial Officer, * Treasurer and Secretary ___________________________ (Principal Financial and James M. Kratochvil Accounting Officer) October 29, 1999 * ___________________________ Director October 29, 1999 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. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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. 3 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 Roberto Buaron Directors October 29, 1999 President, Chief Executive * Officer and Director ___________________________ (Principal Executive Martin R. Imbler Officer) October 29, 1999 Executive Vice President, Chief Financial Officer, * Treasurer and Secretary ___________________________ (Principal Financial and James M. Kratochvil Accounting Officer) October 29, 1999 * ___________________________ Director October 29, 1999 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. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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 * ___________________________ Chairman of the Board of Roberto Buaron Directors October 29, 1999 President, Chief Executive * Officer and Director ___________________________ (Principal Executive Martin R. Imbler Officer) October 29, 1999 Executive Vice President, Chief Financial Officer, * Treasurer and Secretary ___________________________ (Principal Financial and James M. Kratochvil Accounting Officer) October 29, 1999 * ___________________________ Director October 29, 1999 Joseph S. Levy *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. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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 * ___________________________ Chairman of the Board of Roberto Buaron Directors October 29, 1999 President, Chief Executive * Officer and Director ___________________________ (Principal Executive Martin R. Imbler Officer) October 29, 1999 Executive Vice President, Chief Financial Officer, * Treasurer and Secretary ___________________________ (Principal Financial and James M. Kratochvil Accounting Officer) October 29, 1999 * ___________________________ Director October 29, 1999 Joseph S. Levy *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. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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. 3 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) October 29, 1999 * ___________________________ Director (Principal Financial James M. Kratochvil and Accounting Officer) October 29, 1999 * ___________________________ Trevor D. Johnson Sales and Marketing Director October 29, 1999 * ___________________________ Managing Director October 29, 1999 Alan R. Sandell * ___________________________ Director October 29, 1999 Ira G. Boots *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. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. NORWICH INJECTION MOULDERS LIMITED By: /s/ MARTIN R. IMBLER Martin R. Imbler Chairman of the Board of Directors Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3 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) October 29, 1999 * ___________________________ Director (Principal Financial James M. Kratochvil and Accounting Officer) October 29, 1999 * ___________________________ Sales and Marketing Director October 29, 1999 Trevor D. Johnson * ___________________________ Managing Director October 29, 1999 Alan R. Sandell * ___________________________ Director October 29, 1999 Ira G. Boots *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. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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. 3 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 Roberto Buaron Directors October 29, 1999 President, Chief Executive * Officer and Director __________________________ (Principal Executive Martin R. Imbler Officer) October 29, 1999 Executive Vice President, Chief Financial Officer, * Treasurer and Secretary ___________________________ (Principal Financial and James M. Kratochvil Accounting Officer) October 29, 1999 * ___________________________ Director October 29, 1999 Joseph S. Levy *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. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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. 3 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 /s/ ROBERTO BUARON Chairman of the Board of Roberto Buaron Directors October 29, 1999 President, Chief Executive Officer and Director /s/ MARTIN R. IMBLER (Principal Executive Martin R. Imbler Officer) October 29, 1999 Executive Vice President, Chief Financial Officer, Treasurer and Secretary /s/ JAMES M. KRATOCHVIL (Principal Financial and James M. Kratochvil Accounting Officer) October 29, 1999 /s/ JOSEPH S. LEVY Director October 29, 1999 Joseph S. Levy II-24 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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. 3 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 /s/ ROBERTO BUARON Chairman of the Board of Roberto Buaron Directors October 29, 1999 President, Chief Executive Officer and Director /s/ MARTIN R. IMBLER (Principal Executive Martin R. Imbler Officer) October 29, 1999 Executive Vice President, Chief Financial Officer, Treasurer and Secretary /s/ JAMES M. KRATOCHVIL (Principal Financial and James M. Kratochvil Accounting Officer) October 29, 1999 /s/ JOSEPH S. LEVY Joseph S. Levy Director October 29, 1999 II-25 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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. 3 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 /s/ MARTIN R. IMBLER Directors (Principal Martin R. Imbler Executive Officer) October 29, 1999 /s/ JAMES M. KRATOCHVIL Director (Principal Financial James M. Kratochvil and Accounting Officer) October 29, 1999 /s/ TREVOR D. JOHNSON Trevor D. Johnson Sales and Marketing Director October 29, 1999 /s/ ALAN R. SANDELL Alan R. Sandell Managing Director October 29, 1999 /s/ IRA G. BOOTS Ira G. Boots Director October 29, 1999 II-26 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of October, 1999. 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. 3 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 /s/ ROBERTO BUARON Chairman of the Board of Roberto Buaron Directors October 29, 1999 President, Chief Executive Officer and Director /s/ MARTIN R. IMBLER (Principal Executive Martin R. Imbler Officer) October 29, 1999 Executive Vice President, Chief Financial Officer, Treasurer and Secretary /s/ JAMES M. KRATOCHVIL (Principal Financial and James M. Kratochvil Accounting Officer) October 29, 1999 /s/ JOSEPH S. LEVY Joseph S. Levy Director October 29, 1999 II-27 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES The Stockholders and Board of Directors BPC Holding Corporation We have audited the consolidated financial statements of BPC Holding Corporation as of January 2, 1999 and December 27, 1997, 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 audits. 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)
CHARGED TO BALANCE AT CHARGED TO OTHER BALANCE AT BEGINNING COSTS AND ACCOUNTS - DEDUCTIONS - 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. (1) S-6 EX-10.27 2 EXHIBIT 10.27 EXECUTION COPY ================================================================================ BERRY PLASTICS CORPORATION BPC HOLDING CORPORATION BERRY PLASTICS ACQUISITION CORPORATION BERRY IOWA CORPORATION BERRY STERLING CORPORATION BERRY TRI-PLAS CORPORATION AEROCON, INC. PACKERWARE CORPORATION, a Kansas corporation PACKERWARE CORPORATION, a Delaware corporation BERRY PLASTICS DESIGN CORPORATION VENTURE PACKAGING, INC. VENTURE PACKAGING MIDWEST, INC., an Ohio corporation VENTURE PACKAGING MIDWEST, INC., a Delaware corporation VENTURE PACKAGING SOUTHEAST, INC., a South Carolina corporation VENTURE PACKAGING SOUTHEAST, INC., a Delaware corporation NIM HOLDINGS LIMITED NORWICH INJECTION MOULDERS LIMITED NORWICH ACQUISITION LIMITED KNIGHT PLASTICS, INC. $75,000,000 11% Series A Senior Subordinated Notes due 2007 PURCHASE AGREEMENT June 29, 1999 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. ================================================================================ $75,000,000 11% Series A Senior Subordinated Notes due 2007 of Berry Plastics Corporation PURCHASE AGREEMENT June 29, 1999 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. c/o Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue New York, New York 10172 Ladies and Gentlemen: Each of Berry Plastics Corporation, a Delaware corporation (the "COMPANY"), BPC Holding Corporation, a Delaware corporation ("HOLDING"), Berry Plastics Acquisition Corporation, a Delaware corporation, Berry Iowa Corporation, a Delaware corporation, Berry Sterling Corporation, a Delaware corporation, Berry Tri-Plas Corporation, a Delaware corporation, AeroCon, Inc., a Delaware corporation, PackerWare Corporation, a Kansas corporation, PackerWare Corporation, a Delaware corporation, Berry Plastics Design Corporation, a Delaware corporation, Venture Packaging, Inc., a Delaware corporation, Venture Packaging Midwest, Inc., an Ohio corporation, Venture Packaging Midwest, Inc., a Delaware corporation, Venture Packaging Southeast, Inc., a South Carolina corporation, Venture Packaging Southeast, a Delaware corporation, NIM Holdings Limited, a company organized under the laws of England and Wales, Norwich Injection Moulders Limited, a company organized under the laws of England and Wales, Knight Plastics, Inc., a Delaware corporation, and Norwich Acquisition Limited, a company organized under the laws of England and Wales (collectively with Holding, the "GUARANTORS" which term, as used herein, shall, at and after the Closing Date (as defined herein), include all successor entities, CPI Holding Corporation, a Delaware corporation ("CPI") and Cardinal Packaging, Inc., an Ohio corporation ("CARDINAL PACKAGING")), agree with you as follows: 1. ISSUANCE OF SECURITIES. The Company proposes to issue and sell to Donaldson, Lufkin & Jenrette Securities Corporation and Chase Securities Inc. (each an "INITIAL PURCHASER" and collectively, the "INITIAL PURCHASERS") $75,000,000 in aggregate principal amount of 11% Series A Senior Subordinated Notes due 2007 (the "SERIES A NOTES"). The Series A Notes and the Series B Notes (as defined below) issuable in exchange therefor are collectively referred to herein as the "NOTES." The Notes will be guaranteed (the "NOTE GUARANTEES") by each of the Guarantors. The Notes are to be issued pursuant to the provisions of an indenture 1 (the "INDENTURE") to be dated July 6, 1999, among the Company, the Guarantors and United States Trust Company of New York, as trustee (the "TRUSTEE"). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Indenture. The offering of the Series A Notes is being made in connection with the acquisition (the "ACQUISITION") by the Company of CPI, pursuant to that certain Stock Purchase Agreement dated June 18, 1999 (the "ACQUISITION Agreement"), among the Company, CPI, Cardinal Packaging and the shareholders of CPI. The Series A Notes will be offered and sold to you pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended (the "ACT"). The Company has prepared a preliminary offering memorandum (the "PRELIMINARY OFFERING MEMORANDUM"), dated June 18, 1999 and a final offering memorandum, dated June 29, 1999 (the "OFFERING MEMORANDUM"), relating to Holding, the Company and its subsidiaries, the Notes and the Note Guarantees. Upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Act, the Series A Notes (and all securities issued in exchange therefor or in substitution thereof) shall bear the following legend: THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (b) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (c) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY AND THE GUARANTORS SO 2 REQUEST), (2) TO THE COMPANY, OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING." You have advised the Company that you will make offers (the "EXEMPT RESALES") of the Series A Notes purchased by you hereunder on the terms set forth in the Offering Memorandum, as amended or supplemented, solely to (i) persons (each, a "144A PURCHASER") whom you reasonably believe to be "qualified institutional buyers" as defined in Rule 144A under the Act ("QIBS") and (ii) persons permitted to purchase the Series A Notes in offshore transactions in reliance upon Regulation S under the Act (each, a "REGULATION S PURCHASER") (such persons specified in clauses (i) and (ii) being referred to herein as the "ELIGIBLE PURCHASERS"). Holders (including subsequent transferees) of the Series A Notes will have the registration rights set forth in the registration rights agreement (the "REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing Date (as defined herein), in substantially the form of EXHIBIT A hereto, for so long as such Series A Notes constitute "TRANSFER RESTRICTED SECURITIES" (as defined in the Registration Rights Agreement). Pursuant to the Registration Rights Agreement, the Company and the Guarantors will agree to file with the Securities and Exchange Commission (the "COMMISSION") within 45 days of the Closing Date and under the circumstances set forth therein, (i) a registration statement under the Act (the "EXCHANGE OFFER REGISTRATION STATEMENT") relating to the Company's 11% Series B Senior Subordinated Notes due 2007 (the "SERIES B NOTES") to be offered in exchange for the Series A Notes (such offer to exchange being referred to as the "REGISTERED EXCHANGE OFFER") and (ii) under the circumstances set forth in the Registration Rights Agreement, a shelf registration statement pursuant to Rule 415 under the Act (the "SHELF REGISTRATION STATEMENT" and, together with the Exchange Offer Registration Statement, the "REGISTRATION STATEMENTS") relating to the resale by certain holders of the Series A Notes, and to use their best efforts to cause such Registration Statements to be declared effective within the time periods set forth in the Registration Rights Agreement. This Agreement, the Indenture, the Notes, the Note Guarantees, the Registration Rights Agreement and the Acquisition Agreement are hereinafter referred to collectively as the "OPERATIVE DOCUMENTS." As used in this Purchase Agreement (this "AGREEMENT"), the term 3 "SUBSIDIARY" shall mean any subsidiary of the Company before the Acquisition and, at and after the Closing Date, shall mean any Subsidiary of the Company immediately after the Acquisition. 2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the representations and warranties contained in this Agreement, and subject to the terms and conditions contained herein, the Company agrees to issue and sell to the Initial Purchasers, and each Initial Purchaser agrees, severally and not jointly, to purchase from the Company the principal amount of Series A Notes set forth opposite the name of such Initial Purchaser on Schedule A hereto at a purchase price equal to 97% of the principal amount thereof ( the "PURCHASE Price"). 3. DELIVERY AND PAYMENT. Delivery to you of and payment for the Series A Notes shall be made at 9:00 A.M., New York City time, on July 6, 1999 (the "CLOSING DATE") at the offices of O'Sullivan Graev & Karabell, LLP, 30 Rockefeller Plaza, New York, New York 10112, or such other time or place as you shall reasonably designate. One or more Series A Notes in definitive global form, registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), having an aggregate amount corresponding to the aggregate amount of the Series A Notes sold pursuant to Exempt Resales to QIBs and Regulation S Purchasers (collectively, the "GLOBAL NOTE"), shall be delivered by the Company to the Initial Purchasers (or as the Initial Purchasers direct), against payment by the Initial Purchasers of the Purchase Price, by wire transfer of immediately available funds to such account or accounts as the Company shall specify, provided that the Company shall give at least two business days' prior written notice to the Initial Purchasers of the information required to effect such wire transfers. The Global Note shall be made available to the Initial Purchasers for inspection not later than 9:30 A.M. on the business day immediately preceding the Closing Date. 4. AGREEMENTS OF THE COMPANY AND THE GUARANTORS. Each of the Company and the Guarantors hereby agrees with you as follows: (a) To advise you promptly and, if requested by you, confirm such advice in writing, (i) of the issuance by any state securities commission of any stop order suspending the qualification or exemption from qualification of any Series A Notes for offering or sale in any jurisdiction, or the initiation of any proceeding for such purpose by the Commission or any state securities commission or other regulatory authority and (ii) of the happening of any event which makes any statement of a material fact made in the Preliminary Offering Memorandum or the Offering Memorandum untrue or which requires the making of any additions to or changes in the Preliminary Offering Memorandum or the Offering Memorandum in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company and the Guarantors shall use their reasonable best efforts to prevent the issuance of any stop order or order suspending the qualification or exemption of the Series A Notes under any state securities or Blue Sky laws, and, if at any time any state securities commission issues an order suspending the qualification or exemption of the 4 Series A Notes, the Company and the Guarantors shall use every reasonable effort to obtain the withdrawal or lifting of such order at the earliest possible time. (b) To furnish to you without charge as many copies of the Preliminary Offering Memorandum and the Offering Memorandum, and any amendments or supplements thereto, as you may reasonably request. The Company and the Guarantors consent to the use of the Preliminary Offering Memorandum and the Offering Memorandum, and any amendments and supplements thereto, required pursuant to this Agreement by you in connection with the Exempt Resales. (c) Not to amend or supplement the Offering Memorandum prior to the Closing Date unless you shall previously have been advised of, and shall not have reasonably objected to, such amendment or supplement within a reasonable time, but in any event not longer than five business days after being furnished a copy of such amendment or supplement. The Company and the Guarantors shall promptly prepare, upon any reasonable request by you, any amendment or supplement to the Preliminary Offering Memorandum and the Offering Memorandum that may be necessary or advisable in connection with Exempt Resales. (d) If, in connection with any Exempt Resales or market making transactions after the date of this Agreement and prior to the consummation of the Registered Exchange Offer, any event shall occur that, in the judgment of the Company and the Guarantors or in the judgment of counsel to you, makes any statement of a material fact in the Offering Memorandum untrue or that requires the making of any additions to or changes in the Offering Memorandum in order to make the statements in the Offering Memorandum, in the light of the circumstances at the time that the Offering Memorandum is delivered to prospective Eligible Purchasers, not misleading, or if it is necessary to amend or supplement the Offering Memorandum to comply with all applicable laws, the Company and the Guarantors shall promptly notify you of such event and prepare an appropriate amendment or supplement to the Offering Memorandum so that (i) the statements in the Offering Memorandum as amended or supplemented will, in the light of the circumstances at the time that the Offering Memorandum is delivered to prospective Eligible Purchasers, not be misleading and (ii) the Offering Memorandum will comply with applicable law. (e) To cooperate with you and your counsel in connection with the qualification of the Series A Notes for offer and sale by you and by dealers under the state securities or Blue Sky laws of such jurisdictions as you may request (PROVIDED, HOWEVER, that neither the Company nor any Guarantor shall be obligated to qualify as a foreign corporation in any jurisdiction in which it is not now so qualified or to take any action that would subject it to general consent to service of process in any jurisdiction in which it is not now so subject). The Company and the Guarantors will continue such qualification in effect so long as required by law for distribution of the Series A Notes 5 and will file such consents to service of process or other documents as may be necessary in order to effect such qualification. (f) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, to pay all costs, expenses, fees and taxes incident to and in connection with: (i) the preparation, printing, filing and distribution of the Preliminary Offering Memorandum and the Offering Memorandum (including, without limitation, financial statements and exhibits) and all amendments and supplements thereto, (ii) the preparation, printing (including, without limitation, word processing and duplication costs) and delivery of this Agreement, the Indenture, the Registration Rights Agreement, all preliminary and final Blue Sky Memoranda and all other agreements, memoranda, correspondence and other documents printed and delivered in connection herewith and with the Exempt Resales, (iii) the issuance and delivery by the Company and the Guarantors of the Notes and the Note Guarantees, (iv) the qualification of the Notes and the Note Guarantees for offer and sale under the securities or Blue Sky laws of the several states (including, without limitation, the reasonable fees and disbursements of your counsel relating to such registration or qualification), (v) furnishing such copies of the Preliminary Offering Memorandum and the Offering Memorandum, and all amendments and supplements thereto, as may be reasonably requested for use in connection with the Exempt Resales, (vi) the preparation of certificates for the Notes and the Note Guarantees (including, without limitation, printing and engraving thereof), (vii) the fees, disbursements and expenses of the Company's and the Guarantors' counsel and accountants, (viii) all expenses and listing fees in connection with the application for quotation of the Series A Notes in the National Association of Securities Dealers, Inc. ("NASD") Automated Quotation System - PORTAL ("PORTAL"), (ix) the rating of the Notes by rating agencies, if any, (x) all fees and expenses (including fees and expenses of counsel) of the Company and the Guarantors in connection with approval of the Notes by DTC for "book-entry" transfer and (xii) the performance by the Company and the Guarantors of their other obligations under this Agreement and the other Operative Documents to which they are a party. (g) To use the proceeds from the sale of the Series A Notes in the manner described in the Offering Memorandum under the caption "USE OF PROCEEDS." (h) Not to voluntarily claim, and to actively resist any attempts to claim, the benefit of any usury laws against the holders of the Notes. (i) Prior to the Closing Date, to furnish to you, as soon as they have been prepared, a copy of any unaudited interim consolidated financial statements of Holding or the Company for any period subsequent to the period covered by the financial statements appearing in the Offering Memorandum. (j) To use its best efforts to do and perform all things required to be done and performed under this agreement by it prior to or after the Closing Date and to 6 satisfy all conditions precedent on its part to the delivery of the Series A Notes and the Note Guarantees. (k) Not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Act) that would be integrated with the sale of the Series A Notes in a manner that would require the registration under the Act of the sale to you or the Eligible Purchasers of Series A Notes. (l) For so long as any of the Notes remain outstanding and during any period in which the Company is not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE Act"), to make available to any Eligible Purchaser or beneficial owner of Notes in connection with any sale thereof and any prospective purchaser of such Notes from such Eligible Purchaser or beneficial owner, the information required by Rule 144A(d)(4) under the Act. (m) To comply with its agreements in the Registration Rights Agreement, and all agreements set forth in the representation letters of the Company and the Guarantors to DTC relating to the approval of the Notes by DTC for "book-entry" transfer. (n) To cause the Registered Exchange Offer to be made in the appropriate form, as contemplated by the Registration Rights Agreement, to permit registration of the Series B Notes and note guarantees thereof to be offered in exchange for the Series A Notes and Note Guarantees and to comply with all applicable federal and state securities laws in connection with the Registered Exchange Offer. (o) To use its best efforts to effect the inclusion of the Series A Notes in PORTAL. (p) For so long as any of the Notes are outstanding, to deliver without charge to the Initial Purchasers, promptly upon their becoming available, copies of (i) all reports or other publicly available information that the Company or any of the Guarantors shall mail or otherwise make available to its securityholders and (ii) all reports, financial statements and proxy or information statements filed by the Company or any of the Guarantors with the Commission or any national securities exchange and such other publicly available information concerning Holding, the Company or its Subsidiaries, including, without limitation, press releases. (q) Neither Holding, the Company nor any of its Subsidiaries will take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of any security of the Company or any of the Guarantors to facilitate the sale or resale of the Notes. Except as permitted by the Act, the Company and the Guarantors will not distribute any preliminary offering memorandum, offering memorandum or other offering material in connection with the offering and sale of the Notes. 7 (r) To cause CPI and Cardinal Packaging to become parties to this Agreement by executing the signature pages hereto immediately after the consummation of the Acquisition. (s) To comply with the agreements in the Indenture, the Registration Rights Agreement and each other Operative Document. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE GUARANTORS. Each of the Company and the Guarantors represents and warrants to you that: (a) The Preliminary Offering Memorandum and the Offering Memorandum (and each supplement and amendment thereto) have been prepared in connection with the Exempt Resales. The Preliminary Offering Memorandum and the Offering Memorandum do not, and any supplement or amendment thereto will not, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties contained in this paragraph (a) shall not apply to statements in or omissions from the Preliminary Offering Memorandum and the Offering Memorandum (or any supplement or amendment to either of them) made in reliance upon and in conformity with information relating to you furnished to the Company and the Guarantors in writing by you expressly for use therein. The Company and the Guarantors acknowledge for all purposes under this Agreement that the statements set forth in the stabilization legend and the third, fourth, sixth and ninth paragraphs under the caption "Plan of Distribution" in the Preliminary Offering Memorandum and the Offering Memorandum (or any amendment or supplement) constitute the only written information furnished to the Company and the Guarantors by each of the Initial Purchasers expressly for use in the Preliminary Offering Memorandum and the Offering Memorandum (or any amendment or supplement thereto). (b) Each of Holding, the Company and the Subsidiaries is a duly organized and validly existing corporation in good standing under the laws of its jurisdiction of incorporation, has the requisite corporate power and authority to own, lease and operate its properties and to conduct its business as it is currently being conducted and described in the Offering Memorandum, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction where the ownership, leasing or operation of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not, singly or in the aggregate, have a material adverse effect on the properties, business, results of operations, condition (financial or otherwise), affairs or prospects of Holding, the Company and the Subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT"). (c) Each of the Company and the Guarantors has all necessary corporate power and authority to execute and deliver this Agreement, the Notes and the Acquisition Agreement (in the case only of the Company), the Note Guarantees (in the 8 case only of the Guarantors), the Indenture and the Registration Rights Agreement, to perform its obligations under this Agreement, the Indenture, the Acquisition Agreement and the Registration Rights Agreement and to authorize, issue, sell and deliver the Notes and the Note Guarantees, as the case may be, as contemplated by this Agreement. (d) This Agreement has been duly authorized and validly executed and delivered by the Company and each of the Guarantors and constitutes a legal, valid and binding agreement of the Company and each of the Guarantors, enforceable against each of them in accordance with its terms (assuming the due execution and delivery hereof by you), subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws in effect from time to time with respect to creditors' rights generally and to principles of equity, whether at law or in equity and except as rights to indemnity and contribution thereunder may be limited by federal and state securities laws and public policy considerations underlying such laws. (e) The issuance and sale of the Series A Notes has been duly authorized by the Company, and all legally required corporate proceedings by the Company in connection with the issuance and sale of the Series A Notes have been taken; each of the Series A Notes, when issued and delivered to and paid for by the Initial Purchasers in accordance with this Agreement (assuming the due authentication thereof by the Trustee), will be a legal, valid and binding obligation of the Company entitled to the benefits provided by the Indenture, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws in effect from time to time with respect to creditors' rights generally and to principles of equity, whether at law or in equity and except as rights to indemnity and contribution thereunder may be limited by federal and state securities laws and public policy considerations underlying such laws. (f) The Company has all requisite power to authorize and issue the Series B Notes; the issuance of the Series B Notes has been duly authorized by the Company and all legally required corporate proceedings by the Company in connection with the issuance of the Series B Notes have been taken; each of the Series B Notes, when and if issued and delivered in accordance with the terms of the Registration Rights Agreement and the Indenture, will be validly executed, issued and delivered and (assuming the due authentication thereof by the Trustee) will be a legal, valid and binding obligation of the Company entitled to the benefits provided by the Indenture, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws in effect from time to time with respect to creditors' rights generally and to principles of equity, whether at law or in equity and except as rights to indemnity and contribution thereunder may be limited by federal and state securities laws and public policy considerations underlying such laws. (g) The Note Guarantee to be endorsed on the Series A Notes by each Guarantor has been duly authorized by such Guarantor and, on the Closing Date, will 9 have been duly executed and delivered by each such Guarantor and will conform to the description thereof in the Offering Memorandum. When the Series A Notes have been issued, executed and authenticated in accordance with the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, the Note Guarantee of each Guarantor endorsed thereon will constitute valid and legally binding obligations of such Guarantor, enforceable against such Guarantor in accordance with its terms and entitled to the benefits of the Indenture, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganizations, moratorium and similar laws in effect from time to time with respect to creditors' rights generally and to principles of equity whether at law or in equity. (h) The note guarantee to be endorsed on the Series B Notes by each Guarantor has been duly authorized by such Guarantor and all legally required corporate proceedings by such Guarantor in connection with the issuance of such note guarantees have been taken; the note guarantees, when issued, will have been duly executed and delivered by each such Guarantor and will conform to the description thereof in the Offering Memorandum. When the Series B Notes have been issued, executed and authenticated in accordance with the terms of the Registered Exchange Offer and the Indenture, the note guarantee of each Guarantor endorsed thereon will constitute valid and legally binding obligations of such Guarantor, enforceable against such Guarantor in accordance with its terms and entitled to the benefits of the Indenture, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganizations, moratorium and similar laws in effect from time to time with respect to creditors' rights generally and to principles of equity whether at law or in equity. (i) The Indenture has been duly authorized by the Company and each Guarantor and, on the Closing Date, will have been duly executed by the Company and each Guarantor and will conform to the description thereof in the Offering Memorandum. When the Indenture has been duly executed and delivered, the Indenture will be a valid and legally binding agreement of the Company and each Guarantor, enforceable against each of them in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws in effect from time to time with respect to creditors' rights generally and to principles of equity, whether at law or in equity and except as rights to indemnity and contribution thereunder may be limited by federal and state securities laws and public policy considerations underlying such laws. (j) The Registration Rights Agreement has been duly authorized by the Company and each Guarantor and, on the Closing Date, will have been duly executed by the Company and each Guarantor and will conform to the description thereof in the Offering Memorandum. When the Registration Rights Agreement has been duly executed and delivered, the Registration Rights Agreement will be a valid and legally binding agreement of the Company and each Guarantor, enforceable against each of them in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent 10 conveyance, reorganization, moratorium and similar laws in effect from time to time with respect to creditors' rights generally and to principles of equity, whether at law or in equity and except as rights to indemnity and contribution thereunder may be limited by federal and state securities laws and public policy considerations underlying such laws. (k) The Acquisition Agreement has been duly authorized, executed and delivered by the Company. The Acquisition Agreement is a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws in effect from time to time with respect to creditors' rights generally and to principles of equity, whether at law or in equity and except as rights to indemnity and contribution thereunder may be limited by federal and state securities laws and public policy considerations underlying such laws. (l) On the Closing Date, the entities listed on Schedule B hereto will be the only Subsidiaries, direct or indirect, of the Company. All of the issued and outstanding shares of capital stock of, or other ownership interests in, each Subsidiary have been or, in the case of CPI and Cardinal Packaging, on the Closing Date will be duly and validly authorized and issued. All of the shares of capital stock of, or other ownership interests in, each Subsidiary are or, in the case of CPI and Cardinal Packaging, on the Closing Date will be owned, directly or through Subsidiaries, by the Company. All such shares of capital stock are or, in the case of CPI and Cardinal Packaging, on the Closing Date will be fully paid and nonassessable, and are owned free and clear of any security interest, mortgage, pledge, claim, lien or encumbrance (each, a "LIEN") other than those Liens created pursuant to the Credit Facility (as defined in the Offering Memorandum). There are no outstanding subscriptions, rights, warrants, options, calls, convertible securities, commitments of sale or Liens related to or entitling any person to purchase or otherwise to acquire any shares of the capital stock of, or other ownership interest in, any Subsidiary. (m) Except as set forth on Schedule C hereto, neither Holding, the Company nor any of the Subsidiaries is in violation of its respective charter or bylaws or in default in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or any indenture, mortgage, deed of trust or other contract, lease or other instrument to which Holding, the Company or any of the Subsidiaries is a party or by which any of them is bound, or to which any of the property or assets of Holding, the Company or any of the Subsidiaries is subject. To the knowledge of the Company and the Guarantors, there exists no condition which, with notice, the passage of time or otherwise, would constitute a default under any such document or instrument. (n) The execution and delivery of this Agreement, the Indenture, the Registration Rights Agreement, the Acquisition Agreement, the Notes and the Note Guarantees, the issuance and sale of the Notes and the Note Guarantees, the performance 11 of this Agreement, the Indenture, the Registration Rights Agreement and the Acquisition Agreement, compliance by the Company and the Guarantors with the provisions hereof and thereof and of the Notes and the Note Guarantees (in each case, to the extent the Company or such Guarantor is a party thereto), the consummation of each of the transactions contemplated hereby and thereby, in each case, as applicable, will not result in a breach or violation of any of the respective charters or bylaws of Holding, the Company or any of the Subsidiaries or any of the terms or provisions of, or constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) a Lien with respect to, any bond, note, debenture or other evidence of indebtedness or any indenture, mortgage, deed of trust or other agreement or instrument to which Holding, the Company or any of the Subsidiaries is a party or by which it or any of them is bound, or to which any properties of Holding, the Company or any of the Subsidiaries is or may be subject, or contravene any order of any court or governmental agency or body having jurisdiction over Holding, the Company or any of the Subsidiaries or any of their properties, or violate or conflict with any statute, rule or regulation or administrative or court decree applicable to Holding, the Company or any of the Subsidiaries, or any of their respective properties. (o) There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, pending against or affecting Holding, the Company or any of the Subsidiaries, or any of their respective properties, which is required to be disclosed and is not so disclosed, in the Preliminary Offering Memorandum or the Offering Memorandum, or which would result, singly or in the aggregate, in a Material Adverse Effect or which would materially and adversely affect the consummation of this Agreement or the transactions contemplated hereby, and to the best knowledge of the Company and the Guarantors, no such proceedings are contemplated or threatened. (p) To the best knowledge of the Company and the Guarantors, no action has been taken and no statute, rule or regulation or order has been enacted, adopted or issued by any governmental agency or body which prevents the issuance of the Notes or the Note Guarantees, prevents or suspends the use of any Offering Memorandum or suspends the sale of the Notes or the Note Guarantees, in any jurisdiction referred to in Section 4(e) hereof; no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction has been issued with respect to Holding, the Company or any of the Subsidiaries which would prevent or suspend the issuance or sale of the Notes or the Note Guarantees, or the use of any Preliminary Offering Memorandum or Offering Memorandum in any jurisdiction referred to in Section 4(e) hereof; no action, suit or proceeding is pending against or, to the best knowledge of the Company and the Guarantors, threatened against or affecting Holding, the Company or any of the Subsidiaries before any court or arbitrator or any governmental body, agency or official, domestic or foreign, which, if adversely determined, would materially interfere with or adversely affect the issuance of the Notes or the Note Guarantees, or in any manner draw into question the validity of this Agreement, the Indenture, the 12 Registration Rights Agreement, the Acquisition Agreement, the Notes or the Note Guarantees; and every request of the Commission or any securities authority or agency of any jurisdiction for additional information (to be included in the Preliminary Offering Memorandum or Offering Memorandum or otherwise) has been complied with. (q) Except as set forth in the Offering Memorandum, Holding, the Company and the Subsidiaries are in compliance with all applicable existing federal, state and local laws and regulations relating to protection of human health or the environment or imposing liability or standards of conduct concerning any Hazardous Material ("ENVIRONMENTAL Laws"), except where the failure to comply would not have a Material Adverse Effect. The term "Hazardous Material" means (a) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, (b) any "hazardous waste" as defined by the Resource Conservation and Recovery Act, as amended, (c) any petroleum or petroleum product, (d) any polychlorinated biphenyl and (e) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material, waste or substance. (r) Neither Holding, the Company nor any of the Subsidiaries has violated any federal, state or local law relating to discrimination in the hiring, promotion or pay of employees or any applicable wage or hour laws, nor any provisions of the Employee Retirement Income Security Act of 1974 ("ERISA") or the rules and regulations promulgated thereunder, nor has Holding, the Company or any of the Subsidiaries engaged in any unfair labor practice, which in each case would result, singly or in the aggregate, in a Material Adverse Effect. There is (i) no significant unfair labor practice complaint pending against Holding, the Company or any of the Subsidiaries or, to the best knowledge of the Company and the Guarantors, threatened against any of them before the National Labor Relations Board or any state or local labor relations board, and no significant grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement is so pending against Holding, the Company or any of the Subsidiaries or, to the best knowledge of the Company and the Guarantors, threatened against any of them, (ii) no significant strike, labor dispute, slowdown or stoppage is pending against Holding, the Company or any of the Subsidiaries or, to the best knowledge of the Company and the Guarantors, threatened against Holding, the Company or any of the Subsidiaries and (iii) to the best knowledge of the Company and the Guarantors, no union representation question exists with respect to the employees of Holding, the Company or any of the Subsidiaries and no union organizing activities are taking place, except (with respect to any matter specified in clause (i), (ii) or (iii) above, singly or in the aggregate) such as could not have a Material Adverse Effect. (s) Except (i) as would not result, singly or in the aggregate, in a Material Adverse Effect, and (ii) for the liens created pursuant to (A) the Credit Facility (as defined in the Offering Memorandum), (B) the Nevada Industrial Revenue Bonds (as defined in the Offering Memorandum), (C) the Pledge, Escrow and Disbursement Agreement dated June 18, 1996, among Holding, First Trust of New York, National 13 Association ("FIRST TRUST"), as trustee, and First Trust, as escrow agent, and (D) the Holding Pledge and Security Agreement dated June 18, 1996 between Holding and First Trust, as collateral agent, Holding, the Company and each of the Subsidiaries has good and marketable title, free and clear of all Liens (except Liens for taxes not yet due and payable), to all property and assets reflected in the Company's consolidated financial statements at and for the fiscal year ended January 2, 1999. (t) The firms of accountants that have certified or shall certify the applicable financial statements and supporting schedules of Holding, the Company and the Subsidiaries as part of the Preliminary Offering Memorandum and the Offering Memorandum are independent public accountants, as required by the Act and the Exchange Act. The consolidated historical and PRO FORMA financial statements, together with related schedules and notes, set forth in the Preliminary Offering Memorandum and the Offering Memorandum comply as to form in all material respects with the requirements of the Act. Such historical financial statements fairly present in all material respects the financial position of Holding, the Company and the Subsidiaries at the respective dates indicated and the results of operations and cash flows for the respective periods indicated, in accordance with generally accepted accounting principles in the United States ("GAAP") consistently applied throughout such periods (other than as set forth on Schedule D hereto). Such PRO FORMA financial statements have been prepared on a basis consistent with such historical statements, except for the PRO FORMA adjustments specified therein, and give effect to assumptions made on a reasonable basis. The other financial and statistical information and data included in the Preliminary Offering Memorandum and the Offering Memorandum, historical and PRO FORMA, are, in all material respects, prepared on a basis consistent with such financial statements and the books and records of Holding, the Company and the Subsidiaries, as the case may be. (u) Subsequent to the respective dates as of which information is given in the Offering Memorandum and up to the Closing Date (except as disclosed in the Offering Memorandum), neither Holding, the Company nor any of the Subsidiaries has incurred any liabilities or obligations, direct or contingent, which are material, individually or in the aggregate, to Holding, the Company or any Subsidiary, nor entered into any transaction not in the ordinary course of business and there has not been, singly or in the aggregate, any material adverse change, or any development which may reasonably be expected to involve a material adverse change, in the properties, business, results of operations, condition (financial or otherwise), affairs or prospects of Holding, the Company and their Subsidiaries taken as a whole (each, a "MATERIAL ADVERSE CHANGE"). (v) All tax returns required to be filed by Holding, the Company or any of the Subsidiaries in any jurisdiction have been filed, other than those filings being contested in good faith, and all material taxes, including withholding taxes, penalties and interest, assessments, fees and other charges due or claimed to be due from such entities 14 have been paid, other than those being contested in good faith and for which adequate reserves have been provided or those currently payable without penalty or interest. (w) No authorization, approval or consent or order of, or filing with, any court or governmental body or agency is necessary in connection with the transactions contemplated by this Agreement or the other Operative Documents, except such as may be required by the NASD, the Trust Indenture Act of 1939, as amended (the "TIA"), or the Act, or have been obtained and made. No consents or waivers from any person under any bond, debenture, note, indenture, mortgage, deed of trust or other agreement or instrument are required to consummate the transactions contemplated by this Agreement, the Notes, the Note Guarantees, the Indenture, the Registration Rights Agreement, the Acquisition Agreement and the Offering Memorandum, except for such consents or waivers which have been, or will be, obtained prior to the Closing Date or such as which the failure to obtain would not have a Material Adverse Affect. (x) (i) Each of Holding, the Company and the Subsidiaries has all certificates, consents, exemptions, orders, permits, licenses, authorizations or other approvals (each, an "AUTHORIZATION") of and from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, necessary or required to own, lease, license and use its properties and assets and to engage in the business currently conducted by it, except as such are described in the Offering Memorandum or to the extent that the failure to obtain or file would not, singly or in the aggregate, have a Material Adverse Effect, (ii) all such Authorizations are valid and in full force and effect and (iii) Holding, the Company and the Subsidiaries are in compliance in all material respects with the terms and conditions of all such Authorizations that have been obtained thereby and with the rules and regulations of the regulatory authorities and governing bodies having jurisdiction with respect thereto. Neither Holding, the Company nor any Subsidiary believes that any governmental body or agency is considering limiting, suspending or revoking any such material license, certificate, permit, authorization, approval, franchise or right. (y) Neither Holding, the Company nor any of the Subsidiaries is (a) an "investment company" or a company "controlled" by an investment company within the meaning of the Investment Company Act of 1940, as amended, or (b) a "holding company" or a "subsidiary company" of a holding company or an "affiliate" thereof within the meaning of the Public Utility Holding Company Act of 1935, as amended. (z) No holder of any security of Holding, the Company or any of the Subsidiaries has or will have any right to require the registration of such security by virtue of any transaction contemplated by this Agreement, other than the rights described in the Registration Rights Agreement. 15 (aa) There are no contracts, agreements or understandings between Holding, the Company or any of the Subsidiaries and any person (other than the Initial Purchaser) that would give rise to a valid claim against Holding, the Company, the Subsidiaries or the Initial Purchasers for a brokerage commission, finder's fee or like payment in connection with the issuance, purchase and sale of the Notes. (bb) Holding, the Company and the Subsidiaries possess all material patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names (collectively, "INTELLECTUAL PROPERTY") presently employed by them in connection with the businesses now operated by them, and, except as set forth in the Offering Memorandum, neither Holding, the Company nor any Subsidiary has received any notice of infringement of or conflict with asserted rights of others with respect to the foregoing. (cc) Holding, the Company and the Subsidiaries each maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (dd) The present fair saleable value of the assets of each of the Company and the Guarantors exceeds the amount that will be required to be paid on or in respect of the existing debts and other liabilities (including contingent liabilities) of each such person as they become absolute and matured. The assets of each of the Company and the Guarantors do not constitute unreasonably small capital to carry out their businesses as conducted or as proposed to be conducted. Neither the Company nor any of the Guarantors intends to, nor does it believe that it will, incur debts beyond its ability to pay such debts as they mature. Upon the issuance of the Series A Notes, the present fair saleable value of the assets of each of the Company and the Guarantors will exceed the amount that will be required to be paid on or in respect of the existing debts and other liabilities (including contingent liabilities) of such person as they become absolute and matured. The assets of each of the Company and the Guarantors, upon the issuance of the Series A Notes, will not constitute unreasonably small capital to carry out their businesses as now conducted, including the capital needs of each of the Company and the Guarantors, taking into account the projected capital requirements and capital availability of each of the Company and the Guarantors. (ee) None of Holding, the Company, the Subsidiaries or any agent thereof acting on the behalf of any of them has taken, and none of them will take, any 16 action that might cause this Agreement, any of the other Operative Documents or the issuance or sale of the Series A Notes to violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System. (ff) Holding, the Company and each Subsidiary maintains insurance covering their properties, operations, personnel and businesses. Such insurance insures against such losses and risks as are adequate in accordance with customary industry practice to protect Holding, the Company and the Subsidiaries and their businesses. Neither Holding, the Company nor any Subsidiary has received notice from any insurer or agent of such insurer that substantial capital improvements or other expenditures will have to be made in order to continue such insurance. All such insurance is outstanding and duly in force on the date hereof and will be outstanding and duly in force on the Closing Date. (gg) When the Series A Notes and Note Guarantees are issued and delivered pursuant to this Agreement, neither the Series A Notes nor the Note Guarantees will be of the same class (within the meaning of Rule 144A under the Act) as securities of the Company or the Guarantors that are listed on a national securities exchange registered under Section 6 of the Exchange Act or that are quoted in a United States automated inter-dealer quotation system. (hh) Assuming (i) that your representations and warranties in Section 6 are true, (ii) compliance by you with your covenants set forth in Section 8 and (iii) that each of the Eligible Purchasers is a QIB or a Regulation S Purchaser, the purchase and resale of the Series A Notes pursuant hereto (including pursuant to the Exempt Resales) is exempt from the registration requirements of the Act. (ii) No form of general solicitation or general advertising was used by the Company, the Guarantors or any of their representatives (other than you, as to whom the Company and the Guarantors make no representation) in connection with the offer and sale of the Series A Notes, including, but not limited to, articles, notices or other communications published in any newspaper, magazine, or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. No securities of the same class as the Series A Notes have been issued and sold by the Company within the six-month period immediately prior to the date hereof. (jj) Set forth on Schedule E hereto is a list of each employee pension or benefit plan with respect to which the Company or any corporation considered an affiliate of the Company within the meaning of Section 407(d)(7) of ERISA (an "AFFILIATE") is a party in interest or disqualified person. The execution and delivery of this Agreement and the other Operative Documents and the sale of the Series A Notes to be purchased by the Eligible Purchasers will not involve any prohibited transaction 17 within the meaning of Section 406 of ERISA or Section 4975 of the Code. The representation made by the Company and the Guarantors in the preceding sentence is made in reliance upon and subject to the accuracy of, and compliance with, the representations and covenants made or deemed made by the Eligible Purchasers as set forth in the Offering Memorandum under the Section entitled "Notice to Investors." (kk) Each of the Preliminary Offering Memorandum and the Offering Memorandum as of its date, and each amendment or supplement thereto, as of its date, contains the information specified in, and meets the requirements of Rule 144A(d)(4) of the Act. (ll) Except as disclosed in the Offering Memorandum, there are no business relationships or related party transactions required to be disclosed therein pursuant to Item 404 of Regulation S-K of the Commission (assuming for purposes of this paragraph 5(ll) that Regulation S-K is applicable to the Offering Memorandum). (mm) Prior to the effectiveness of any Registration Statement, the Indenture is not required to be qualified under the TIA. (nn) None of the Company, the Guarantors nor any of their respective affiliates or any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company and the Guarantors make no representation) has engaged or will engage in any directed selling efforts within the meaning of Regulation S under the Act ("REGULATION S") with respect to the Series A Notes or the Subsidiary Guarantees. (oo) The Company, the Guarantors and their respective affiliates and all persons acting on their behalf (other than the Initial Purchasers, as to whom the Company and the Guarantors make no representation) have complied with and will comply with the offering restrictions requirements of Regulation S in connection with the offering of the Series A Notes outside the United States and, in connection therewith, the Offering Memorandum will contain the disclosure required by Rule 902(g)(2). (pp) To the best of our knowledge, the Series A Notes offered and sold in reliance on Regulation S have been and will be offered and sold in offshore transactions. (qq) The sale of the Series A Notes pursuant to Regulation S is not part of a plan or scheme to evade the registration provisions of the Act. (rr) The Series A notes sold in reliance on Regulation S will be represented upon issuance by a temporary global security that may not be exchanged for definitive securities until the expiration of the 40-day distribution compliance period referred to in Rule 903(c)(3) of the Act and only upon certification of beneficial ownership of such Series A Notes by non-U.S. persons or U.S. persons who purchased 18 such series A Notes in transactions that were exempt from the registration requirements of the Act. 6. INITIAL PURCHASERS' REPRESENTATIONS AND WARRANTIES. Each of the Initial Purchasers, severally and not jointly, represents and warrants to the Company and the Guarantors that: (a) Such Initial Purchaser is either a QIB or an accredited investor (as defined in Rule 501(a)(1), (2), (3) or (7) under the Act) (an "ACCREDITED INSTITUTION"), in either case with such knowledge and experience in financial and business matters as are necessary in order to evaluate the merits and risks of an investment in the Series A Notes. (b) Such Initial Purchaser (i) is not acquiring the Series A Notes with a view to any distribution thereof or with any present intention of offering or selling any of the Series A Notes in a transaction that would violate the Act or the securities laws of any State of the United States or any other applicable jurisdiction and (ii) will be reoffering and reselling the Series A Notes only to (A) QIBs in reliance on the exemption from the registration requirements of the Act provided by Rule 144A and (B) in offshore transactions in reliance upon Regulation S. (c) Such Initial Purchaser agrees that no form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) has been or will be used by such Initial Purchaser or any of its representatives in connection with the offer and sale of the Series A Notes pursuant hereto, including, but not limited to, articles, notices, or other communications published in any newspaper, magazine or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or advertising. (d) The Initial Purchasers further agree that, in connection with the Exempt Resales, the Initial Purchasers will solicit offers to buy the Series A Notes only from, and will offer to sell the Series A Notes only to, the Eligible Purchasers. Each Initial Purchaser further agrees that it will offer to sell the Series A Notes only to, and will solicit offers to buy the Series A Notes only from, persons who in purchasing such Series A Notes will be deemed to have represented and agreed (1) if such Eligible Purchaser is a QIB, that they are purchasing the Series A Notes for their own account or an account with respect to which they exercise sole investment discretion and that they or such accounts are QIBs, (2) that such Series A Notes will not have been registered under the Act and may be resold, pledged or otherwise transferred, only (A) (I) to a person who the seller reasonably believes is a QIB purchasing for its own account or for the account of a QIB in a transaction meeting the requirements of Rule 144A, or in accordance with Rule 144 under the Act, or pursuant to another exemption from the registration requirements of the Act (and based upon an opinion of counsel if the Company and the Guarantors so request) or (II) to the Company, (III) in an offshore transaction (as defined in Rule 902 under the Act) meeting the requirements of Rule 904 of the Act, (IV) in a 19 transaction meeting the requirements of Rule 144 under the Act, (V) to an Accredited Institution that, prior to such transfer, furnishes the Trustee a signed letter containing certain representations and agreements relating to the registration of transfer of such Series A Note and, if such transfer is in respect of an aggregate principal amount of Series A Notes less than $250,000, an opinion of counsel acceptable to the Company that such transfer is in compliance with the Act, (VI) in accordance with another exemption from the registration requirements of the Act (and based upon an opinion of counsel acceptable to the Company) or (VII) pursuant to an effective registration statement and (B) in each case, in accordance with any applicable securities laws of any State of the United States or any other applicable jurisdiction, (3) that the holder will, and each subsequent holder is required to, notify any purchaser from it of the security evidenced thereby of the resale restrictions set forth in (2) above. (e) Such Initial Purchaser and its affiliates or any person acting on its or their behalf have not engaged or will not engage in any directed selling efforts within the meaning of Regulation S with respect to the Series A Notes or the Note Guarantees. (f) The Series A Notes offered and sold by such Initial Purchaser pursuant hereto in reliance on Regulation S have been and will be offered and sold only in offshore transactions. (g) The sale of the Series A Notes offered and sold by such Initial Purchaser pursuant hereto in reliance on Regulation S is not part of a plan or scheme to evade the registration provisions of the Act. (h) Such Initial Purchaser agrees that it has not offered or sold and will not offer or sell the Series A Notes in the United States or to, or for the benefit or account of, a U.S. Person (other than a distributor), in each case, as defined in Rule 902 under the Act (i) as part of its distribution at any time and (ii) otherwise until 40 days after the later of the commencement of the offering of the Series A Notes pursuant hereto and the Closing Date, other than in accordance with Regulation S of the Act or another exemption from the registration requirements of the Act. Such Initial Purchaser agrees that, during such 40-day distribution compliance period, it will not cause any advertisement with respect to the Series A Notes (including any "tombstone" advertisement) to be published in any newspaper or periodical or posted in any public place and will not issue any circular relating to the Series A Notes, except such advertisements as are permitted by and include the statements required by Regulation S. (i) Such Initial Purchaser agrees that, at or prior to confirmation of a sale of Series A Notes by it to any distributor, dealer or person receiving a selling concession, fee or other remuneration during the 40-day distribution compliance period referred to in Rule 903(c)(2) under the Act, it will send to such distributor, dealer or person receiving a selling concession, fee or other remuneration a confirmation or notice to substantially the following effect: 20 "The Series A Notes covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of your distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, except in either case in accordance with Regulation S under the Securities Act (or Rule 144A or to institutional "accredited investors," as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act in transactions that are exempt from the registration requirements of the Securities Act), and in connection with any subsequent sale by you of the Series A Notes covered hereby in reliance on Regulation S during the period referred to above to any distributor, dealer or person receiving a selling concession, fee or other remuneration, you must deliver a notice to substantially the foregoing effect. Terms used above have the meanings assigned to them in Regulation S." (j) Such Initial purchaser agrees that the Series A Notes offered and sold in reliance on Regulation S will be represented upon issuance by a global security that may not be exchanged for definitive securities until the expiration of the 40-day distribution compliance period referred to in Rule 903(c)(3) of the Act and only upon certification of beneficial ownership of such Series A Notes in transactions that were exempt from the registration requirements of the Act. Such Initial Purchaser also understands that the Company and the Guarantors and, for purposes of the opinions to be delivered to you pursuant to Sections 8(f) and 8(g) hereof, each of O'Sullivan Graev & Karabell, LLP and Latham & Watkins, will rely upon the accuracy and truth of the foregoing representations and you hereby consent to such reliance. 7. INDEMNIFICATION. (a) The Company and each Guarantor (the "INDEMNIFYING Parties") agree to indemnify and hold harmless (i) each Initial Purchaser, (ii) each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any Initial Purchaser (any of the persons referred to in this clause (ii) being hereinafter referred to as a "CONTROLLING PERSON"), and (iii) the respective officers, directors, partners, employees, representatives and agents of each Initial Purchaser or any controlling person (any person referred to in clause (i), (ii), or (iii) may hereinafter be referred to as an "INDEMNIFIED PERSON") to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, actions and expenses (including without limitation and as incurred, reimbursement of all reasonable costs of investigating, preparing or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Indemnified Person) directly or indirectly (a) caused by, related to, based upon, arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering 21 Memorandum or the Offering Memorandum (or any amendment or supplement thereto), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by an untrue statement or omission or alleged untrue statement or omission based upon such information relating to such Initial Purchaser furnished in writing to the Company and the Guarantors by such Initial Purchaser; PROVIDED, HOWEVER, that the foregoing indemnity agreement with respect to any Preliminary Offering Memorandum or the Offering Memorandum shall not inure to the benefit of any Initial Purchaser from whom the person asserting any such losses, claims, damages, liabilities, judgments, actions or expenses purchased Notes, or any controlling person of such Initial Purchaser, if a copy of the Preliminary Offering Memorandum or the Offering Memorandum (including any amendment or supplement thereto delivered to such Initial Purchaser prior to the date such Preliminary Offering Memorandum or the Offering Memorandum was sent or given to such purchaser, was not sent or given by or on behalf of such Initial Purchaser to such person at or prior to the written confirmation of the sale of Notes to such person, and if the Preliminary Offering Memorandum or the Offering Memorandum (including any amendment or supplement thereto delivered to such Initial Purchaser prior to the date such Preliminary Offering Memorandum or the Offering Memorandum was sent or given to such purchaser) cured the defect giving rise to such losses, claims, damages, liabilities, judgments, actions or expenses. The Indemnifying Parties shall notify you promptly of the institution, threat or assertion of any claim, proceeding (including any governmental investigation) or litigation in connection with the matters addressed by this Agreement which involves the Indemnifying Parties or an Indemnified Person. (b) In case any action or proceeding (including any governmental investigation) shall be brought or asserted against any of the Indemnified Persons with respect to which indemnity may be sought against the Indemnifying Parties, such Indemnified Person (or the entity controlled by such controlling person) shall promptly notify the Company in writing (PROVIDED that the failure to give such notice shall not relieve the Indemnifying Parties of their obligations pursuant to this Agreement unless such failure to notify has materially prejudiced the ability of the Indemnifying Parties to defend any such claim) and the Indemnifying Parties shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Parties and payment of all reasonable fees and expenses. Such Indemnified Person shall have the right to employ its own counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the Indemnified Party's expense unless (i) the employment of such counsel has been specifically authorized in writing by the Company, (ii) the Indemnifying Parties have not assumed the defense and employed counsel reasonably satisfactory to such Indemnified Party within a reasonable time after notice of commencement of such action or proceeding or (iii) the named parties to any such action or proceeding (including any impleaded parties) include both an Indemnified Party and any Indemnifying Party and any such Indemnified Party shall have been advised by such counsel that there may be one or more legal defenses available to it 22 which are different from or additional to those available to the Indemnifying Parties (in which case the Indemnifying Parties shall not have the right to assume the defense of such action on behalf of the Indemnified Parties, it being understood, however, that the Indemnifying Parties shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for such Indemnified Persons, which firm shall be designated by Donaldson, Lufkin & Jenrette Securities Corporation). The Indemnifying Parties shall be liable for any settlement of any such action or proceeding effected with the Indemnifying Parties' prior written consent, which consent will not be unreasonably withheld, and the Indemnifying Parties agree to indemnify and hold harmless any Indemnified Person from and against any loss, claim, damage, liability or expense by reason of any settlement of any action effected with the written consent of the Indemnifying Parties. If at any time the Indemnified Person shall have requested the Indemnifying Parties to reimburse the Indemnified Person for fees and expenses of counsel as contemplated by the second sentence of this paragraph in connection with any such action or proceeding, the Indemnifying Parties agree that they shall be liable for any settlement of any proceeding effected without their written consent so long as they receive written notice of such settlement if (i) such settlement is entered into more than ninety business days after receipt by such Indemnifying Parties of the aforesaid request and (ii) such Indemnifying Parties shall not have reimbursed the Indemnified Party in accordance with such request prior to the date of such settlement. The Indemnifying Parties shall not, without the prior written consent of each Indemnified Person, which will not be unreasonably withheld, settle or compromise or consent to the entry of a judgment in or otherwise seek to terminate any pending or threatened action, claim, litigation or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not any Indemnified Person is a party thereto), unless such settlement, compromise, consent or termination includes an unconditional release of each Indemnified Person from all liability arising out of such action, claim, litigation or proceeding. (c) Each of the Initial Purchasers agrees, severally and not jointly, to indemnify and hold harmless the Company and the Guarantors, their respective directors and officers, any person controlling (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company or the Guarantors, and the officers, directors, partners, employees, representatives and agents of each such person to the same extent as the foregoing indemnity from the Indemnifying Parties to each of the Indemnified Persons, but only with respect to claims and actions based on information relating to such Initial Purchaser furnished in writing by such Initial Purchaser expressly for use in the Preliminary Offering Memorandum and the Offering Memorandum. (d) If the indemnification provided for in this Section 7 is unavailable to a party entitled to indemnification pursuant to Section 7(b) or (c) in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each indemnifying 23 party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities, expenses and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party (or parties, as applicable) on the one hand and the indemnified party (or parties, as applicable) on the other hand from the offering of the Series A Notes or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party (or parties, as applicable) and the indemnified party (or parties, as applicable), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other hand, shall be deemed to be in the same proportion as the total proceeds from the offering (net of discounts and commissions but before deducting expenses) received by the Company and the Guarantors bear to the total discounts and commissions received by the Initial Purchasers, in each case as set forth in the table on the cover page of the Offering Memorandum. The relative fault of the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact related to information supplied by the Company or the Guarantors, on the one hand, or the Initial Purchasers, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The indemnity and contribution obligations of the Company and the Guarantors set forth herein shall be in addition to any liability or obligation the Company and the Guarantors may otherwise have to any Indemnified Person. The Company and the Guarantors and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 7(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities, expenses or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7(d), no Initial Purchaser (and its related Indemnified Persons) shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total discount received by such Initial Purchaser applicable to the Series A Notes purchased by such Initial Purchaser exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations to contribute pursuant 24 to this Section 7(d) are several in proportion to the respective principal amount of Series A Notes purchased by each of the Initial Purchasers hereunder and not joint. 8. CONDITIONS OF THE INITIAL PURCHASERS' OBLIGATIONS. The obligations of the Initial Purchasers to purchase the Series A Notes under this Agreement are subject to the satisfaction of each of the following conditions: (a) All the representations and warranties of the Company and the Guarantors contained in this Agreement shall be true and correct in all material respects (other than those representations and warranties that are qualified by a reference to materiality, which shall be true and correct in all respects) on the Closing Date with the same force and effect as if made on and as of the date hereof and the Closing Date, respectively. The Company and the Guarantors shall have performed or complied with in all material respects all of their obligations and agreements herein contained (other than those obligations and agreements that are qualified by a reference to materiality, which shall be performed or complied with in all respects) and required to be performed or complied with by them at or prior to the Closing Date. (b) No stop order suspending the sale of the Series A Notes in any jurisdiction referred to in Section 4(e) shall have been issued and no proceeding for that purpose shall have been commenced or shall be pending or threatened. (c) (i) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency which would, as of the Closing Date, prevent the issuance of the Series A Notes; (ii) no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance of the Series A Notes; and (iii) on the Closing Date no action, suit or proceeding shall be pending against or affecting or, to the knowledge of the Company and the Guarantors, threatened against, Holding, the Company or any Subsidiary before any court or arbitrator or any governmental body, agency or official which, if adversely determined, would prohibit the issuance of the Series A Notes except as disclosed in the Offering Memorandum. (d) (i) Since the date hereof or since the dates as of which information is given in the Offering Memorandum, there shall not have been any Material Adverse Change, (ii) since the date of the latest balance sheet included in the Offering Memorandum, there shall not have been any material change in the capital stock or long-term debt, or material increase in short-term debt, of Holding, the Company or any of the Subsidiaries (other than as disclosed in the Offering Memorandum) and (iii) Holding, the Company and the Subsidiaries shall have no liability or obligation, direct or contingent, that is material to Holding, the Company and the Subsidiaries taken as a whole and is required to be disclosed on a balance sheet in accordance with GAAP and is not disclosed on the latest balance sheet included in the Offering Memorandum. 25 (e) You shall have received certificates, dated the Closing Date, signed by (i) the President or any Vice President or any other executive officer and (ii) a principal financial or accounting officer of the Company and each of the Guarantors confirming, as of the Closing Date, the matters set forth in paragraphs (a), (b), (c) and (d) of this Section 8. (f) On the Closing Date, you shall have received an opinion (satisfactory to you and your counsel), dated the Closing Date, of O'Sullivan Graev & Karabell, LLP, counsel for the Company and the Guarantors, to the effect that: (i) Holding, the Company and each of the U.S. Guarantors is a duly organized and validly existing corporation in good standing under the laws of its jurisdiction of incorporation, has the requisite corporate power and authority to own, lease and operate its properties and to conduct its business as it is currently being conducted and described in the Offering Memorandum, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction listed on a schedule attached to the opinion; (ii) Each of the Company and each of the U.S. Guarantors has all necessary corporate power and authority to execute and deliver this Agreement, the Series A Notes, the Note Guarantees, the Indenture, the Registration Rights Agreement and the Acquisition Agreement, as applicable, and to perform its obligations under this Agreement, the Indenture, the Registration Rights Agreement and the Acquisition Agreement, and to authorize, issue, sell and deliver the Series A Notes and the Note Guarantees, as applicable, as contemplated by this Agreement; (iii) Each of this Agreement, the Series A Notes, the Note Guarantees, the Registration Rights Agreement, the Indenture and the Acquisition Agreement has been duly authorized, executed and delivered by the Company and the U.S. Guarantors, as applicable; (iv) When authenticated in accordance with the terms of the Indenture and delivered to and paid for by you in accordance with the terms of this Agreement, the Series A Notes will constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms and entitled to the benefits of the Indenture, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought at law or in equity); (v) When the Series A Notes are executed and authenticated in accordance with the terms of the Indenture, each of the Note Guarantees of the 26 Guarantors endorsed thereon will constitute valid and legally binding obligations of the respective Guarantor, enforceable against each such Guarantor in accordance with its terms and entitled to the benefits of the Indenture, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought at law or in equity). (vi) The Series B Notes and the note guarantees to be endorsed thereon by the U.S. Guarantors have been duly authorized by the Company and each of the U.S. Guarantors, as the case may be. (vii) The Indenture, assuming due authorization, execution and delivery thereof by the Trustee, constitutes a valid and legally binding agreement of the Company and each of the Guarantors, enforceable against each of them in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought at law or in equity); (viii) The Notes, the Note Guarantees, the Indenture and the Registration Rights Agreement conform to the descriptions thereof contained in the Offering Memorandum in all material respects; (ix) All of the issued and outstanding shares of capital stock of, or other ownership interests in, each U.S. Guarantor have been duly and validly authorized and issued and are fully paid and nonassessable. All of the shares of capital stock of, or other ownership interests in, each U.S. Guarantor are owned, directly or through U.S. Guarantors, by the Company; (x) To the knowledge of such counsel, there are no outstanding subscriptions, rights, warrants, options, calls, convertible securities, commitments of sale or Liens related to or entitling any person to purchase or otherwise to acquire any shares of the capital stock of, or other ownership interest in, any U.S. Guarantor (other than those Liens created pursuant to the Credit Facility (as defined in the Offering Memorandum)); (xi) Neither Holding, the Company nor any of the Guarantors is (a) an "investment company" or a company "controlled" by an investment company within the meaning of the Investment Company Act of 1940, as amended, or (b) a "holding company" or a "subsidiary company" of a holding company or an "affiliate" thereof within the meaning of the Public Utility Holding Company Act of 1935, as amended; 27 (xii) The descriptions in the Offering Memorandum of statutes, legal and governmental proceedings, and contracts and other documents are accurate in all material respects; it being understood that such counsel need express no opinion as to the financial statements, notes or schedules or other financial or statistical data included therein or omitted therefrom; (xiii) To the knowledge of such counsel: (a) no action has been taken and no statute, rule or regulation or order has been enacted, adopted or issued by any governmental agency or body which prevents the issuance of the Series A Notes or the Notes Guarantees, and such counsel has received no notice which suspends the sale of the Series A Notes or the Notes Guarantees; (b) no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction has been issued with respect to Holding, the Company or any of the Guarantors which would prevent or suspend the issuance or sale of the Series A Notes or the Notes Guarantees, and such counsel has not received notice which prevents or suspends the use of the Offering Memorandum in any jurisdiction referred to in Section 4(e) hereof; and (c) no action, suit or proceeding is pending against or threatened against or affecting Holding, the Company or any of the Guarantors before any court or arbitrator or any governmental body, agency or official, domestic or foreign, which, if adversely determined, would prevent the issuance of the Series A Notes or the Notes Guarantees; (xiv) Except as may be required under state securities or "Blue Sky" laws or regulations or by the NASD, as to which such counsel expresses no opinion, no authorization, approval, consent or order of, or filing with, any court or governmental body or agency is required for the consummation of the transactions contemplated by this Agreement or the other Operative Documents, except such as have been obtained and made; no consents or waivers from any person under any bond, debenture, note, indenture, mortgage, deed of trust or other agreement or instrument that is listed on a schedule to the opinion are required to consummate the transactions contemplated by this Agreement or the other Operative Documents, except for any consent or waiver which has been obtained on or prior to the Closing Date; (xv) On the Closing Date, the Offering Memorandum (except for financial statements, the notes thereto and related schedules and other financial data included therein, or omitted therefrom, as to which no opinion need be expressed) complied as to form in all material respects with Rule 144A(d)(4) of the Act; (xvi) To the best knowledge of such counsel, other than as set forth on Schedule C to this Agreement, neither Holding, the Company nor any of the Guarantors is in violation of its respective charter or bylaws or in default in the performance of any obligation, agreement or condition contained in any 28 agreement or instrument listed on a schedule to the opinion; to the best knowledge of such counsel, there exists no condition which, with notice, the passage of time or otherwise, would constitute a default under any such document or instrument; (xvii) The execution and delivery of this Agreement and the other Operative Documents, the issuance and sale of the Series A Notes and the Note Guarantees, the performance of this Agreement and the other Operative Documents, compliance by the Company and the Guarantors with the provisions hereof and thereof and of the Series A Notes and the Note Guarantees, the consummation of the transactions contemplated hereby and thereby and the payments described in the Offering Memorandum under the caption "Use of Proceeds," in each case, as applicable, will not result in a breach or violation of any of the respective charters or bylaws of Holding, the Company or any of the U.S. Guarantors or any of the terms or provisions of, or constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) a Lien with respect to, any agreement or instrument listed on a schedule to the opinion, or, to the knowledge of such counsel, contravene any order of any court or governmental agency or body having jurisdiction over Holding, the Company or any of the U.S. Guarantors or any of their properties, or violate any statute, rule or regulation or administrative or court decree applicable to Holding, the Company or any of the U.S. Guarantors, or any of their respective properties; (xviii) The Registration Rights Agreement constitutes a valid and legally binding agreement of the Company and each Guarantor, enforceable against each of them in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, and to general equitable principles (regardless of whether considered in a proceeding in equity or at law) and, to the extent the Registration Rights Agreement provides for rights of indemnification and contribution, subject to the limitations of applicable law; (xix) The Acquisition Agreement constitutes a valid and legally binding agreement of the Company and the Guarantors that are party thereto, enforceable against the Company and such Guarantors in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to creditors' rights generally, and to equitable principles (regardless of whether considered in a proceeding in equity or at law) and to the extent the Acquisition Agreement provides for rights of indemnification and contribution, subject to the limitations of applicable law; (xx) When the Series A Notes are issued and delivered pursuant to the Purchase Agreement, such Series A Notes will not be of the same class (within the meaning of Rule 144A under the Act) as securities of the Company 29 that are listed on a national securities exchange registered under Section 6 of the Exchange Act or that are quoted in a United States automated inter-dealer quotation system; (xxi) Assuming, without independent investigation, (i) that the Series A Notes and the Note Guarantees are sold to the Initial Purchasers, and initially resold by the Initial Purchasers, in accordance with the terms of, and in the manner contemplated by, the Purchase Agreement and the Offering Memorandum, (ii) the accuracy of the representations, warranties and covenants of the Company and the Guarantors set forth in this Agreement and in certain certificates (other than the representation and warranty in Section 5(hh) of this Agreement but including the assumptions in Section 5(hh) of this Agreement), (iii) the accuracy of the Initial Purchasers' representations and warranties set forth in this Agreement, (iv) the due performance by the Company and the Guarantors of the covenants and agreements set forth in this Agreement and the due performance by the Initial Purchasers of the covenants and agreements set forth in this Agreement, (v) the Initial Purchasers' compliance with the offering and transfer procedures and restrictions described in the Offering Memorandum, (vi) the accuracy of the representations and warranties made in accordance with the Offering Memorandum by each purchaser to whom the Initial Purchasers initially resell the Series A Notes and the Note Guarantees and (vii) that each purchaser to whom the Initial Purchasers initially resell Series A Notes and the Note Guarantees receives a copy of the Offering Memorandum if requested by such purchaser prior to such sale, the offer, issuance, sale and delivery of the Series A Notes to the Initial Purchasers, and the initial reoffer, resale and delivery of the Series A Notes to the Initial Purchasers, as contemplated by this Agreement and the Offering Memorandum, do not require registration under the Act, it being understood that no opinion is expressed as to any subsequent resale of the Series A Notes and Note Guarantees or any resale of Series A Notes and Note Guarantees by any person other than the Initial Purchasers; (xxii) Prior to the Exchange Offer or the effectiveness of the Shelf Registration Statement, the Indenture is not required to be qualified under the TIA; and (xxiii) The Offering Memorandum, as of its date, and each amendment or supplement thereto, as of its date, contained the information specified in, and meets the requirements of Rule 144A(d)(4) of the Act. The opinions set forth in paragraphs (ix) and (x) will be based solely on a review of stock records and other specified corporate record books of Holding, the Company and its Subsidiaries and applicable law. As to matters of Ohio, Kansas and South Carolina law, O'Sullivan Graev & Karabell, LLP is entitled to rely on the opinion of Lathrop & 30 Gage L.C., Kansas counsel, Nexsen Pruet Jacobs & Pollard, LLP, South Carolina counsel and Squire, Sanders & Dempsey L.P.P., Ohio counsel. The opinion of O'Sullivan Graev & Karabell, LLP shall be rendered to you at the request of the Company and the Guarantors and shall so state therein. In giving their opinion required by this subsection 8(f), O'Sullivan Graev & Karabell, LLP shall additionally state that such counsel has participated in conferences with officers and other representatives of the Company and the Guarantors, representatives of the independent public accountants for the Company and the Guarantors, your representatives and your counsel in connection with the preparation of the Preliminary Offering Memorandum and the Offering Memorandum, although such counsel has not independently verified the accuracy, completeness or fairness of such statements (except as indicated above); and such counsel advises you that, on the basis of the foregoing, no facts came to such counsel's attention that caused such counsel to believe that the Offering Memorandum (as amended or supplemented), as of its date and the Closing Date, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion nor express any statement or belief with respect to the financial statements and schedules and other financial and statistical data included in, or omitted from, the Preliminary Offering Memorandum or the Offering Memorandum or any supplement or amendment thereto). (g) On the Closing Date, you shall have received an opinion (satisfactory to you and your counsel), dated the Closing Date, of Edwin Coe, English counsel for the U.K. Guarantors, to the effect that: (i) Each of NIM Holdings Limited, Norwich Injection Moulders Limited and Norwich Acquisition Limited is duly incorporated with limited liability and validly existing under the laws of England and Wales and is not in liquidation and has the requisite corporate power to own, lease and operate its properties and to conduct its business as it is currently being conducted; (ii) Each of NIM Holdings Limited, Norwich Injection Moulders Limited and Norwich Acquisition Limited has all necessary corporate power and authority to execute and deliver this Agreement, the Registration Rights Agreement, the Indenture and the Note Guarantees and to perform its obligations under each of this Agreement, the Registration Rights Agreement, the Indenture and the Note Guarantees and to authorize, issue and deliver the Note Guarantees, as contemplated by this Agreement; (iii) This Agreement, the Registration Rights Agreement, the Indenture and the Note Guarantees have been duly authorized, executed and 31 delivered by NIM Holdings Limited, Norwich Injection Moulders Limited and Norwich Acquisition Limited; (iv) Each of the obligations expressed to be assumed by NIM Holdings Limited, Norwich Injection Moulders Limited and Norwich Acquiition under the Note Guarantees constitutes a valid and legally binding obligation that is enforceable in accordance with its terms on NIM Holdings Limited, Norwich Injection Moulders Limited and Norwich Acquisition Limited; (v) The Indenture constitutes a valid and legally binding agreement of each of NIM Holdings Limited, Norwich Injection Moulders Limited and Norwich Acquisition Limited, enforceable against each of them in accordance with its terms; (vi) The execution and delivery by NIM Holdings Limited, Norwich Injection Moulders Limited and Norwich Acquisition Limited of this Agreement, the Registration Rights Agreement, the Indenture and the Note Guarantees, the issuance of the Note Guarantees, the performance of this Agreement, the Registration Rights Agreement, the Indenture and the Note Guarantees by NIM Holdings Limited, Norwich Injection Moulders Limited and Norwich Acquisition Limited, compliance by NIM Holdings Limited, Norwich Injection Moulders Limited and Norwich Acquisition Limited with the provisions thereof and of the Note Guarantees, the consummation of the transactions contemplated thereby and the payments described in the Offering Memorandum under the caption "Use of Proceeds", does not violate the memorandum of association or articles of association of NIM holdings Limited, Norwich Injection Moulders Limited and Norwich Acquisition Limited or any of the terms or provisions of or constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or obligation to create or impose) a Lien with respect to, any material agreement or instrument, or, to such counsel's knowledge, contravene any order of any court or governmental agency or body having jurisdiction over either of NIM Holdings Limited, Norwich Injection Moulders Limited or Norwich Acquisition Limited or any of their properties, or violate any state, rule or regulation or administrative or court decree applicable to either NIM Holdings Limited, Norwich Injection Moulders Limited or Norwich Acquisition Limited; (vii) All of the issued shares of NIM Holdings Limited, Norwich Injection Moulders Limited and Norwich Acquisition Limited have been validly authorized, issued and are fully paid. All of the issued share capital of Norwich Injection Moulders Limited is owned by NIM Holdings Limited, all of the issued share capital of NIM Holdings Limited is owned by the Company and all of the issued share capital of Norwich Acquisition Limited is owned by Norwich Injection Moulders Limited; 32 (viii) Except for the equitable charge over the issued share capital of NIM Holdings Limited dated July 2, 1998 in favor of NationsBank NA and the debentures dated July 2, 1998 given by each of NIM Holdings Limited and Norwich Injection Moulders Limited in favor of NationsBank, to the best of our knowledge there are no outstanding rights, warrants, options, convertible securities, Liens or other security relating to or entitling any person to purchase or otherwise acquire any shares in either of NIM Holdings Limited, Norwich Injection Moulders Limited or Norwich Acquisition Limited; (ix) The Registration Rights Agreement constitutes a valid and legally binding agreement of NIM Holdings Limited, Norwich Injection Moulders Limited and Norwich Acquisition Limited enforceable against each of them in accordance with its terms; and (x) A judgment obtained in the State of New York of a court of the State of New York or a Federal Court sitting in the State of New York which is final and conclusive arising out of or relating to the obligations of NIM Holdings Limited and Norwich Injection Moulders Limited under this Agreement, the Registration Rights Agreement, the Indenture and the Note Guarantees for a debt or definite sum of money may be enforced against NIM Holdings Limited, Norwich Injection Moulders Limited or Norwich Acquisition Limited by an action in the English Courts for the amount due under it. The opinion of Edwin Coe shall be rendered to you at the request of the Company and the Guarantors and shall so state therein. (h) You shall have received an opinion, dated the Closing Date, of Latham & Watkins, counsel for the Initial Purchasers, in form and substance reasonably satisfactory to you. (i) You shall have received letters on and as of the date hereof as well as on and as of the Closing Date (in the latter case constituting an affirmation of the statements set forth in the former), in form and substance satisfactory to you, from (A) Ernst & Young, LLP, independent auditors, with respect to the financial statements and certain financial information contained in the Offering Memorandum relating to Holding, the Company and the Subsidiaries and (B) Deloitte & Touche LLP, independent auditors, with respect to the financial statements and certain financial information contained in the Offering Memorandum relating to CPI and its subsidiaries. (j) Latham & Watkins shall have been furnished with such documents and opinions, in addition to those set forth above, as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in this Section 8 and in order to evidence the accuracy, completeness or satisfaction in all material respects of any of the representations, warranties or conditions herein contained. 33 (k) Prior to the Closing Date, the Company and the Guarantors shall have furnished to you such further information, certificates and documents as you may reasonably request. (l) The Company, the Guarantors and the Trustee shall have entered into the Indenture and you shall have received counterparts, conformed as executed, thereof. (m) The Company, the Guarantors and you shall have entered into the Registration Rights Agreement, and you shall have received counterparts, conformed as executed thereof. (n) The Acquisition shall be consummated prior to, or simultaneously with, the closing of the Offering on substantially the terms described in the Offering Memorandum and the Initial Purchasers shall have received counterparts, conformed as executed, of the Acquisition Agreement and such other documentation as they deem necessary to evidence the consummation thereof. (o) The Offering Memorandum shall have been distributed to you not later than 10:00 A.M., New York City time, on July 1, 1999, or at such later date and time as you may approve in writing. (p) CPI and Cardinal Packaging shall have become parties to this Agreement immediately after the consummation of the Acquisition. All opinions, certificates, letters and other documents required by this Section 8 to be delivered by the Company and the Guarantors will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to you. The Company and the Guarantors will furnish the Initial Purchasers with such conformed copies of such opinions, certificates, letters and other documents as it shall reasonably request. 9. EFFECTIVE DATE OF AGREEMENT AND TERMINATION. (a) This Agreement shall become effective upon the execution and delivery of this Agreement by the parties hereto. (b) This Agreement may be terminated at any time on or prior to the Closing Date by you by notice to the Company if any of the following has occurred: (i) subsequent to the date of the Offering Memorandum or of this Agreement, any Material Adverse Change which, in the judgment of the Initial Purchasers, materially impairs the investment quality of the Series A Notes; (ii) any outbreak or escalation of hostilities or other national or international calamity or crisis or material adverse change in the financial markets of the United States or elsewhere, or any other substantial national or international calamity or emergency if the effect of such outbreak, escalation, calamity, crisis or emergency would, in the judgment of the Initial Purchasers, make it impracticable or inadvisable to market the Series A Notes or to enforce 34 contracts for the sale of the Series A Notes; (iii) any suspension or limitation of trading generally in securities on the New York Stock Exchange, the American Stock Exchange or in the over-the-counter markets or any setting of minimum prices for trading on such exchange or markets; (iv) any declaration of a general banking moratorium by either federal or New York authorities; (v) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs that, in the judgment of the Initial Purchasers, has a material adverse effect on the financial markets in the United States and would, in the judgment of the Initial Purchasers, make it impracticable or inadvisable to market the Series A Notes or to enforce contracts for the sale of the Series A Notes; or (vi) the enactment, publication, decree, or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which, in your judgment, materially and adversely affect, or will materially and adversely affect, the business or operations of the Company and the Guarantors. (c) The indemnities and contribution provisions and other agreements, representations and warranties of the Company and the Guarantors, their respective officers and directors and of the Initial Purchasers set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Series A Notes, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of the Initial Purchasers or by or on behalf of the Company and the Guarantors, the officers or directors of the Company and the Guarantors or any controlling person of the Company and the Guarantors, (ii) acceptance of the Series A Notes and payment for them hereunder and (iii) termination of this Agreement. (d) If this Agreement shall be terminated by the Initial Purchasers pursuant to clause (i) of paragraph (b) of this Section 9 or because of the failure or refusal on the part of the Company or any Guarantors to comply with the terms or to fulfill any of the conditions of this Agreement, the Company and each of the Guarantors agree to reimburse you for all out-of-pocket expenses (including the fees and disbursements of counsel) incurred by you. Notwithstanding any termination of this Agreement, the Company and each of the Guarantors shall be liable for all expenses which it has agreed to pay pursuant to Section 4(f) hereof. (e) Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Company, the Guarantors, the Initial Purchasers, any Indemnified Person referred to herein and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The terms "successors and assigns" shall not include a purchaser of any of the Notes from the Initial Purchasers merely because of such purchase. (f) If on the Closing Date either Initial Purchaser shall fail or refuse to purchase the Series A Notes and the aggregate principal amount of the Series A Notes with respect to which such default occurs is more than one-tenth of the aggregate principal amount of the Series A Notes to be purchased by the Initial Purchasers and arrangements satisfactory to the Initial Purchasers and the Company for purchase of such Series A Notes are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non- 35 defaulting Initial Purchaser and the Company. In any such case which does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Offering Memorandum or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Initial Purchaser from liability in respect of any default of any such Initial Purchaser under this Agreement. 10. NOTICES. Notices given pursuant to any provision of this Agreement shall be addressed as follows: (a) if to the Company or any Guarantor, to Berry Plastics Corporation, 101 Oakley Street, P.O. Box 959, Evansville, Indiana 47710-0959, Attention: James M. Kratochvil, with a copy to O'Sullivan Graev & Karabell, LLP, 30 Rockefeller Plaza, New York, New York 10112, Attention: Michael Joseph O'Brien, and (b) if to the Initial Purchasers, to Donaldson, Lufkin & Jenrette Securities Corporation and Chase Securities Inc., c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172, Attention: Glenn Tongue, with a copy to Latham & Watkins, 885 Third Avenue, New York, New York 10022, Attention: Philip E. Coviello, or in any case to such other address as the person to be notified may have requested in writing. 11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK. 12. SUCCESSORS. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors (by merger or otherwise) and the officers and directors and other persons referred to in Section 5, and no other person will have any right or obligation hereunder. [signature page follows] 36 This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. Please confirm that the foregoing correctly sets forth the agreement among the Company, the Guarantors and you. Very truly yours, BERRY PLASTICS CORPORATION By:_________________________________ Name: Title: BPC HOLDING CORPORATION By:_________________________________ Name: Title: BERRY PLASTICS ACQUISITION CORPORATION By:_________________________________ Name: Title: BERRY IOWA CORPORATION By:_________________________________ Name: Title: 37 BERRY STERLING CORPORATION By:_________________________________ Name: Title: BERRY TRI-PLAS CORPORATION By:_________________________________ Name: Title: AEROCON, INC. By:_________________________________ Name: Title: PACKERWARE CORPORATION, a Kansas corporation By:_________________________________ Name: Title: PACKERWARE CORPORATION, a Delaware corporation By:_________________________________ Name: Title: 38 BERRY PLASTICS DESIGN CORPORATION By:_________________________________ Name: Title: VENTURE PACKAGING, INC. By:_________________________________ Name: Title: VENTURE PACKAGING MIDWEST, INC., an Ohio corporation By:_________________________________ Name: Title: VENTURE PACKAGING MIDWEST, INC., a Delaware corporation By:_________________________________ Name: Title: VENTURE PACKAGING SOUTHEAST, INC., a South Carolina corporation By:_________________________________ Name: Title: 39 VENTURE PACKAGING SOUTHEAST, INC., a Delaware corporation By:_________________________________ Name: Title: NIM HOLDINGS LIMITED By:_________________________________ Name: Title: NORWICH INJECTION MOULDERS LIMITED By:_________________________________ Name: Title: NORWICH ACQUISITION LIMITED By:_________________________________ Name: Title: KNIGHT PLASTICS, INC. By:_________________________________ Name: Title: 40 The foregoing Purchase Agreement is hereby confirmed and accepted as of the date first above written. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. By: Donaldson, Lufkin & Jenrette Securities Corporation By:_________________________________ Name: Title: 41 The foregoing Purchase Agreement is hereby confirmed and accepted as of July 6, 1999. CPI HOLDING CORPORATION By:_________________________________ Name: Title: CARDINAL PACKAGING, INC. By:_________________________________ Name: Title: 42 SCHEDULE A PRINCIPAL AMOUNT INITIAL PURCHASER OF NOTES ----------------- ---------------- Donaldson, Lufkin & Jenrette Securities Corporation ............................... $ 48,750,000 Chase Securities Inc. ...................................... $ 26,250,000 ---------------- Total ...................................................... $ 75,000,000 ================ A-1 SCHEDULE B SUBSIDIARIES - ------------ Berry Plastics Acquisition Corporation Berry Iowa Corporation Berry Tri-Plas Corporation Berry Sterling Corporation AeroCon, Inc. PackerWare Corporation, a Kansas corporation PackerWare Corporation, a Delaware corporation Berry Plastics Design Corporation Venture Packaging, Inc. Venture Packaging Midwest, Inc., an Ohio corporation Venture Packaging Midwest, Inc., a Delaware corporation Venture Packaging Southeast, Inc., a South Carolina corporation Venture Packaging Southeast, Inc., a Delaware corporation NIM Holdings Limited Norwich Injection Moulders Limited Norwich Acquisition Limited Knight Plastics, Inc. CPI Holding Corporation Cardinal Packaging, Inc. B-1 SCHEDULE C Pursuant to the terms of the Underwriting Agreement dated April 14, 1994 among the Company, Holding, Berry Iowa Corporation, Berry Tri-Plas Corporation (formerly known as Berry-CPI Plastics Corp.) and Donaldson, Lufkin & Jenrette Securities Corporation, the Company was obligated to use the proceeds of the offering of the Units (as defined in the Underwriting Agreement) to, among other things, purchase the assets of CPI-Plastics, Inc. and its affiliates (the "CPI TRANSACTION") or, in the alternative, to pay down certain industrial revenue bonds. The Company utilized a portion of such proceeds to consummate other acquisitions, rather than the CPI transaction or the repayment of such debt, and for other capital expenditures related to such consummated acquisitions. The Company and certain of the Guarantors are in default (registered exchange offer was not made effective within 150 days of the closing date) of the Registration Rights Agreement dated as of August 24, 1998 by and among the Company, Holding, Berry Iowa Corporation, Berry Sterling Corporation, Berry Tri-Plas Corporation, AeroCon, Inc., PackerWare Corporation, Berry Plastics Design Corporation, Venture Packaging, Inc., Venture Packaging Midwest, Inc., Venture Packaging Southeast, Inc., NIM Holdings Limited, Norwich Injection Moulders Limited and Donaldson, Lufkin & Jenrette Securities Corporation. C-1 SCHEDULE D With respect to the valuation of the outstanding employee stock options, the Financial Statements contained in the 10-QA filed by Holding as of May 13, 1996, were not prepared on a consistent basis with Financial Statements in previously filed SEC Reports. D-1 SCHEDULE E 1. Berry Plastics Corporation Employees 401(k) Retirement Plan. 2. Berry Plastics Health and Welfare Plan, which includes the following benefits: (a) long term disability income (salaried employees); (b) long term disability income (hourly employees); (c) short term disability; (d) group life insurance; (e) vision; and (f) dental. 3. Berry Plastics Corporation Section 125 Plan. E-1 EX-23.2 3 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 $25,000,000 of 121/4% Series C Senior Subordinated Notes due 2004. /s/ Ernst & Young LLP Indianapolis, Indiana October 27, 1999 EX-23.3 4 EXHIBIT 23.3 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No.2 to Registration Statement No. 333-64599, relating to $25,000,000 of 12-1/4% Series C Senior Subordinated Notes due 2004, 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 September 8, 1999 EX-23.4 5 EXHIBIT 23.4 INDEPENDENT AUDITORS' CONSENT 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 Amendment No. 2 the Registration Statement (Form S-4) and related Prospectus of Berry Plastics Corporation for the registration $25,000,000 of 12.25% Series C Senior Subordinated Notes due 2004. /s/ Lovewell Blake Norwich, England 27 October 1999 -----END PRIVACY-ENHANCED MESSAGE-----