<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1998
REGISTRATION NO. 333-31363
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ANCHOR GLASS CONTAINER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3220 59-3417812
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
CONSUMERS U.S., INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6719 23-2874087
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
ONE ANCHOR PLAZA
4343 ANCHOR PLAZA PARKWAY
TAMPA, FLORIDA 33634-7513
(813) 884-0000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
C. KENT MAY, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
ANCHOR GLASS CONTAINER CORPORATION
ONE ANCHOR PLAZA
4343 ANCHOR PLAZA PARKWAY
TAMPA, FLORIDA 33634-7513
(813) 884-0000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
AGENT FOR SERVICE)
------------------------
COPIES TO:
RANDI L. STRUDLER, ESQ.
JONES, DAY, REAVIS & POGUE
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 326-3939
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If 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. [ ]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. 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 JANUARY , 1998
PROSPECTUS
[ANCHOR LOGO]
ANCHOR GLASS CONTAINER CORPORATION
OFFER TO EXCHANGE ITS 11 1/4% FIRST MORTGAGE NOTES DUE 2005,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT (AS DEFINED),
FOR ITS OUTSTANDING 11 1/4% FIRST MORTGAGE NOTES DUE 2005
THESE NOTES ARE GUARANTEED ON A SENIOR SECURED BASIS BY
CONSUMERS U.S., INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
------------------------
Anchor Glass Container Corporation, a Delaware corporation ("Anchor" or the
"Company"), hereby offers to exchange (the "Exchange Offer") up to $150,000,000
aggregate principal amount of its new 11 1/4% First Mortgage Notes due 2005 (the
"Exchange Notes") for an equal principal amount of its outstanding 11 1/4% First
Mortgage Notes due 2005 (the "Outstanding Notes") sold by the Company on April
17, 1997, upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (the "Letter of
Transmittal"). The Exchange Notes and the Outstanding Notes are collectively
referred to herein as the "Notes." The terms of the Exchange Notes are identical
in all material respects to those of the Outstanding Notes, except for certain
transfer restrictions and registration rights relating to the Outstanding Notes.
The Exchange Notes will be issued pursuant to, and entitled to the benefits of,
the Indenture (as defined) governing the Outstanding Notes.
Interest on the Exchange Notes will accrue from and including the Exchange
Date (as defined) and will be payable semi-annually in arrears on April 1 and
October 1 of each year, commencing on October 1, 1997, at the rate of 11 1/4%
per annum. Additionally, interest on the Exchange Notes will accrue from the
last interest payment date on which interest was paid on the Outstanding Notes
surrendered in exchange therefor or, if no interest has been paid on the
Outstanding Notes, from the date of original issue of the Outstanding Notes to
but not including the Exchange Date. The Exchange Notes will be redeemable, in
whole or in part, at the option of the Company on or after April 1, 2001, at the
redemption prices set forth herein, plus accrued and unpaid interest, if any, to
the date of redemption. In addition, at any time or from time to time on or
prior to April 1, 2000, the Company, at its option, may redeem up to 35% of the
aggregate principal amount of the Notes originally issued with the net cash
proceeds of one or more Equity Offerings (as defined), at a redemption price
equal to 111.25% of the aggregate principal amount of the Notes to be redeemed
plus accrued and unpaid interest, if any, to the date of redemption; provided,
however, that after giving effect to any such redemption, at least 65% of the
initial aggregate principal amount of the Notes originally issued remains
outstanding.
The Exchange Notes will be senior obligations of the Company secured by a
first priority lien (subject to Permitted Liens (as defined)) on substantially
all existing and future property, plant and equipment owned or leased by the
Company other than the Bank Collateral (as defined) and Purchase Money Assets
(as defined), and a pari passu lien with the lenders under the Company's $110.0
million Revolving Credit Facility (as defined) on the Shared Collateral (as
defined), which includes, among other things, intellectual property and contract
rights and certain insurance proceeds. The Exchange Notes will rank senior in
right of payment to all existing and future subordinated Indebtedness (as
defined) of the Company and pari passu in right of payment with all other
existing and future senior Indebtedness of the Company, including all
Indebtedness outstanding under the Revolving Credit Facility, which is secured
by a first priority lien on the Bank Collateral and a pari passu lien on the
Shared Collateral. The Exchange Notes will be fully and unconditionally
guaranteed (each a "Guarantee" and collectively the "Guarantees" and together
with the Exchange Notes, the "Securities") on a senior secured basis by
Consumers U.S., Inc. ("Consumers U.S." or the "Parent Guarantor") and by any
future Restricted Subsidiary (as defined) of the Company, each of which future
Restricted Subsidiaries will become a guarantor in accordance with the terms of
the Indenture (each, including the Parent Guarantor, a "Guarantor" and,
collectively, the "Guarantors"). Each Guarantee will rank senior in right of
payment to all existing and future subordinated Indebtedness of the relevant
Guarantor and pari passu in right of payment to all existing and future senior
Indebtedness of such Guarantor and will be secured, in the case of the Guarantee
by the Parent Guarantor, by a perfected first priority pledge of the capital
stock of the Company owned by Consumers U.S. and, in the case of any Guarantee
by a Restricted Subsidiary, by a first priority lien (subject to Permitted
Liens) on all existing and future property, plant and equipment owned or leased
by such Restricted Subsidiary other than the Bank Collateral and Purchase Money
Assets. At December 31, 1997, the Company had approximately $163.8 million of
Indebtedness outstanding.
(Continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE 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 , 1998.
<PAGE> 3
(Continued from previous page)
Upon a Change of Control (as defined), each holder of the Notes will have
the right to require the Company to repurchase such holder's Notes at a price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase. Within 90 days after the consummation of any
Change of Control Offer (as defined) pursuant to which the Company has
repurchased at least 90% of the Notes outstanding immediately prior to such
Change of Control Offer, the Company may, at its option, redeem all of the
remaining Notes at a redemption price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase. In
addition, under certain circumstances, the Company will be required to offer to
purchase the Notes at 100% of the principal amount thereof plus accrued
interest, if any, to the date of repurchase with the net cash proceeds of
certain Asset Sales (as defined). See "Description of the Notes."
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Outstanding Notes where they were acquired by such broker-dealer as a result
of market-making or other trading activities. Each broker-dealer that received
Outstanding Notes from the Company and not as a result of market-making or other
trading activities, in the absence of an exemption, must comply with the
registration requirements of the Securities Act. The Company and the Parent
Guarantor will, for a period of 180 days after consummation of the Exchange
Offer, make copies of this Prospectus available to any broker-dealer for use in
connection with any such resale.
The Outstanding Notes held by "qualified institutional buyers" (as such term
is defined in Rule 144A under the Securities Act, "QIBs") are designated for
trading in the Private Offerings, Resales and Trading through Automated Linkages
Market (the "PORTAL Market") of the National Association of Securities Dealers
Inc. The Exchange Notes constitute securities for which there is no established
trading market. Any Outstanding Notes not tendered and accepted in the Exchange
Offer will remain outstanding. The Company does not intend to list the Exchange
Notes on any securities exchange or to seek approval for quotation through any
automated quotation system, and no active public market for the Exchange Notes
is currently anticipated. If a market for the Exchange Notes should develop,
such Exchange Notes could trade at a discount from their principal amount. To
the extent that any Outstanding Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Outstanding Notes could be
adversely affected. No assurance can be given as to the liquidity of the trading
market for either the Outstanding Notes or the Exchange Notes.
The Exchange Notes are being offered hereby in order to satisfy certain
obligations of the Company and the Parent Guarantor contained in the
Registration Rights Agreement dated as of April 17, 1997 (the "Registration
Rights Agreement") among the Company, the Parent Guarantor and certain
institutional accredited investors (the "Initial Purchasers") entered into at
the time of original issue of the Outstanding Notes. Neither the Company nor the
Parent Guarantor will receive any proceeds from the Exchange Offer. The Company
will pay all expenses incident to the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange pursuant to the Exchange Offer.
The date of acceptance and exchange (the "Exchange Date") of the Outstanding
Notes will be the second business day following the Expiration Date. Outstanding
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior
to the Expiration Date. In the event the Company terminates the Exchange Offer
and does not accept for exchange any Outstanding Notes with respect to the
Exchange Offer, the Company will promptly return such Outstanding Notes to the
holders thereof.
<PAGE> 4
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS
REGARDING, AMONG OTHER ITEMS, (I) THE REALIZATION OF ANCHOR'S BUSINESS STRATEGY
AND THE COST SAVINGS ESTIMATED TO BE ACHIEVED IN CONNECTION THEREWITH AND THE
COSTS ASSOCIATED THEREWITH, (II) THE SUFFICIENCY OF CASH FLOW AND OTHER SOURCES
OF LIQUIDITY TO FUND ANCHOR'S DEBT SERVICE REQUIREMENTS, WORKING CAPITAL NEEDS
AND OTHER SIGNIFICANT EXPENDITURES AND (III) ANTICIPATED TRENDS IN THE GLASS
PACKAGING INDUSTRY, INCLUDING, WITH RESPECT TO INDUSTRY CAPACITY, PRODUCT DEMAND
AND PRICING. FORWARD-LOOKING STATEMENTS ARE TYPICALLY IDENTIFIED BY THE WORDS
"BELIEVE," "EXPECT," "ANTICIPATE," "INTEND," "ESTIMATE," "PROJECT" AND SIMILAR
EXPRESSIONS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS
AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND ANCHOR'S CONTROL. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF FACTORS INCLUDING THOSE DESCRIBED IN "RISK FACTORS."
IN LIGHT OF THESE RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT THE
RESULTS AND EVENTS CONTEMPLATED BY THE FORWARD-LOOKING INFORMATION CONTAINED IN
THIS PROSPECTUS WILL IN FACT TRANSPIRE. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THEIR
DATES. ANCHOR DOES NOT UNDERTAKE ANY OBLIGATION TO UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENTS.
THIS PROSPECTUS CONTAINS HISTORICAL FINANCIAL INFORMATION REGARDING
GLENSHAW GLASS COMPANY, INC. ("GLENSHAW") AND CONSUMERS PACKAGING INC.
("CONSUMERS"), AFFILIATES OF ANCHOR. PRIOR RESULTS OF CONSUMERS AND GLENSHAW ARE
NOT INDICATIVE OF THE COMPANY'S FUTURE RESULTS. THE NATURE AND RISKS OF THE
RESTRUCTURING CARRIED OUT AT CONSUMERS AND GLENSHAW, AND MARKET CONDITIONS FACED
BY THEM, DIFFER SUBSTANTIALLY FROM THE NATURE AND RISKS OF THE BUSINESS STRATEGY
FOR ANCHOR DESCRIBED UNDER "BUSINESS -- BUSINESS STRATEGY."
------------------------
AVAILABLE INFORMATION
The Company and Consumers U.S. have filed with the Securities and Exchange
Commission (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 Exchange
Notes being offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company,
Consumers U.S. and the Exchange Notes, reference is made to the Registration
Statement. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, where such contract
or other document is an exhibit to the Registration Statement, each such
statement is qualified in all respects by the provisions in such exhibit, to
which reference is hereby made. Copies of the Registration Statement may be
examined without charge at the Public References Section of the Commission, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the Commission's
Regional Offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of certain fees prescribed by
the Commission. The Commission maintains an Internet site on the World Wide Web
at "http://www.sec.gov." which contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission.
Neither the Company nor Consumers U.S. is currently subject to the
informational requirements of Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Upon completion of the Exchange Offer, the Company and
Consumers U.S. will be subject to the informational requirements of the Exchange
Act, and, in accordance therewith, will file periodic reports and other
information with the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Copies of any material so filed can be obtained from the Public Reference
Section of the Commission, upon payment of certain fees prescribed by the
Commission. Notwithstanding the foregoing, Consumers U.S. intends to request
that the Commission, pursuant to Section
i
<PAGE> 5
12(h) of the Exchange Act, grant an order exempting it from complying with the
information requirements of the Exchange Act.
In addition, the Company is required by the terms of the Indenture to
furnish the Trustee and the holders of the Notes with annual reports containing
consolidated financial statements audited by its independent public accountants
and with quarterly reports containing unaudited condensed consolidated financial
statements for each of the first three quarters of each fiscal year.
ii
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the consolidated financial statements and notes thereto, included elsewhere in
this Prospectus. Unless otherwise noted, references to: (i) "Anchor" or "the
Company" shall mean Anchor Glass Container Corporation; (ii) "Consumers" shall
mean Consumers Packaging Inc. and its Canadian subsidiary, Consumers
International Inc. ("Consumers International"); (iii) "Consumers U.S." or the
"Parent Guarantor" shall mean Consumers U.S., Inc.; (iv) the "Anchor
Acquisition" shall mean the acquisition by the Company of certain assets and the
assumption of certain liabilities of Old Anchor on February 5, 1997; and (v)
"Old Anchor" shall mean the former Anchor Glass Container Corporation, which is
currently a debtor-in-possession under Chapter 11 of the United States
Bankruptcy Code of 1978, as amended (the "Bankruptcy Code") and was renamed
Anchor Resolution Corp. following the Anchor Acquisition. Financial information
set forth in this Prospectus has been prepared in accordance with generally
accepted accounting principles in the United States ("GAAP"). References to "C$"
are to Canadian Dollars.
THE COMPANY
On a pro forma basis after giving effect to the Anchor Acquisition, Anchor
is the third largest manufacturer of glass containers in the United States, with
an approximate 19% share of U.S. glass container sales in 1996. Anchor produces
a diverse line of flint (clear), amber, green and other colored glass containers
of various types, designs and sizes. The Company manufactures and sells its
products to many of the leading producers of beer, liquor, wine, food, juice,
tea, soda and mineral water. The Company focuses on the production of beer
containers as this product category accounted for approximately 50% of the
Company's pro forma 1996 unit sales, nearly twice the volume of its next largest
category. After giving effect to the Anchor Acquisition, for the year ended
December 31, 1996, the Company had pro forma net sales of $722.7 million.
Consumers, Canada's only glass container manufacturer, indirectly owns
approximately 59% of Anchor on a fully diluted basis. By management's estimates,
Consumers produced in excess of 80% of all glass containers sold in Canada in
1996, with U.S. glass container manufacturers (including Old Anchor) having
produced most of the remainder. On a pro forma combined basis, after giving
effect to the Anchor Acquisition, the Company and Consumers would have had total
net sales of over $1.0 billion in 1996, net of intercompany sales.
A new senior management team, including executives from Consumers and its
majority shareholder, G&G Investments, Inc. ("G&G"), who led the turnarounds at
both Consumers and Glenshaw Glass Company, Inc. ("Glenshaw"), will implement a
series of turnaround initiatives at Anchor. This new management team believes
that Old Anchor was slow to respond to the changing dynamics of the market for
glass packaging. Burdened by over $550.0 million of debt and with limited
financial flexibility, Old Anchor's strategy focused on aggressively increasing
its market share in a competitive market that suffered from substantial
overcapacity. Additionally, new management believes that during 1995 and 1996
relationships with some of Old Anchor's customers deteriorated because their
needs were not properly addressed and the pricing terms of certain long-term
contracts with important customers were not honored.
Anchor's strategy to improve upon Old Anchor's operating performance is to
(i) establish and maintain strong customer relationships, (ii) provide high
quality products and service, (iii) control manufacturing, distribution and
overhead costs, and (iv) improve production planning and product mix at the
plant level to increase operating and distribution efficiency. Consistent with
this strategy, management of the Company and of Consumers has closed two Anchor
plants, removed two furnaces from production at two other Anchor plants and
closed one Consumers plant. Management believes that its strategy to eliminate
excess capacity is consistent with certain recent actions of the Company's two
major competitors. The consolidation in the glass packaging industry has
resulted in the three leading manufacturers producing approximately 95% of 1996
U.S. sales.
1
<PAGE> 7
COMPETITIVE STRENGTHS
Management believes the Company has the following key competitive
strengths:
EXPERIENCED TURNAROUND MANAGEMENT TEAM. John J. Ghaznavi, Chairman and
Chief Executive Officer of Anchor and his team of managers plan to implement a
turnaround program at Anchor that will focus on reducing costs and optimizing
production efficiency at the plant level. Mr. Ghaznavi and this management team
have successfully implemented turnarounds at both Consumers and Glenshaw.
In 1993, through G&G, Mr. Ghaznavi acquired a controlling interest in
Consumers, which had experienced annual losses since 1987. Following such
acquisition, Mr. Ghaznavi installed experienced management and technical teams
that restructured Consumers' business. By rationalizing operations, improving
productivity, focusing on niche markets and introducing new production
technology, as well as building and capitalizing on strong customer
relationships, Mr. Ghaznavi and his team of managers were able to improve
Consumers' operating and distribution efficiency. Consumers' sales increased
from C$425.4 million in 1992 to C$462.3 million in 1996 during a period of
general industry decline, while EBITDA increased from C$37.4 million, or 8.8% of
sales, in 1992 to C$63.2 million, or 13.7% of sales, in 1996.
Mr. Ghaznavi and his team of managers also engineered a turnaround at
Glenshaw, a single-plant U.S. glass container manufacturer that focuses on
low-volume, customized production runs. During the years preceding Mr.
Ghaznavi's acquisition of Glenshaw through G&G in 1988, Glenshaw had experienced
declining sales and operating losses. Since its acquisition by G&G, Glenshaw's
sales have more than doubled and EBITDA has more than tripled.
Mr. Ghaznavi has extensive industry and customer networks. From 1995
through 1997, he served as Chairman of the Board of Trustees of the Glass
Packaging Institute, the leading industry organization that includes as its
members manufacturers representing over 95% of North America's glass container
production and remains a member of its board. Mr. Ghaznavi intends to build on
these industry and customer networks to establish new customer relationships, as
well as to recapture and strengthen Old Anchor's former customer relationships.
EFFICIENT MANUFACTURING FACILITIES. From 1991 to 1996, Old Anchor invested
in excess of $218.9 million to maintain and upgrade its machines and furnaces at
the facilities that management has identified as ongoing plants, resulting in
more efficient and modern glass production facilities. In addition, Old Anchor
invested $145.1 million in molds for all plants during the same period. As a
result of these expenditures and the reduction of capacity through plant
closings, the Company believes it has the manufacturing facilities which will
allow it to significantly increase efficiency upon improved allocation of
production. In conjunction with the Note Offering, American Appraisal
Associates, Inc. ("AAA") estimated the market value for real property and the
liquidation in place value of the Company's ongoing plants, machinery and mold
facilities to be $243.0 million. Additionally, AAA has estimated the fair market
value of these properties on the premise of continued use to be approximately
$312.4 million. See Summarization Letters of AAA, attached as Annex A to this
Prospectus.
SUPERIOR DESIGN CAPABILITIES. Old Anchor had distinguished itself as a
premier provider of new product designs with the ability to integrate such
designs into the production process. The Company's willingness to work closely
with customers to produce unique package designs is an effective marketing tool
and is expected to assist in re-establishing customer relationships.
ACCESS TO OWENS TECHNOLOGY. Most of Anchor's production facilities utilize
proprietary glass manufacturing technology of Owens-Brockway Glass Container
Inc. ("Owens"), which is generally considered a recognized technological leader
in the manufacture of glass containers. In February 1997, the Company entered
into a Technical Assistance and License Agreement (the "Technology Agreement")
for a term of up to ten years with Owens to use Owens' proprietary glass
manufacturing technology. Management believes that the Technology Agreement
provides key benefits to Anchor in both marketing and manufacturing its
products.
2
<PAGE> 8
BUSINESS STRATEGY
Management believes it can significantly improve upon Old Anchor's recent
operating results by implementing the following strategy:
REDUCE COST STRUCTURE. Management believes that Old Anchor maintained
excessive production capacity, which resulted in higher operating costs. In
addition, management believes that Old Anchor maintained disproportionately
large corporate overhead expenses in relation to its plant operations.
Management has already begun to implement its cost reduction strategy in the
following areas:
Plant Closings. Following the Anchor Acquisition, the Company closed its
Houston, Texas ("Houston") and Dayville, Connecticut ("Dayville") plants (the
"Plant Closings") in order to reduce excess capacity. In September 1997,
Hillsboro Glass Company ("Hillsboro"), a glass container manufacturing plant
owned by G&G, discontinued manufacturing. All of Hillsboro's rights and
obligations to fill orders under a supply contract between Consumers and one of
its major customers have been purchased by Consumers and Anchor. In addition,
management will continue to monitor business conditions and utilization of plant
capacity to determine the appropriateness of further plant closings. The Plant
Closings are expected to eliminate an estimated $24.1 million of annual fixed
costs based on 1996 costs at the two plants. These fixed costs include an
estimated $16.5 million of annual indirect labor costs and an estimated $7.6
million of annual fixed manufacturing costs (fuel, power and repairs) and
operating costs (equipment rentals, taxes and insurance). In connection with the
Anchor Acquisition, Anchor recorded a reserve for expenses estimated to be
incurred in connection with the closing of the Houston and Dayville plants of
approximately $33.0 million to be spent over a three year time frame, $20.0
million of which has already been incurred.
Selling and Administrative Expense Savings. Anchor has implemented a
targeted expense reduction program, the objective of which is to create a leaner
organization through the elimination of excess layers of management and
consolidation of certain functions such as purchasing, sales, engineering and
MIS, with Consumers and Glenshaw. The Company has realized an estimated $7.2
million in annual cost savings through the elimination of 25% or 61 of Old
Anchor's corporate headquarters positions as of March 1997 (the "Headquarters
Cost Reductions") and has realized an additional estimated $6.2 million in
annual cost savings from further headquarters employee reductions and related
expenses. Management estimates that one-time severance costs approximate $2.2
million in connection with these staff reductions, a majority of which has
already been incurred. Further, in connection with a plan to simplify the
corporate ownership structure of Consumers, Anchor and their affiliates,
Glenshaw may become a subsidiary of Anchor.
IMPROVE PRODUCTION PLANNING AND PRODUCT MIX. With the elimination of
excess capacity, management believes it will be able to improve efficiency and
operating results by reallocating production among the Company's manufacturing
facilities according to machine strength and by instituting longer production
runs with fewer mold and color changes. To implement this strategy, individual
plant managers are now responsible for managing each plant's financial
performance and each product sales organization is responsible for managing the
product mix and the financial performance of its product line.
STRENGTHEN CUSTOMER RELATIONS. The Company believes that reestablishing
the positive customer relationships Old Anchor benefitted from in the past is
essential to improving financial performance. Management believes that Old
Anchor's operating results suffered in part due to a shift in product mix toward
shorter production runs, which require more frequent retooling and increased
costs. This shift occurred when management of Old Anchor began to fill excess
capacity created by the loss of long-term contractual customers with less
desirable spot orders. Establishing long-term customer relationships improves
efficiency through longer production runs and more predictable scheduling.
Management at Anchor has already begun to rebuild relationships with some of Old
Anchor's larger volume customers, including Anheuser-Busch Companies, Inc.
("Anheuser-Busch"), which purchased approximately 4.0 million gross in 1997 and
placed a purchase order for approximately 9.9 million gross in 1998, after
substantially reducing its purchases from Old Anchor.
3
<PAGE> 9
EXPLOIT SYNERGIES. Management intends to exploit synergies that exist
between the Company and its affiliates, including Consumers and Glenshaw:
Purchasing. Management believes that it will be able to obtain lower costs
on certain of its raw materials than Old Anchor did in 1996 by combining
Anchor's purchasing with that of its affiliates thereby creating potential for
more favorable bulk purchasing rates. Management has already experienced some
cost savings as compared to Old Anchor in bulk purchasing of soda ash, sand and
packaging materials.
Freight Savings. Management believes that Old Anchor maintained excess
manufacturing capacity and less than optimal plant by plant product mix relative
to its plant-specific machine strengths and the geographic needs of its
customers. As a result, management believes that Old Anchor suffered from
excessive freight and allowance costs as it sought to utilize excess capacity by
satisfying orders in plants beyond economical shipping distances. Certain
production has been, and will continue to be, reallocated among Anchor plants
and between Anchor and Consumers to maximize regional production where possible.
This represents an opportunity for Anchor to reduce shipping distances and thus
reduce freight and allowance costs.
Marketing. Management believes that its affiliation with Consumers and
Glenshaw will create a competitive advantage in marketing to the broader United
States and Canadian markets. Consumers has been marketing Anchor's production
capacity to those existing Canadian customers who currently have their U.S.
orders filled through competitors of Anchor.
THE ANCHOR ACQUISITION AND THE NOTE OFFERING
On February 5, 1997, the Company purchased from Old Anchor eleven operating
plants, several idled plants and other related assets, as well as the
liabilities related to the purchased assets, for consideration of $200.5 million
in cash in addition to common and convertible preferred stock of the Company. In
addition, the Company contributed $9.1 million in cash and convertible preferred
stock of the Company valued at $9.0 million to three defined benefit plans of
Old Anchor, certain of the liabilities in respect of which were assumed and
which plans are now maintained by the Company. The Company also incurred
approximately $9.9 million of fees and expenses in connection with the Anchor
Acquisition. The Company obtained the cash portion of the purchase price for the
Anchor Acquisition, including the defined benefit plan contributions, from (i)
an $85.0 million cash investment by Consumers in common stock and convertible
preferred stock of the Company representing approximately 59% of the Company's
capital stock on a fully diluted basis, (ii) a $130.0 million loan facility (the
"Anchor Loan Facility"), (iii) $0.1 million of borrowings under the Company's
$110.0 million revolving credit facility (the "Revolving Credit Facility"), and
(iv) $4.4 million from the sale of certain inventory to Owens. In addition, in
connection with the Anchor Acquisition, Owens acquired certain assets and
assumed certain liabilities of Old Anchor. The purchase price paid by the
Company is subject to adjustment. On June 13, 1997, Old Anchor delivered to the
Company the closing balance sheet, which indicated that Old Anchor believed that
it was entitled to additional payments from the Company and Owens totaling
approximately $76.3 million. On July 28, 1997, the Company delivered its notice
of disagreement to Old Anchor, which requested a reduction of the purchase price
of approximately $96.8 million. Since that time, the parties have been
negotiating the amount of the adjustment and in January 1998, have reached a
proposed settlement (the "Proposed Settlement"). The Proposed Settlement
requires the payment by the Company to Old Anchor of an additional $1.0 million
in cash and the issuance of warrants to purchase additional shares of common
stock. In addition, the Company will issue warrants to purchase additional
shares of common stock to Consumers U.S. or its affiliate. The Proposed
Settlement is subject to final approval by the Company, Old Anchor and the
bankruptcy court.
On April 17, 1997, the Company sold the Outstanding Notes (the "Note
Offering") and used a portion of the net proceeds therefrom to repay all
outstanding Indebtedness under the Anchor Loan Facility and advances outstanding
under the Revolving Credit Facility. The remainder of such net proceeds will be
used by the Company for working capital.
4
<PAGE> 10
CORPORATE STRUCTURE
[ORGANIZATIONAL FLOW CHART]
- ---------------
(1) Owned directly or indirectly.
(2) Listed on The Toronto Stock Exchange under the symbol "CGC."
(3) Concurrent with the Exchange Offer, Consumers International Inc. ("Consumers
International"), which indirectly owns approximately 59% of the Company on a
fully diluted basis through Consumers U.S., will offer to exchange
("Consumers International Exchange Offer") its 10 1/4% Senior Secured Notes
due 2005, which will have been registered under the Securities Act, for its
outstanding 10 1/4% Senior Secured Notes due 2005.
(4) On a fully diluted basis.
(5) In connection with a plan to simplify the corporate ownership structure of
Consumers, Anchor and their affiliates, Glenshaw may become a subsidiary of
Anchor or Consumers U.S.
------------------------
The principal executive offices of the Company are located at One Anchor
Plaza, 4343 Anchor Plaza Parkway, Tampa, Florida 33634-7513. The telephone
number is (813) 884-0000.
5
<PAGE> 11
THE EXCHANGE OFFER
The Exchange Offer................. The Company is offering to exchange up to
$150,000,000 aggregate principal amount
of its new 11 1/4% First Mortgage Notes
due 2005 for an equal principal amount of
its outstanding 11 1/4% First Mortgage
Notes due 2005. The terms of the Exchange
Notes are identical in all material
respects to those of the Outstanding
Notes, except for certain transfer
restrictions and registration rights
relating to the Outstanding Notes.
Purpose of the Exchange Offer...... The Exchange Notes are being offered to
satisfy certain obligations of the
Company under the Registration Rights
Agreement.
Expiration Date; Withdrawal of
Tender............................. The Exchange Offer will expire at 5:00
p.m., New York City time, on
, 1998, or such later date
and time to which it is extended by the
Company (the "Expiration Date"). The
tender of Outstanding Notes pursuant to
the Exchange Offer may be withdrawn at
any time prior to the Expiration Date.
Any Outstanding Notes not accepted for
exchange for any reason will be returned
without expense to the tendering holder
thereof as promptly as practicable after
the expiration or termination of the
Exchange Offer.
Procedures for Tendering
Outstanding Notes.................. Each holder of Outstanding 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, together
with the Outstanding Notes and any other
required documentation to the Exchange
Agent (as defined) at the address set
forth in the Letter of Transmittal.
Outstanding Notes may be physically
delivered, but physical delivery is not
required if a confirmation of a
book-entry transfer of such Outstanding
Notes to the Exchange Agent's account at
The Depository Trust Company ("DTC" or
the "Depository") is delivered in a
timely fashion. See "The Exchange
Offer -- Procedures for Tendering
Outstanding Notes."
Conditions to the Exchange Offer... The Exchange Offer is not conditioned
upon any minimum aggregate principal
amount of Outstanding Notes being
tendered for exchange. The Exchange Offer
is subject to certain customary
conditions, which may be waived by the
Company. The Company currently expects
that each of the conditions will be
satisfied and that no waivers will be
necessary. See "The Exchange Offer --
Conditions to the Exchange Offer."
Exchange Agent..................... The Bank of New York (the "Exchange
Agent").
Certain U.S. Federal Income Tax
Considerations................... The exchange of an Outstanding Note for
an Exchange Note by a Holder pursuant to
the Exchange Offer will not
6
<PAGE> 12
constitute a taxable exchange. Such an
exchange will not result in taxable
income, gain or loss being recognized by
such Holder or by the Company.
Immediately after the exchange, such
Holder will have the same adjusted basis
and holding period in each Exchange Note
received as such Holder had immediately
prior to the exchange in the
corresponding Outstanding Note
surrendered. See "Certain U.S. Federal
Income Tax Considerations."
Consequences of Exchanging
Outstanding Notes Pursuant to the
Exchange Offer................... Based on certain interpretive letters
issued by the staff of the Commission to
third parties in unrelated transactions,
holders of Outstanding Notes (other than
any holder who is an "affiliate" of the
Company or the Parent Guarantor within
the meaning of Rule 405 under the
Securities Act) who exchange their
Outstanding Notes for Exchange Notes
pursuant to the Exchange Offer generally
may offer such Exchange Notes for resale,
resell such Exchange Notes and otherwise
transfer such Exchange Notes without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that such
Exchange Notes are acquired in the
ordinary course of the holders' business
and such holders are not participating
in, and have no arrangement or
understanding with any person to
participate in, a distribution of such
Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own
account in exchange for Outstanding
Notes, where such Outstanding Notes were
acquired by such broker-dealer as a
result of market-making activities or
other trading activities, must
acknowledge that it will deliver a
prospectus in connection with any resale
of such Notes. See "Plan of
Distribution." In addition, to comply
with the securities laws of certain
jurisdictions, if applicable, the
Exchange Notes may not be offered or sold
unless they have been registered or
qualified for sale in such jurisdiction
or an exemption from registration or
qualification is available and is
complied with. The Company has agreed,
pursuant to the Registration Rights
Agreement and subject to certain
specified limitations therein, to
register or qualify the Exchange Notes
for offer or sale under the securities or
blue sky laws of such jurisdictions as
any holders of the Notes request in
writing. If a holder of Outstanding Notes
does not exchange such Outstanding Notes
for Exchange Notes pursuant to the
Exchange Offer, such Outstanding Notes
will continue to be subject to the
restrictions on transfer contained in the
legend thereon. If any holder of such
Outstanding Notes is an affiliate of the
Company, is engaged in or intends to
engage in or has any arrangement or
understanding with any person to
participate in the distribution of the
Exchange Notes to be acquired in the
Exchange Offer, such holder (i) could not
rely on the applicable interpretations of
the Commission and (ii) must comply with
the regis-
7
<PAGE> 13
tration requirements of the Securities
Act in connection with any resale
transaction. In general, the Outstanding
Notes may not be offered or sold unless
registered under the Securities Act,
except pursuant to an exemption from, or
in a transaction not subject to, the
registration requirements of the
Securities Act and applicable state
securities laws.
THE EXCHANGE NOTES
The Terms of the Exchange Notes are identical in all material respects to
those of the Outstanding Notes, except for certain transfer restrictions and
registration rights relating to the Outstanding Notes.
Securities Offered................. $150,000,000 aggregate principal amount
of 11 1/4% First Mortgage Notes due 2005.
Issuer............................. Anchor Glass Container Corporation.
Maturity Date...................... April 1, 2005.
Interest Payment Dates............. Interest on the Exchange Notes will be
payable semi-annually in arrears on each
April 1, and October 1, commencing
October 1, 1997 and will accrue from and
including the Exchange Date.
Additionally, interest on the Exchange
Notes will accrue from the last interest
payment date on which interest was paid
on the Outstanding Notes surrendered in
exchange therefor or, if no interest has
been paid on the Outstanding Notes, from
the date of original issue of the
Outstanding Notes to but not including
the Exchange Date. Holders whose
Outstanding Notes are accepted for
exchange will be deemed to have waived
the right to receive any interest accrued
on the Outstanding Notes.
Ranking............................ The Exchange Notes will be senior secured
obligations of the Company ranking pari
passu with all existing and future senior
Indebtedness of the Company, including
all Indebtedness outstanding under the
Company's $110.0 million Revolving Credit
Facility, which is secured by a first
priority lien on the Bank Collateral and
a pari passu lien on the Shared
Collateral, and senior in right of
payment to all existing and future
subordinated Indebtedness of the Company.
At December 31, 1997, the Company had
approximately $163.8 million of
Indebtedness outstanding. At December 31,
1997, there was no Indebtedness senior to
the Notes and there was $10.5 million of
Indebtedness pari passu with the Notes.
Guarantees......................... The Exchange Notes will be fully and
unconditionally guaranteed on a senior
secured basis by the Guarantors. The
Guarantees will rank pari passu with all
existing and future senior Indebtedness
of the Guarantors and senior in right of
payment to all existing and future
subordinated Indebtedness of the
Guarantors.
8
<PAGE> 14
Security........................... The Exchange Notes will be secured by a
first priority lien (subject to Permitted
Liens) on substantially all of the
property, plant and equipment owned or
leased by the Company, including the
Shared Collateral but excluding the Bank
Collateral, Capital Stock (as defined)
(other than Capital Stock of Restricted
Subsidiaries) and Purchase Money Assets.
The Guarantee by Consumers U.S. will be
secured by a perfected first priority
pledge of all of the capital stock of the
Company owned by Consumers U.S. Each
Guarantee by any future Restricted
Subsidiary will be secured by a first
priority lien (subject to Permitted
Liens) on all existing and future
property, plant and equipment owned or
leased by such Restricted Subsidiary.
Optional Redemption................ The Exchange Notes will be redeemable, in
whole or in part, at the option of the
Company on or after April 1, 2001, at the
redemption prices set forth herein, plus
accrued and unpaid interest, if any, to
the date of redemption. In addition, at
any time or from time to time on or prior
to April 1, 2000, the Company, at its
option, may redeem up to 35% of the
aggregate principal amount of the Notes
originally issued with the net cash
proceeds of one or more Equity Offerings,
at a redemption price equal to 111.25% of
the aggregate principal amount of the
Notes to be redeemed plus accrued and
unpaid interest, if any, to the date of
redemption; provided, however, that,
after giving effect to any such
redemption, at least 65% of the aggregate
principal amount of the Notes originally
issued remains outstanding.
Change of Control.................. Upon a Change of Control, each holder of
Notes will have the right to require the
Company to repurchase all or any part of
such holder's Notes at a repurchase price
equal to 101% of the principal amount
thereof plus accrued and unpaid interest,
if any, to the date of repurchase. Within
90 days after the consummation of any
Change of Control Offer (as defined)
pursuant to which the Company has
repurchased at least 90% of the Notes
outstanding immediately prior to such
Change of Control Offer, the Company may,
at its option, redeem all of the
remaining Notes at a redemption price
equal to 101% of the principal amount
thereof, plus accrued and unpaid
interest, if any, to the date of
repurchase.
Certain Covenants.................. The indenture relating to the Exchange
Notes and the Guarantees (the
"Indenture") contains certain covenants
that limit the ability of the Company and
its Restricted Subsidiaries to, among
other things, incur additional
Indebtedness, pay dividends or make
certain other restricted payments,
consummate certain asset sales, enter
into certain transactions with
affiliates, incur liens, merge or
consolidate with any other person or
sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially
all
9
<PAGE> 15
of the assets of the Company. In
addition, under certain circumstances,
the Company will be required to offer to
purchase the Exchange Notes, in whole or
in part, at a purchase price equal to
100% of the principal amount thereof plus
accrued and unpaid interest, if any, to
the date of repurchase, with the net cash
proceeds of certain Asset Sales.
For additional information regarding the Exchange Notes, see "Description
of the Notes."
USE OF PROCEEDS
Neither the Company nor the Parent Guarantor will receive any proceeds from
the Exchange Offer.
RISK FACTORS
Holders of Outstanding Notes should carefully consider all of the
information set forth in this Prospectus and, in particular, should evaluate the
specific factors set forth under "Risk Factors" in connection with the Exchange
Offer.
10
<PAGE> 16
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following table sets forth certain unaudited pro forma financial
information and certain historical financial information of the Company and the
Company's predecessor, Old Anchor. The summary historical financial data for the
period from February 5, 1997 to September 30, 1997 has been derived from, and
should be read in conjunction with, the Company's unaudited condensed financial
statements, including the notes thereto and the related "Management's Discussion
and Analysis of Financial Condition and Results of Operations," included
elsewhere in this Prospectus. The summary historical financial data for the nine
months ended September 30, 1996 and the period from January 1, 1997 to February
4, 1997 has been derived from and should be read in conjunction with Old
Anchor's consolidated financial statements, including the notes thereto,
included elsewhere in this Prospectus. The historical financial information for
Old Anchor may not be representative of future operating results of the Company.
The unaudited summary pro forma financial information for the Company for
the nine months ended September 30, 1996 and 1997 is for illustrative purposes
only and is not necessarily indicative of what the actual results of operations
and financial position of the Company would have been as of and for the periods
indicated, nor does it purport to represent the Company's future financial
position and results of operations. Such unaudited summary pro forma financial
information has been derived from, and should be read in conjunction with, the
Company's unaudited pro forma consolidated financial information, including the
notes thereto and the related "Management's Discussion and Analysis of Pro Forma
Financial Condition and Results of Operations," included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
OLD ANCHOR ANCHOR PRO FORMA AS ADJUSTED
OLD ANCHOR PERIOD FROM PERIOD FROM ---------------------
NINE MONTHS JANUARY 1, FEBRUARY 5, NINE MONTHS ENDED
ENDED 1997 TO 1997 TO SEPTEMBER 30,
SEPTEMBER 30, FEBRUARY 4, SEPTEMBER 30, ---------------------
1996 1997 1997(1) 1996 1997
------------- ------------ ------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. $ 640,049 $ 62,560 $ 415,636 $ 568,732 $ 469,713
Cost of products sold................................. 636,917 70,608 386,130 554,156 448,095
Selling and administrative expenses................... 30,736 3,745 18,127 30,736 21,872
Restructuring and other charges(2).................... 49,973 -- -- 49,973 --
-------- -------- -------- -------- --------
Income (loss) from operations......................... (77,577) (11,793) 11,379 (66,133) (254)
Other income (expense), net........................... (3,379) (595) 234 2,413 269
Interest expense(3)................................... (42,160) (2,437) (12,725) (14,430) (14,430)
-------- -------- -------- -------- --------
Loss before reorganization items, income taxes and
extraordinary items................................. (123,116) (14,825) (1,112) (78,150) (14,415)
Reorganization items.................................. (1,576) (827) -- (1,576) (827)
Income taxes(4)....................................... (1,825) -- -- (1,825) --
-------- -------- -------- -------- --------
Loss before extraordinary items....................... (126,517) (15,652) (1,112) (81,551) (15,242)
Extraordinary items(5)................................ (2,336) -- (11,200) (13,536) (11,200)
-------- -------- -------- -------- --------
Net loss.............................................. $(128,853) $(15,652) $ (12,312) $ (95,087) $ (26,442)
======== ======== ======== ======== ========
Preferred stock dividends............................. $ (8,032) $ (9,213) $ (9,213)
======== ======== ========
Loss before extraordinary items applicable to common
stock............................................... $ (9,144) $ (90,764) $ (24,455)
======== ======== ========
Loss applicable to common stock....................... $ (20,344) $(104,300) $ (35,655)
======== ======== ========
OTHER FINANCIAL DATA:
Net cash provided by (used in) operating activities... $ (58,746) $(11,427) $ 3,364 $ (41,377) $ (7,998)
Net cash used in investing activities................. (57,016) (7,500) (231,333) (243,358) (238,823)
Net cash provided by financing activities............. 101,790 17,478 228,773 228,247 238,646
Adjusted EBITDA(6).................................... 44,256 (4,783) 48,611 31,304 43,153
Depreciation and amortization......................... 75,239 7,605 36,998 45,051 43,138
Capital expenditures.................................. 36,144 7,184 21,152 36,144 28,336
Ratio of earnings to fixed charges(7)................. -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
OLD ANCHOR OLD ANCHOR ANCHOR
SEPTEMBER 30, FEBRUARY 4, SEPTEMBER 30,
1996 1997 1997(1)(8)
------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Accounts receivable.................................... $ 85,130 $ 60,978 $ 60,840
Inventories............................................ 166,527 148,731 118,191
Total assets........................................... 1,195,601 651,801 588,712
Total debt(8).......................................... 575,732 570,335 158,168
Total stockholders' equity (deficiency in assets)...... 253,234 (284,959) 87,023
</TABLE>
(Footnotes on page 13)
11
<PAGE> 17
The following table sets forth certain unaudited pro forma financial
information and certain historical financial information of the Company's
predecessor, Old Anchor. The summary historical financial data for the three
years ended December 31, 1996 has been derived from, and should be read in
conjunction with, Old Anchor's consolidated financial statements, including the
notes thereto and the related "Management's Discussion and Analysis of
Historical Financial Condition and Results of Operations" for Old Anchor,
included elsewhere in this Prospectus. The summary historical financial data for
the two years ended December 31, 1993 has been derived from consolidated
financial statements of Old Anchor, which are not included in this Prospectus.
Such historical information for Old Anchor may not be representative of future
operating results of the Company. The unaudited summary pro forma financial
information for the year ended December 31, 1996 is for illustrative purposes
only and is not necessarily indicative of what the actual results of operations
and financial position of the Company would have been as of and for the period
indicated, nor does it purport to represent the Company's future financial
position and results of operations. Such unaudited summary pro forma financial
information should be read in conjunction with the Company's unaudited pro forma
consolidated financial information, including the notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OLD ANCHOR HISTORICAL
-------------------------------------------------------------
PRO FORMA
YEAR ENDED ------------
DECEMBER 31, YEAR ENDED
------------------------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
---------- ---------- ---------- ---------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $1,161,925 $1,126,037 $1,089,317 $ 956,639 $ 814,370 $ 722,681
Cost of products sold.............. 1,037,329 1,028,332 996,780 906,393 831,612 718,098
Selling and administrative
expenses......................... 45,785 51,137 52,371 48,998 39,570 39,570
Restructuring and other
charges(2)....................... -- -- 79,481 10,267 49,973 49,973
Impairment of long-lived
assets(9)........................ -- -- -- -- 490,232 --
Write-up of assets held for
sale(2).......................... -- -- -- -- (8,967) (3,767)
---------- ---------- ---------- -------- -------- --------
Income (loss) from operations...... 78,811 46,568 (39,315) (9,019) (588,050) (81,193)
Other income (expense), net........ (523) 500 (2,385) 171 (10,020) 1,995
Interest expense(3)................ (64,659) (62,535) (56,070) (56,871) (48,601) (19,448)
---------- ---------- ---------- -------- -------- --------
Income (loss) before reorganization
items, income taxes,
extraordinary items and
cumulative change................ 13,629 (15,467) (97,770) (65,719) (646,671) (98,646)
Reorganization items............... -- -- -- -- (5,008) (5,008)
Income taxes(4).................... (1,300) (2,400) (250) (250) (1,825) (1,825)
Extraordinary items(5)............. (9,026) (18,152) -- -- (2,336) (13,908)
Cumulative effect of accounting
change........................... -- 1,776 -- -- -- --
---------- ---------- ---------- -------- -------- --------
Net income (loss).................. 3,303 (34,243) (98,020) (65,969) (655,840) (119,387)
Preferred dividends................ -- -- -- -- -- (12,318)
---------- ---------- ---------- -------- -------- --------
Income (loss) applicable to common
stock............................ $ 3,303 $ (34,243) $ (98,020) $ (65,969) $(655,840) $ (131,705)
========== ========== ========== ======== ======== ========
OTHER FINANCIAL DATA:
Net cash provided by (used in)
operating activities............. $ 74,092 $ 99,279 $ 27,914 $ 430 $ (28,411) $ (8,471)
Net cash used in investing
activities....................... (78,358) (118,470) (96,655) (48,500) (63,892) (253,696)
Net cash provided by (used in)
financing activities............. (4,388) 3,259 28,467 52,198 78,886 249,377
Adjusted EBITDA(6)................. 181,495 150,617 138,257 101,334 34,824 28,752
Depreciation and amortization...... 103,207 103,549 100,476 99,915 101,656 61,744
Capital expenditures............... 77,580 89,901 93,833 70,368 46,254 45,308
Ratio of earnings to fixed
charges(7)....................... 1.19x -- -- -- -- --
BALANCE SHEET DATA (AT END OF
PERIOD):
Accounts receivable................ $ 58,079 $ 58,128 $ 66,618 $ 40,965 $ 55,851 $ 43,445
Inventories........................ 196,827 173,204 176,769 180,574 144,419 118,243
Total assets....................... 1,321,733 1,347,201 1,264,488 1,208,348 643,468 594,064
Total debt(8)...................... 526,405 555,222 584,671 557,450 552,848 152,480
Total stockholder's equity
(deficiency in assets)........... 462,063 412,752 324,554 289,603 (269,307) 91,413
</TABLE>
(footnotes on next page)
12
<PAGE> 18
(footnotes from previous two pages)
(1) The Anchor Acquisition was consummated on February 5, 1997. Accordingly,
the information provided for Old Anchor for the nine months ended September
30, 1996 and for the period from January 1, 1997 to February 4, 1997 is not
comparable to the information provided for the Company for the period from
February 5, 1997 to September 30, 1997.
(2) Restructuring and other charges reflects Old Anchor's implementation of a
series of restructuring plans in an effort to respond to the continued
decline in industry sales volume combined with, in 1996, the loss of a
significant portion of the business of Old Anchor's largest customer.
During the year ended December 31, 1996, Old Anchor recorded an adjustment
to the carrying value of certain idled facilities held for sale. These
assets were previously written down to an estimated net realizable value.
Upon a current evaluation of quotes and offers on these properties in 1996,
Old Anchor increased their net carrying value by approximately $9.0
million. The balance of the restructuring liability is anticipated to be
expended and charged against the liability over the next several years.
(3) Because of the Chapter 11 proceeding of Old Anchor, there had been no
accrual of interest on the $100.0 million 10.25% Senior Notes or the $200.0
million 9.875% Senior Subordinated Debentures of Old Anchor since September
12, 1996. If accrued, interest expense would have increased $1.5 million
during the period ended September 30, 1996, $9.1 million during the year
ended December 31, 1996 and $2.9 million during the period from January 1,
1997 to February 4, 1997.
(4) Income tax provision reflects any additional valuation allowances required
to be recorded under Statement of Financial Accounting Standards No.
109 -- Accounting for Income Taxes ("SFAS 109"). The adoption of SFAS 109
effective January 1, 1993 resulted in an increase in the cumulative net
deferred tax asset of $1.8 million. Under SFAS 109, deferred income taxes
reflect the net tax effects of temporary differences between carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes, and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected
to reverse. If on the basis of available evidence, it is more likely than
not that all or a portion of the deferred tax asset will not be realized,
the asset must be reduced by a valuation allowance.
(5) Extraordinary items in the three years ended December 31, 1992, 1993 and
1996 result from the write-off of financing costs related to debt
extinguished during the relevant periods, net of taxes.
(6) Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization) ("Adjusted EBITDA") is an amount equal to income (loss)
before reorganization items, income taxes, extraordinary items, cumulative
effect of accounting change and dividends on preferred stock plus the
amounts of restructuring charges and the impairment of long-lived assets,
interest, depreciation and amortization and less the amount of the write-up
of assets held for sale as calculated below, using income (loss) from
operations as a starting point:
<TABLE>
<CAPTION>
PRO FORMA
------------------
OLD ANCHOR
---------------------------------------- ANCHOR NINE MONTHS ENDED
NINE MONTHS PERIOD FROM PERIOD FROM SEPTEMBER 30,
ENDED JANUARY 1, 1997 FEBRUARY 5, 1997 ------------------
SEPTEMBER 30, 1996 TO FEBRUARY 4, 1997 TO SEPTEMBER 30, 1997 1996 1997
------------------ ------------------- --------------------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income (loss) from
operations.............. $(77,577) $ (11,793) $11,379 $(66,133) $ (254)
Other income (expense),
net..................... (3,379) (595) 234 2,413 269
Restructuring and other
charges................. 49,973 -- -- 49,973 --
Depreciation and
amortization............ 75,239 7,605 36,998 45,051 43,138
-------- -------- ------- -------- -------
Adjusted EBITDA........... $ 44,256 $ (4,783) $48,611 $ 31,304 $43,153
======== ======== ======= ======== =======
</TABLE>
13
<PAGE> 19
<TABLE>
<CAPTION>
OLD ANCHOR HISTORICAL
----------------------------------------------------- PRO FORMA
------------
YEAR ENDED DECEMBER 31, YEAR ENDED
----------------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
-------- -------- -------- -------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from operations....... $ 78,811 $ 46,568 $(39,315) $ (9,019) $(588,050) $(81,193)
Other income (expense), net......... (523) 500 (2,385) 171 (10,020) 1,995
Write-up of assets held for sale.... -- -- -- -- (8,967) (3,767)
Impairment of long-lived assets..... -- -- -- -- 490,232 --
Restructuring and other charges..... -- -- 79,481 10,267 49,973 49,973
Depreciation and amortization....... 103,207 103,549 100,476 99,915 101,656 61,744
-------- -------- -------- -------- -------- -------
Adjusted EBITDA..................... $181,495 $150,617 $138,257 $101,334 $ 34,824 $ 28,752
======== ======== ======== ======== ======== =======
</TABLE>
The Company believes that, in addition to cash flow from operations and net
earnings, Adjusted EBITDA is a useful financial performance measurement for
assessing operating performance as it provides investors with an additional
basis to evaluate the ability of the Company to incur and service debt and
to fund capital expenditures. In evaluating Adjusted EBITDA, the Company
believes that investors should consider, among other things, the amount by
which Adjusted EBITDA exceeds interest costs for the period, how Adjusted
EBITDA compares to principal repayments on debt for the period and how
Adjusted EBITDA compares to capital expenditures for the period. To
evaluate Adjusted EBITDA, the components of Adjusted EBITDA, such as
revenues and operating expenses and the variability of such components over
time, should also be considered. Investors should be cautioned that the
Company's method of calculating Adjusted EBITDA may differ from the methods
used by other companies and, as a result, the Adjusted EBITDA measures
disclosed herein may not be comparable to other similarly titled measures
disclosed by other companies.
(7) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary items plus fixed
charges. Fixed charges consist of interest and amortization of debt expense
plus a portion of operating lease expense representative of the interest
factor. There was a deficiency of earnings to cover fixed charges in 1993,
1994, 1995, 1996 and pro forma 1996 of $15.5 million, $97.8 million, $65.7
million, $651.7 million and $103.7 million, respectively. There was a
deficiency of earnings to cover fixed charges for the nine months ended
September 30, 1996, the period from January 1, 1997 to February 4, 1997,
the period from February 5, 1997 to September 30, 1997, pro forma nine
months ended September 30, 1996 and 1997 of $124.7 million, $15.7 million,
$1.1 million, $79.7 million and $15.2 million, respectively.
(8) Total debt as of December 31, 1996 includes $462.3 million of pre-petition
liabilities and $90.5 million outstanding under Old Anchor's
debtor-in-possession credit facility.
(9) As a result of the declining profitability, decreasing cash flow and the
bankruptcy proceedings, the recoverable value of the carrying amount of
long-lived assets and intangibles was reviewed for impairment. Based upon
this review, the amount of remaining excess of the purchase price over the
fair value of net assets acquired of $457.2 million and $33.0 million of
other long-lived assets were written off at December 31, 1996. The excess
cost over fair value of net assets acquired had been amortized on a
straight line basis over a 40 year period. Amortization expense, included
as a component of cost of products sold, was approximately $13.9 million
for each of the years ended December 31, 1994, 1995 and 1996 and
approximately $10.4 million for the nine months ended September 30, 1996.
See the Notes to Old Anchor's Consolidated Financial Statements included
elsewhere in this Prospectus.
14
<PAGE> 20
RISK FACTORS
An investment in the Exchange Notes represents a high degree of risk. There
are a number of factors, including those specified below, which may adversely
affect the Company's ability to make payments on the Exchange Notes. Holders of
the Exchange Notes could therefore lose a substantial portion or all of their
investment in the Exchange Notes. Consequently, an investment in the Exchange
Notes should only be considered by persons who can assume such risk. The risk
factors described below are not necessarily exhaustive and each potential
investor is encouraged to perform its own investigation with respect to the
Company.
This Prospectus contains forward-looking statements, including statements
regarding, among other items, (i) the expected realization of Anchor's business
strategy and the cost savings estimated to be achieved in connection therewith
and the costs associated therewith, (ii) the sufficiency of cash flow and other
sources of liquidity to fund Anchor's debt service requirements, working capital
needs and other significant expenditures and (iii) anticipated trends in the
glass packaging industry, including with respect to industry capacity, product
demand and pricing. Forward-looking statements are typically identified by the
words "believe," "expect," "anticipate," "intend," "estimate," "project" and
similar expressions. These forward-looking statements are subject to a number of
risks and uncertainties, many of which are beyond Anchor's control. Actual
results could differ materially from those contemplated by these forward-looking
statements as a result of factors including those described below. In light of
these risks and uncertainties, there can be no assurance that the results and
events contemplated by the forward-looking information contained in this
Prospectus will in fact transpire. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. Anchor does not undertake any obligation to update or revise any forward-
looking statements.
This Prospectus contains historical financial information regarding
Glenshaw and Consumers. Prior results of Consumers and Glenshaw are not
indicative of the Company's future results. The nature and risks of the
restructuring carried out at Consumers and Glenshaw, and market conditions faced
by them, differ substantially from the nature and the risks of the business
strategy for the Company described under "Business -- Business Strategy."
LIMITED OPERATING HISTORY; RECENT INSOLVENCY OF OLD ANCHOR
The Company was formed in January 1997 to acquire certain assets and assume
certain liabilities of Old Anchor. Prior to the Anchor Acquisition, the Company
had no operations. In addition, former management of Old Anchor has largely been
replaced since the consummation of the Anchor Acquisition in February 1997 and
new management has concentrated on formulating and refining the Company's
business strategy. Since the Anchor Acquisition, the Company has had a limited
financial performance track record.
Additionally, Old Anchor sought protection under Chapter 11 of the
Bankruptcy Code in September 1996 and is subject to continuing reorganization
proceedings. In the bankruptcy, previous investors in, and lenders to, Old
Anchor incurred substantial losses. From 1993 to 1996, Old Anchor had
significant operating losses, incurring a 1996 net loss of approximately $655.8
million including a $490.2 million impairment of long-lived assets. As of
December 31, 1996, Old Anchor had an accumulated deficit of approximately $823.2
million. The report of Arthur Andersen LLP, independent public accountants, on
Old Anchor's 1994, 1995 and 1996 financial statements includes an explanatory
paragraph because of the possible material effects of uncertainties resulting
from Old Anchor's filing for reorganization under Chapter 11 of the Federal
Bankruptcy Code and doubts about Old Anchor's ability to continue as a going
concern following its sale of substantially all of its assets on February 5,
1997.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
Anchor has incurred significant Indebtedness. At December 31, 1997,
Anchor's aggregate consolidated Indebtedness was $163.8 million and it had
outstanding advances of $10.5 million and outstanding letters of credit of $12.8
million under the Revolving Credit Facility. At September 30, 1997, Anchor's
stockholders' equity was $87.0 million. In addition, subject to the restrictions
in the Revolving Credit Facility and the
15
<PAGE> 21
Indenture, the Company may incur additional Indebtedness from time to time to
finance capital expenditures or for other purposes. See "Description of
Revolving Credit Facility." Substantially all of the Company's assets have been
pledged to secure the Notes and the Revolving Credit Facility. On a pro forma
basis, the Company's earnings for fiscal 1996 would have been insufficient to
cover its fixed charges. The Company's debt service requirements (including
interest and principal) over the next five years are expected to be
approximately $19.5 million annually. See "Unaudited Pro Forma Financial
Statements."
The level of the Company's Indebtedness could have important consequences
to holders of the Exchange Notes, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to service debt and will
not be available for other purposes; (ii) the Company's ability to obtain
additional debt financing in the future for working capital, capital
expenditures or other needs may be limited; and (iii) the Company's level of
Indebtedness could limit its flexibility in reacting to changes in the industry
in which it competes and economic conditions in general. Certain of the
Company's competitors currently operate on a less leveraged basis and have
significantly greater operating and financing flexibility than the Company.
The Company's ability to pay interest on the Notes, to repay portions of
its long-term Indebtedness (including the Notes) and to satisfy its other debt
obligations will depend upon its future operating performance and the
availability of refinancing Indebtedness, which will be affected by prevailing
economic conditions and financial, business and other factors, certain of which
are beyond the Company's control. In addition, the indenture (the "Consumers
Indenture") governing Consumers International's 10 1/4% Senior Secured Notes
(the "Consumers International Notes") and Consumers' revolving credit facility
substantially restrict Consumers' ability to make further investments in the
Company whether through equity investments, loans or otherwise. Accordingly,
Anchor will not be able to rely on Consumers for liquidity or for payments on
the Notes. The Company anticipates that its operating cash flow, together with
borrowings under the Revolving Credit Facility, will be sufficient to meet its
operating needs and to meet its debt service requirements as they become due,
assuming that the Company achieves a significant portion of the cost reduction
components of its business strategy. See "Business -- Business Strategy."
However, if this is not the case, the Company will be forced to seek
alternatives that may include reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its Indebtedness or seeking additional
equity capital. There can be no assurance that any such strategy could be
effected on satisfactory terms, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
In addition, the Company's Series A 10% Cumulative Convertible Preferred
Stock, par value $.01 per share (the "Series A Preferred Stock") issued to
certain creditors of Old Anchor and contributed to the Plans (as defined) in
connection with the Anchor Acquisition is subject to mandatory redemption in
2009, which could adversely affect Anchor's ability to refinance the Notes at
their maturity. See "Description of Capital Stock."
SIGNIFICANT EXPENDITURES; DEPENDENCE ON SUCCESSFUL IMPLEMENTATION OF BUSINESS
STRATEGY
Old Anchor experienced net losses for each of the past four years. In
addition, Old Anchor's EBITDA in 1995 of $101.3 million declined to $28.8 for
the Company in 1996 on a pro forma basis after giving effect to the Anchor
Acquisition and the Note Offering. The Company has significant expenditures not
deducted in calculating EBITDA relating to the operation of its business,
including the following: (i) anticipated borrowings under the Revolving Credit
Facility; (ii) required pension plan contributions for underfundings of $13.4
million in 1998, $13.9 million in 1999 and $40.5 million to be contributed over
the three years thereafter; (iii) payments in respect of the Company's supply
agreement with The Stroh Brewery Company ("Stroh's") of $7.0 million in 1998;
(iv) significant capital expenditures of approximately $45.0 million and $45.0
million in 1998 and 1999, respectively; and (v) significant cash expenses of
closing the Houston and Dayville plants and certain plants previously closed by
Old Anchor including an estimated $11.0 million and $3.0 million in 1998 and
1999, respectively. In connection with the Anchor Acquisition, the Company
assumed and amended Old Anchor's lease of the headquarters facility located in
Tampa, Florida and a related option to purchase. The Company has exercised its
option to purchase and the amended lease expires on February 1, 1998. The
property is encumbered by a mortgage in favor of Citicorp Leasing, Inc.
("Citicorp") which secures a loan
16
<PAGE> 22
from Citicorp to the landlord, Fountain Associates I, Ltd. ("Fountain"), the
principal balance of which was $10.2 million as of February 5, 1997. This
mortgage indebtedness is required to be repaid or refinanced by February 1,
1998. The Company's rights under the option agreement have been assigned to a
third-party purchaser of the facility, with a closing expected to occur in late
January 1998. Contemporaneously with the closing, the Company and the purchaser
will enter into a lease pursuant to which the Company will lease a portion of
the headquarters facility for an initial term of ten years. The balance of the
space will be leased to other tenants.
The Company is also accruing annual dividend payment obligations of
approximately $5.6 million in respect of the Company's Series A Preferred Stock
and approximately $6.7 million in respect of the Company's Series B Preferred
Stock, par value $.01 per share (the "Series B Preferred Stock"), although the
Series B Preferred Stock receives dividends only in kind until February 2000.
In order to meet its fixed payment obligations and retain sufficient
borrowing availability under the Revolving Credit Facility to satisfy its
working capital requirements, the Company must achieve significant cash flow
from operations which requires it to improve its operating results significantly
over those of Old Anchor. The Company estimates that its net sales for 1997
declined by approximately 15% as compared to pro forma net sales for 1996. In
order to improve on Old Anchor's operating results with this lower net sales
amount, the Company must achieve substantial cost savings and improvements in
average selling prices resulting from a shift in product mix toward products
with higher average selling prices. In the event that the operating improvements
from management's business strategy are materially less than estimated and/or
require a longer time frame than anticipated to achieve or the estimated costs
of the plant closings are materially higher than anticipated, the Company's
ability to service its debt and pay its other fixed charges could be adversely
impacted.
The estimated cost savings described under "Business -- Business Strategy,"
represent Anchor's current estimates of cost savings from implementation of
management's business strategy. These estimated future cost savings are based
upon a number of assumptions which may not be accurate, in which case the actual
results of such business strategy may differ materially from these estimates.
Moreover, these estimates relate only to estimated cost reductions on the items
described and therefore are not necessarily indicative of Anchor's financial
results, including EBITDA and net income, which are affected by a number of
other factors, including demand and pricing for Anchor's products and other
costs associated with Anchor's production, distribution and other activities.
In the event that Anchor's cash flow from operations is less than
anticipated or its cash expenditures are greater than anticipated and available
borrowings under the Revolving Credit Facility are used, there can be no
assurance that Anchor can raise additional funds through equity or debt
financings or asset sales given the financial and other covenants to which
Anchor is subject under the Indenture and the Revolving Credit Facility, Old
Anchor's recent insolvency and uncertainty regarding Anchor's future operating
performance, the pledge by Anchor of substantially all of its assets to secure
the Notes and the Revolving Credit Facility and the limitations on investments
by Consumers in Anchor imposed under Consumers' credit facilities. See
"-- Substantial Leverage; Ability to Service Debt" and "-- Restrictive Debt
Covenants."
RESTRICTIVE DEBT COVENANTS
The Indenture restricts the ability of the Company and its Restricted
Subsidiaries to, among other things, incur additional Indebtedness, incur liens,
pay dividends or make certain other restricted payments or investments,
consummate certain asset sales, enter into certain transactions with affiliates,
incur Indebtedness that is subordinate in right of payment to any senior
Indebtedness and senior in right of payment to the Notes, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. The Indenture
also imposes restrictions on the ability of a subsidiary to pay dividends or
make certain payments to the Company. In addition, the Revolving Credit Facility
contains other and more restrictive covenants and prohibits the Company from
prepaying the Notes, except in certain circumstances. The Revolving Credit
Facility also requires the Company to maintain specified financial ratios and
satisfy certain financial tests. The Company's ability to meet such financial
ratios
17
<PAGE> 23
and tests may be affected by events beyond its control. There can be no
assurance that the Company will meet such tests. A breach of any of these
covenants could result in an event of default under the Revolving Credit
Facility. If such an event of default occurs, the lenders could elect to declare
all amounts borrowed under the Revolving Credit Facility, together with accrued
interest, to be immediately due and payable and to terminate all commitments
under the Revolving Credit Facility. If the Company were unable to repay all
amounts declared due and payable, the lenders could proceed against the Bank
Collateral granted to them to satisfy the Indebtedness and other obligations due
and payable. If Indebtedness under the Revolving Credit Facility were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full such Indebtedness and the other Indebtedness of the
Company, including the Notes. See "Description of the Notes -- Certain
Covenants" and "Description of Revolving Credit Facility."
COMPETITION; THE GLASS CONTAINER MARKET
The Company is subject to intense competition from other glass container
producers as well as from makers of alternative forms of packaging, such as
aluminum cans and plastic containers. The Company's principal competitors among
glass container producers are Owens and Ball-Foster Glass Container Corporation
Co., L.L.C. ("Ball-Foster"), both of which are larger competitors with less
leverage and more financial resources than the Company. Over the past several
years, there has been a decline in the glass container industry, principally as
a result of the loss of market share in the soft drink and food industries to
alternative forms of packaging. Competitive pressures from alternative forms of
packaging, as well as consolidation in the glass container industry, have
resulted in excess capacity and have led to severe pricing pressures on glass
container manufacturers. See "Business -- Competition."
During the period of its continued losses, insolvency and uncertainty
regarding future operations and ownership, Old Anchor's relationships with many
of its major customers were adversely affected and Old Anchor lost certain
customers or received volume reductions and in many cases reduced prices
substantially in order to maintain production volumes. In order to successfully
improve the Company's operating performance as compared to Old Anchor, the
Company will need to establish and maintain strong relationships with major
customers based upon competitive pricing. There can be no assurance that the
Company will be able to achieve this objective.
DEPENDENCE ON KEY PERSONNEL AND G&G
Certain executive officers of the Company are key to the management and
direction of the Company. In addition, the Company has entered into a Management
Agreement (the "Management Agreement") with G&G, an affiliate of the Company,
for the provision of certain management services, including marketing,
managerial and technical assistance. See "Certain Transactions." The initial
term of the Management Agreement expires on February 5, 2000. Thereafter, the
Management Agreement automatically renews for periods of one year unless either
party gives notice of termination at least six months prior to the expiration of
the then current term. In addition, the Company does not, as a general rule,
enter into employment agreements with its executive officers and/or other key
employees. The loss of the services of such executive officers or of G&G, by
termination of the Management Agreement or otherwise, could have a material
adverse effect on the Company, and there can be no assurance that the Company
would be able to find replacements for such executive officers or G&G with
equivalent business experience and skills. See "Management -- Directors and
Executive Officers of the Company" and "Certain Transactions."
CONTROLLING STOCKHOLDER; TRANSACTIONS WITH RELATED PARTIES
Mr. Ghaznavi effectively controls Anchor through G&G's control of Consumers
and its subsidiaries, Consumers International and Consumers U.S. Consumers U.S.
owns approximately 59% of Anchor on a fully diluted basis and is entitled, as
sole holder of the Company's Class B Common Stock, par value $.10 per share (the
"Class B Common Stock"), to appoint five of the nine members of Anchor's Board
of Directors (the "Board of Directors") until February 5, 2000. In connection
with the Proposed Settlement, it is expected that the certificate of
incorporation of the Company will be amended to increase the number of directors
to be elected by the holders of Class B Common Stock. See "Management -- Board
of Directors of the
18
<PAGE> 24
Company" and "Description of Capital Stock." As a result, Anchor is part of a
group of glass manufacturing companies with Consumers and Glenshaw. A portion of
the cost savings anticipated to be achieved by Anchor in connection with the
implementation of its business strategy is dependent upon the successful
reallocation of customers between Anchor and Consumers in order to achieve
freight cost savings and plant operational efficiencies. In addition, it is
anticipated that Anchor will be party to a number of arrangements with
Consumers, Glenshaw and other affiliated companies regarding, among other
things, bulk purchasing, production for customers (for which commissions may be
payable), managerial services, including the Management Agreement with G&G,
leasing of fleets and equipment and shipping. See "Certain Transactions." The
Indenture and the Revolving Credit Facility limit commissions and other fees
payable by the Company to Consumers and its affiliates and otherwise require
that transactions and agreements among the companies be on terms no less
favorable to the Company than could be obtained from third parties and, for
transactions in excess of certain thresholds, be approved by the Company's
independent directors and/or submitted to an independent financial advisor. See
"Description of Revolving Credit Facility" and "Description of the Notes." The
business, financial condition and results of operations of the Company may be
adversely affected by decisions made by Consumers taking into account the needs
of Consumers, Glenshaw and other affiliated companies. Consumers is highly
leveraged and a default by Consumers on its indebtedness or an insolvency or
bankruptcy of Consumers would not constitute a default under the Indenture. A
default on indebtedness, insolvency or bankruptcy of Consumers could adversely
affect Anchor's business and results of operations, given that many members of
management at Consumers are involved in Anchor's affairs and that Anchor may be
closely associated with Consumers, its customers and suppliers, which could
adversely affect trading prices for the Notes or Anchor's ability to raise debt
or equity capital.
LABOR RELATIONS
The Company is a party to collective bargaining agreements with labor
unions that will expire between March 1999 and August 1999. In the aggregate,
under those agreements the Company currently employs approximately 2,800
full-time employees. The Company's inability to negotiate acceptable contracts
with these unions could result in strikes by the affected workers and increased
operating costs as a result of higher wages or benefits paid to union members.
Although Old Anchor historically has not had any labor disruptions, if the
unionized workers were to engage in a strike or other work stoppage, the Company
could experience a significant disruption of its operations and higher ongoing
labor costs, which could have an adverse effect on the Company's business,
financial position and results of operations. See "Business -- Employees."
DEPENDENCE ON KEY CUSTOMERS
Old Anchor's two largest customers (Anheuser-Busch and Stroh's) accounted
for 11.3% and 10.8% of its net sales in 1996, respectively, and 8.1% and 15.3%
of its net sales for the period since the Anchor Acquisition on February 5, 1997
to September 30, 1997, respectively. The termination by either of such customers
of its relationship with the Company could have a material adverse effect upon
the Company's business, financial position and results of operations.
The Company's existing customers' purchase orders and contracts typically
vary from one to three years. Prices under these arrangements are tied to market
standards and therefore vary with market conditions. The contracts generally are
requirements contracts which do not obligate the customer to purchase any given
amount of product from the Company. Accordingly, notwithstanding the existence
of certain supply contracts, the Company faces the risk that customers will not
purchase the amounts expected by the Company pursuant to such supply contracts.
SEASONALITY; RAW MATERIALS
Due principally to the seasonal nature of the brewing, iced tea and other
beverage industries, in which demand is stronger during the summer months, the
Company's shipment volume is expected to be higher in the second and third
quarters. Consequently, the Company normally builds inventory during the first
quarter in anticipation of seasonal demands during the second and third
quarters. Historically, the Company has scheduled shutdowns of its plants for
furnace rebuilds and machine repairs in the first and fourth quarters of
19
<PAGE> 25
the year to coincide with scheduled holiday and vacation time under its labor
union contracts. These shutdowns adversely affect profitability during the first
and fourth quarters.
Sand, soda ash, limestone, cullet and corrugated packaging materials are
the principal raw materials used by the Company. Raw materials represented
approximately 26.2% of the cost of products sold for the Company in 1996. The
Company believes that a sufficient supply of these raw materials exists and that
the Company is not dependent upon any single supplier for any of them. Material
increases in the cost of any of the principal raw materials used by the Company
could have a material adverse impact on the Company's results of operations.
ENVIRONMENTAL AND OTHER GOVERNMENT REGULATION
Environmental Regulation and Compliance. The Company's operations are
subject to increasingly complex and detailed Federal, state and local laws and
regulations including, but not limited to, the Federal Water Pollution Control
Act of 1972, as amended, the U.S. Clean Air Act, as amended, and the Federal
Resource Conservation and Recovery Act, as amended, that are designed to protect
the environment. Among the activities subject to regulation are the disposal of
checker slag (furnace residue usually removed during furnace rebuilds), the
disposal of furnace bricks containing chromium, the disposal of waste, the
discharge of water used to clean machines and cooling water, dust produced by
the batch mixing process, underground storage tanks and air emissions produced
by furnaces. In addition, the Company is required to obtain and maintain permits
in connection with its operations. Many environmental laws and regulations
provide for substantial fines and criminal sanctions for violations. The Company
believes that it is in material compliance with applicable environmental laws
and regulations. It is difficult to predict the future development of such laws
and regulations or their impact on future earnings and operations, but the
Company anticipates that these standards will continue to require increased
capital expenditures. There can be no assurance that material costs or
liabilities will not be incurred.
Certain environmental laws, such as the U.S. Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA" or "Superfund") and analogous
state laws provide for strict, joint and several liability for investigation and
remediation of releases of hazardous substances into the environment. Such laws
may apply to conditions at properties presently or formerly owned or operated by
an entity or its predecessors, as well as properties at which wastes
attributable to an entity or its predecessors were disposed. See
"Business -- Environmental and Other Government Regulation."
The Company is engaged in investigation and remediation projects at plants
currently being operated and at closed facilities. In addition, Old Anchor was
named as a potentially responsible party ("PRP") under CERCLA with respect to a
number of sites. Of these sites, the Company has assumed responsibility with
respect to four sites that are currently active. While the Company may be
jointly and severally liable for costs related to these sites, in most cases, it
is only one of a number of PRPs who are also jointly and severally liable. With
respect to the four currently active sites for which the Company has assumed
responsibility, the Company estimates that its share of the aggregate cleanup
costs of such sites should not exceed $2.0 million, and that the likely range
after taking into consideration the contributions anticipated from other
potentially responsible parties could be significantly less. However, no
assurance can be given that the cleanup costs of such sites will not exceed $2.0
million or that the Company will have these funds available. The Company has
established reserves of approximately $16.0 million for environmental costs
which it believes are adequate to address the anticipated costs of remediation
of these operated and closed facilities and its liability as a PRP under CERCLA.
The timing and magnitude of such costs cannot always be determined with
certainty due to, among other things, incomplete information with respect to
environmental conditions at certain sites, the absence of regulatory
determinations with respect to environmental requirements at certain sites, new
and amended environmental laws and regulations, and uncertainties regarding the
timing of remedial expenditures.
Capital expenditures required for environmental compliance were
approximately $1.8 million for 1997 and are anticipated to be approximately $1.5
million annually in 1998 and 1999. However, there can be no assurance that
future changes in such laws, regulations or interpretations thereof or the
nature of the
20
<PAGE> 26
Company's operations will not require the Company to make significant additional
capital expenditures to ensure compliance in the future.
ERISA. The Company maintains three defined benefit plans and two profit
sharing plans that, prior to the Anchor Acquisition, were maintained by Old
Anchor. These plans are covered by the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), are tax-qualified under the Internal Revenue Code
of 1986, as amended (the "Code"), and subject to regulation by the Internal
Revenue Service and the Department of Labor. The three defined benefit plans are
also subject to regulation by the Pension Benefit Guaranty Corporation ("PBGC").
The Company's two profit sharing plans contain cash or deferred arrangements
under Section 401(k) of the Code. The Company' tax-qualified plans must meet
stringent requirements both in form and in operation in order to maintain their
tax-qualified status. These requirements are constantly changing with the
enactment of new pension legislation, the issuance of new Treasury regulations
and other guidance from the Internal Revenue Service. The loss of a plan's
qualified status could result in the assessment of tax on the plan's trust
income, disallowance of the Company's tax deduction for contributions, and
immediate income tax liability upon individual participants' benefits.
The defined benefit plan covering salaried employees was frozen at the end
of 1994, and, at the end of 1996, was not underfunded under Statement of
Financial Accounting Standards No. 87 ("SFAS No. 87"). However, the two defined
benefit plans that are maintained for hourly employees are significantly
underfunded and will require substantial cash contributions over the next few
years. At the end of 1996, these two plans in the aggregate had unfunded
benefits under SFAS No. 87 totaling approximately $76.7 million. Pension
underfunding contributions made to the three defined benefit plans during 1997,
excluding contributions made by the Company upon the closing of the Anchor
Acquisition, were approximately $15.1 million. In addition, the underfunding of
the two hourly plans required the payment of increased premiums to the PBGC
under its pension guaranty program of approximately $1.8 million in 1997.
Employee Health and Safety Regulation. The Company's operations are
subject to a variety of worker safety laws. The U.S. Occupational Safety and
Health Act of 1970 ("OSHA") and analogous state laws mandate general
requirements for safe workplaces for all employees. The Company believes that
its operations are in material compliance with applicable employee health and
safety laws.
Deposit and Recycling Legislation. In recent years, legislation has been
introduced at the Federal, state and local levels that would require a deposit
or tax, or impose other restrictions, on the sale or use of certain containers,
particularly beer and carbonated soft drink containers. To date, ten states have
enacted some form of deposit legislation, although no such new legislation has
been enacted since 1986. The enactment of additional laws or comparable
administrative actions that would require a deposit on beer or soft drink
containers, or otherwise restrict their use, could have a material adverse
effect on the Company's business. In jurisdictions where deposit legislation has
been enacted, the consumption of beverages in glass bottles has generally
declined due largely to the preference of retailers for handling returned cans
and plastic bottles. Container deposit legislation continues to be considered
from time to time at various governmental levels.
SECURITY FOR THE NOTES
The Notes will be secured by a first priority lien on the Collateral, which
consists principally of substantially all of the Company's property, plant and
equipment, other than the Bank Collateral. No assurance can be given that the
proceeds from a sale of the Collateral following acceleration of the Notes would
not be substantially less than would be required to repay amounts due in respect
of the Notes. On a pro forma basis, the net book value of the Company's existing
property, plant and equipment as of December 31, 1996 was $321.0 million. The
appraised value as of December 31, 1996 of nine of the manufacturing facilities,
one mold shop and one repair shop, as estimated by AAA was $243.0 million on a
"liquidation in place" basis. Additionally, AAA has estimated the fair market
value of these properties on the premise of continued use to be approximately
$312.4 million. See Summarization Letters of AAA, attached as Annex A to this
Prospectus.
By its nature, some or all of the Collateral may be illiquid and, because
of the integrated nature of the Company's facilities, difficult to sell other
than as a complete unit. Accordingly, the amount that might be
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<PAGE> 27
realized from the sale of the Collateral may be materially less than its
appraised value and no assurance can be given that the Collateral could be sold
expeditiously, if at all. In addition, the appraised value reflects AAA's
estimate as of the date of the appraisal and assumes that a sale would not be
made under distress conditions. The actual amount realized from a sale of the
Collateral in connection with any foreclosure would be affected by the Company's
operating results, market conditions, the physical condition of the Collateral,
the need for environmental or other capital expenditures with respect to the
Collateral and other factors affecting the Collateral's resale value at the time
of sale and would also be adversely affected if the sale were made under
distress conditions. The ability of the Trustee to realize upon the Collateral
will be delayed if the Company is subject to bankruptcy or receivership
proceedings and may be affected by environmental regulations.
If the proceeds received from the sale of the Collateral (after payment of
any expenses of the sale and repayment of Indebtedness secured by liens
permitted under the Indenture or other liens on the Collateral which might, in
either case, have priority under applicable law to the lien on the Collateral in
favor of the Trustee) were insufficient to pay all amounts due under the Notes,
then the holders of the Notes would (to the extent of such insufficiency) only
have an unsecured claim against any remaining unencumbered assets of the Company
(subject, in the case of subsidiaries of the Company, to the claims of creditors
of each subsidiary). Substantially all of the assets of the Company other than
the Collateral are pledged to secure other Indebtedness of the Company.
Accordingly, there is a risk that holders of the Notes would receive less than
the amount of their investment in the event of a liquidation or reorganization
of the Company. In addition, although Consumers U.S. has pledged the shares of
Anchor that it owns directly to secure its guarantee of the Notes, it is not
expected that a foreclosure of these shares by the Trustee would increase the
amount available to pay the holders of the Notes and, moreover, such shares will
be released as Collateral upon any sale by Consumers U.S. of such shares.
Pursuant to the Technology Agreement, Anchor utilizes Owen's technology in
the operation of its plants. The Trustee and the collateral agent under the
Revolving Credit Facility are parties to an Assurance Agreement with Owens,
which grants certain rights to such collateral agent and the Trustee in the
event of a foreclosure. However, a default by Consumers or Anchor under, or a
termination of, the Technology Agreement would not constitute a default under
the Indenture. Accordingly, the Technology Agreement could be terminated without
giving the Trustee the right to foreclose on the Collateral under the Indenture.
Moreover, the Technology Agreement and the rights thereunder may not be
transferred to or used by a competitor or customer of Owens (as determined by
Owens) without Owens' consent, which limitation may adversely affect the
Trustee's ability to realize on the Collateral, including the timing of and
proceeds obtained in connection with a sale of the Collateral following a
foreclosure.
FRAUDULENT CONVEYANCE RISKS
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the obligation
of, or liens securing the Notes or any Guarantee in favor of, other existing or
future creditors of the Company or a Guarantor.
The incurrence by the Company of the Indebtedness evidenced by the Notes is
subject to federal and state statutes and principles relating to fraudulent
conveyances ("Fraudulent Conveyance Laws") which could be invoked in a
bankruptcy proceeding or a lawsuit by or on behalf of creditors of the Company.
Under the Fraudulent Conveyance Laws, if, at the time the Notes were issued and
the proceeds applied (a) the Company issued the Notes and applied the proceeds
with the intent of hindering, delaying or defrauding creditors, or (b) the
Company received less than a reasonably equivalent value or fair consideration
for granting the liens and incurring the Indebtedness under, or issuing, the
Notes, and, after applying the proceeds, the Company (i) was insolvent or
rendered insolvent by reason of such actions, (ii) was engaged in a business or
transaction or was or was about to engage in a business or transaction for which
its assets constituted unreasonably small capital or (iii) intended to incur, or
believed that it would incur, debts beyond its ability to pay as they matured
(as such terms are defined in, or interpreted under, Fraudulent Conveyance
Laws), a court could subordinate all or part of the Notes to existing and future
Indebtedness of the Company, recover any payments made on the Notes or take
other actions detrimental to the holders of the Notes, including, under certain
circumstances, invalidating the Notes and/or the liens securing the Notes.
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<PAGE> 28
In addition, Fraudulent Conveyance Laws may apply to the Guarantors'
issuance of the Guarantees. Pursuant to the terms of the Guarantees, the
liability of each Guarantor is limited to the maximum amount of Indebtedness
permitted, at the time of the grant of the Guarantee, to be incurred in
compliance with the Fraudulent Conveyance Laws or other similar laws. To the
extent that a court were to find that (x) a Guarantee was incurred by a
Guarantor with actual intent to hinder, delay or defraud any present or future
creditor or (y) such Guarantor did not receive fair consideration or reasonably
equivalent value for issuing its Guarantee and such Guarantor (i) was insolvent,
(ii) was rendered insolvent by reason of the issuance of such Guarantee, (iii)
was engaged or about to engage in a business or transaction for which the
remaining assets of such Guarantor constituted unreasonably small capital to
carry on its business or (iv) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured (as such terms
are defined in, or interpreted under, Fraudulent Conveyance Laws), a court could
avoid or subordinate such Guarantee in favor of the Guarantor's creditors. Among
other things, a legal challenge of a Guarantee on fraudulent conveyance grounds
may focus on the benefits, if any, realized by the Guarantor as a result of the
issuance by the Company of the Notes. The Guarantees to be given by future
Restricted Subsidiaries of the Company will have to be supported by a direct
quantifiable benefit for each such Guarantee reasonably equivalent to the
obligation taken on in order to uphold such Guarantee, which will be
particularly difficult to demonstrate with respect to future Guarantees given by
future Restricted Subsidiaries of the Company that are not in existence at the
time of the issuance of the Notes. Such analysis will depend upon the financial
condition of any future Restricted Subsidiary and there can be no assurance that
such a Guarantee will be enforceable in the face of a challenge under the
Fraudulent Conveyance Laws. To the extent any Guarantees were avoided as a
fraudulent conveyance or held unenforceable for any other reason, the claims of
holders of the Notes in respect of such Guarantor would be adversely affected
and such holders would, to such extent, be creditors solely of the Company and
any Guarantor whose Guarantee was not avoided or held unenforceable. To the
extent the claims of the holders of the Notes against the issuer of an invalid
Guarantee were subordinated, they would be subject to the prior payment of all
liabilities of such Guarantor. There can be no assurance that, after providing
for all prior claims, there would be sufficient assets to satisfy the claims of
the holders of the Notes relating to any voided portion of any of the
Guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Under one measure,
however, the Guarantors may be considered insolvent if the sum of their debts,
including contingent liabilities, were greater than the fair marketable value of
all of their assets at a fair valuation or if the present fair marketable value
of their assets were less than the amount that would be required to pay their
probable liability on their existing debts, including contingent liabilities, as
they become absolute and mature.
Based upon financial and other information, the Company believes that the
Notes and the Guarantee by Consumers U.S. are being incurred for proper purposes
and in good faith and that the Company and Consumers U.S. are solvent and will
continue to be solvent after issuing the Notes or its Guarantee, as the case may
be, will have sufficient capital for carrying on its business after such
issuance and will be able to pay its debts as they mature. There can be no
assurance, however, that a court passing on such standards would agree with the
Company. See "Management's Discussion and Analysis of Pro Forma Financial
Condition and Results of Operations."
PURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon a Change of Control, the Company is required to offer to purchase all
outstanding Notes at 101% of the principal amount thereof plus accrued and
unpaid interest to the date of purchase. The source of funds for any such
purchase would be the Company's available cash or cash generated from other
sources. However, there can be no assurance that sufficient funds would be
available at the time of any Change of Control to make any required repurchases
of Notes tendered or, if applicable, that restrictions in the Revolving Credit
Facility would permit the Company to make such required repurchases. See
"Description of the Notes -- Change of Control."
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LACK OF A PUBLIC MARKET FOR THE NOTES
The Outstanding Notes held by QIBs are designated for trading in the PORTAL
Market. The Exchange Notes constitute securities for which there is no
established trading market. The Company does not intend to list the Exchange
Notes on any securities exchange or to seek approval for quotation through any
automated quotation system, and no active public market for the Exchange Notes
is currently anticipated. If a market for the Exchange Notes should develop,
such Exchange Notes could trade at a discount from their principal amount. There
can be no assurance of the liquidity of any markets that may develop for the
Exchange Notes, the ability of holders of the Exchange Notes to sell their
Exchange Notes, or the price at which holders would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on many
factors, including prevailing interest rates, the Company's operating results
and the market for similar securities. To the extent that any Outstanding Notes
are tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Outstanding Notes could be adversely affected.
No prediction can be made as to the effect, if any, that future sales of
Exchange Notes, or the availability of Exchange Notes for future sale, will have
on the market price of the Exchange Notes prevailing from time to time. Sales of
substantial amounts of Exchange Notes, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Exchange Notes.
No assurance can be given that sales of substantial amounts of Exchange Notes
will not occur in the foreseeable future or as to the effect that any such
sales, or the perception that such sales may occur, will have on the market or
the market price of the Exchange Notes. No assurance can be given as to the
liquidity of the trading market for the Exchange Notes or that an active public
market for the Exchange Notes will develop or, if developed, will continue. If
an active public market does not develop or is not maintained, the market price
and liquidity of the Exchange Notes may be adversely affected.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a consequence of the offer or sale of the Outstanding Notes pursuant to
an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws, holders
of Outstanding Notes who do not exchange their Outstanding Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Outstanding Notes as set forth in the legend
thereon. In general, the Outstanding Notes may not be offered or sold unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the
Outstanding Notes under the Securities Act. See "Outstanding Notes Registration
Rights."
Upon consummation of the Exchange Offer, due to the restrictions on
transfer of the Outstanding Notes and the absence of such restrictions
applicable to the Exchange Notes, it is likely that the market, if any, for
Outstanding Notes will be relatively less liquid than the market for Exchange
Notes. Consequently, holders of Outstanding Notes who do not participate in the
Exchange Offer could experience significant diminution in the value of their
Outstanding Notes, compared to the value of the Exchange Notes.
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<PAGE> 30
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is being made by the Company and the Parent Guarantor to
satisfy certain of their obligations under the Registration Rights Agreement.
The Registration Rights Agreement requires the Company and the Parent Guarantor
to (i) file with the Commission a registration statement (the "Exchange Offer
Registration Statement") under the Securities Act with respect to the Exchange
Notes within 90 days after the issuance of the Outstanding Notes (the "Issue
Date"), (ii) use their best efforts to cause the Exchange Offer Registration
Statement to become effective under the Securities Act within 180 days after the
Issue Date, (iii) keep the Exchange Offer open for acceptance for not less than
30 days (or longer if required by applicable law) after the date that notice of
the Exchange Offer is mailed to holders of the Outstanding Notes, and (iv) use
their best efforts to consummate the Exchange Offer within 225 days after the
Issue Date. In the event that the Company and the Parent Guarantor fail to
satisfy these or certain other of their obligations under the Registration
Rights Agreement, the interest rate on the Outstanding Notes will be increased.
See "Outstanding Notes Registration Rights." As a result of its failure to have
an Exchange Offer Registration Statement or Shelf Registration Statement
declared effective on or prior to October 14, 1997 (the 180th day after the
Issue Date) and its failure to have exchanged all Notes validly tendered in
accordance with the terms of the Exchange Offer on or prior to November 28, 1997
(the 225th day after the Issue Date), the Company is currently paying Additional
Interest in the amount of 1.5% per annum on the Notes.
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal (which together constitute the Exchange Offer), Exchange Notes for
an equal principal amount of Outstanding Notes. The terms of the Exchange Notes
are identical in all material respects to those of the Outstanding Notes, except
for certain transfer restrictions and registration rights relating to the
Outstanding Notes. The Exchange Notes will be entitled to the benefits of the
Indenture. See "Description of the Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Outstanding Notes being tendered or accepted for exchange. As of the
date of this Prospectus, $150 million aggregate principal amount of the
Outstanding Notes is outstanding. Outstanding Notes tendered in the Exchange
Offer must be in denominations of a minimum principal amount of $1,000 or any
integral multiple thereof.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, holders of Outstanding Notes (other
than any holder who is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) who exchange their Outstanding Notes for Exchange
Notes pursuant to the Exchange Offer generally may offer such Exchange Notes for
resale, resell such Exchange Notes and otherwise transfer such Exchange Notes
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of the holders' business and such holders are not participating
in, and have no arrangement or understanding with any person to participate in,
a distribution of such Exchange Notes. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Outstanding Notes, where such
Outstanding Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution." In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the Exchange Notes may not be offered or
sold unless they have been registered or qualified for sale in such jurisdiction
or an exemption from registration or qualification is available and complied
with. The Company has agreed, pursuant to the Registration Rights Agreement and
subject to certain specified limitations therein, to register or qualify the
Exchange Notes for offer or sale under the securities or blue sky laws of such
jurisdictions as any holders of the Exchange Notes request in writing. If a
holder of Outstanding Notes does not exchange such Outstanding Notes for
Exchange Notes pursuant to the Exchange Offer, such Outstanding Notes will
continue to be subject to the restrictions on transfer contained in the legend
thereon. If any holder
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of such Outstanding Notes is an affiliate of the Company, is engaged in or
intends to engage in or has any arrangement or understanding with any person to
participate in the distribution of the Exchange Notes to be acquired in the
Exchange Offer, such holder (i) could not rely on the applicable interpretations
of the Commission and (ii) must comply with the registration requirements of the
Securities Act in connection with any resale transaction. In general, the
Outstanding Notes may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and applicable
state securities laws.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1998 unless the
Company in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest time
and date on which the Exchange Offer, as so extended by the Company, expires.
The Company reserves the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to The Bank
of New York (the "Exchange Agent") and by public announcement communicated by no
later than 9:00 a.m., New York City time, on the next business day following the
previously scheduled Expiration Date, unless otherwise required by applicable
law or regulation, by making a release to the Dow Jones News Service. During any
extension of the Exchange Offer, all Outstanding Notes previously tendered
pursuant to the Exchange Offer will remain subject to the Exchange Offer and may
be accepted for exchange by the Company.
The "Exchange Date" will be the second business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Outstanding Notes if any of the
events set forth below under "-- Conditions to the Exchange Offer" shall have
occurred and shall not have been waived by the Company and (ii) amend the terms
of the Exchange Offer in any manner, whether before or after any tender of the
Outstanding Notes. If any such termination or amendment occurs, the Company will
notify the Exchange Agent in writing and will either issue a press release or
give written notice to the holders of the Outstanding Notes as promptly as
practicable. Unless the Company terminates the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date, the Company will exchange the
Exchange Notes for the tendered Outstanding Notes on the Exchange Date. Any
Outstanding Notes not accepted for exchange for any reason will be returned
without expense to the tendering holder thereof as promptly as practicable after
expiration or termination of the Exchange Offer. See "-- Acceptance of
Outstanding Notes for Exchange; Delivery of Exchange Notes."
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Outstanding Notes
and will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Outstanding Notes.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
The tender to the Company of Outstanding Notes by a holder thereof pursuant
to any one of the procedures set forth below will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
General Procedures. A holder of an Outstanding Note may tender the same by
(i) properly completing and signing the Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall be
deemed to include a facsimile thereof) and delivering the same, together with
(a) the certificate or certificates representing the Outstanding Notes being
tendered and any required signature guarantees, to the Exchange Agent at its
address set forth in the Letter of Transmittal on or prior to the Expiration
Date or (b) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of the Outstanding Notes being tendered, if such procedure is
available, into the Exchange Agent's Account at DTC (the "Book-Entry Transfer
Facility") pursuant to the procedure for book-entry transfer described below, or
(ii) complying with the guaranteed delivery procedures described below.
If tendered Outstanding Notes are registered in the name of the signer of
the Letter of Transmittal and the Exchange Notes to be issued in exchange
therefor are to be issued (and any untendered Outstanding Notes are to be
reissued) in the name of the registered holder, the signature of such signer
need not be
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guaranteed. In any other case, the tendered Outstanding Notes must be endorsed
or accompanied by written instruments of transfer in form satisfactory to the
Company and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a commercial bank or
trust company located or having an office or correspondent in the United States
or by a member firm of a national securities exchange or the National
Association of Securities Dealers, Inc. or by a member of a signature medallion
program such as "STAMP" (any of the foregoing hereinafter referred to as an
"Eligible Institution"). If the Exchange Notes and/or Outstanding Notes not
exchanged are to be delivered to an address other than that of the registered
holder appearing on the note register for the Outstanding Notes, the signature
on the Letter of Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Outstanding Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Outstanding Notes should contact such holder promptly and instruct
such holder to tender Outstanding Notes on such beneficial owner's behalf. If
such beneficial owner wishes to tender such Outstanding Notes itself, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering such Outstanding Notes, either make appropriate
arrangements to register ownership of the Outstanding Notes in such beneficial
owner's name or follow the procedures described in the immediately preceding
paragraph. The transfer of record ownership may take considerable time.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Outstanding Notes is received by the Exchange Agent, (ii) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by a Book-Entry Confirmation is received by the Exchange Agent or
(iii) a Notice of Guaranteed Delivery or letter or facsimile transmission to
similar effect (as provided above) from an Eligible Institution is received by
the Exchange Agent. Issuances of Exchange Notes in exchange for Outstanding
Notes tendered pursuant to a Notice of Guaranteed Delivery or letter or
facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal, the
tendered Outstanding Notes (or Book-Entry Confirmation, if applicable) and any
other required documents.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Outstanding Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Company, be unlawful. The Company also reserves the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. Neither the Company, the
Exchange Agent nor any other person will be under any duty to give notification
of any defects or irregularities in tenders or will incur any liability for
failure to give any such notification. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final and binding.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND ALL OTHER DOCUMENTS IS AT
THE ELECTION AND RISK OF THE TENDERING HOLDERS, AND DELIVERY WILL BE DEEMED MADE
ONLY WHEN ACTUALLY RECEIVED AND CONFIRMED BY THE EXCHANGE AGENT. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED
WITH RETURN RECEIPT REQUESTED BE USED AND THAT THE MAILING BE MADE SUFFICIENTLY
IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. AS AN ALTERNATIVE TO
DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY
SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO
THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
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Book-Entry Transfer. The Exchange Agent will make a request to establish
an account with respect to the Outstanding Notes at the Book-Entry Transfer
Facility for purposes of the Exchange Offer within two business days after the
date of the Prospectus, and any financial institution that is a participant in
the Book-Entry Transfer Facility's systems may make book-entry delivery of
Outstanding Notes by causing the Book-Entry Transfer Facility to transfer such
Outstanding 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.
Guarantee Delivery Procedures. If a holder desires to tender Outstanding
Notes pursuant to the Exchange Offer, but time will not permit a Letter of
Transmittal, the Outstanding Notes or other required documents to reach the
Exchange Agent on or before the Expiration Date, or if the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if the Exchange Agent has received at its office a letter or facsimile
transmission from an Eligible Institution setting forth the name and address of
the tendering holder, the names in which the Outstanding Notes are registered,
the principal amount of the Outstanding Notes being tendered and, if possible,
the certificate numbers of the Outstanding Notes to be tendered, and stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange trading days after the Expiration Date, the Outstanding
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, together with a properly completed and duly executed Letter of
Transmittal and any other required documents, will be delivered by such Eligible
Institution to the Exchange Agent in accordance with the procedures outlined
above. Unless Outstanding Notes being tendered by the above-described method are
deposited with the Exchange Agent (including through a Book-Entry Confirmation)
within the time period set forth above (accompanied or preceded by a properly
completed Letter of Transmittal and any other required documents), the Company
may, at its option, reject the tender. Copies of a Notice of Guaranteed Delivery
which may be used by Eligible Institutions for the purposes described in this
paragraph are available from the Exchange Agent.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Outstanding Notes for exchange (the "Transferor")
thereby exchanges, assigns and transfers the Outstanding Notes to the Company
and irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Outstanding Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the
Outstanding Notes and to acquire Exchange Notes issuable upon the exchange of
such tendered Outstanding Notes and that, when the same are accepted for
exchange, the Company will acquire good and unencumbered title to the tendered
Outstanding Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Exchange Agent or the Company to be necessary or desirable to complete
the exchange, assignment and transfer of tendered Outstanding Notes. The
Transferor further agrees that acceptance of any tendered Outstanding Notes by
the Company and the issuance of Exchange Notes in exchange therefor will
constitute performance in full by the Company of its obligations under the
Registration Rights Agreement and that the Company will have no further
obligations or liabilities thereunder (except in certain limited circumstances).
All authority conferred by the Transferor will survive the death, bankruptcy or
incapacity of the Transferor and every obligation of the Transferor will be
binding upon the heirs, legal representatives, successors, assigns, executors,
administrators and trustees in bankruptcy of such Transferor.
By tendering Outstanding Notes and executing the Letter of Transmittal, the
Transferor certifies that (i) it is not an affiliate of the Company or Consumers
U.S. or, if the Transferor is an affiliate of the Company or Consumers U.S., it
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (ii) the Exchange Notes are being
acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder, (iii) the Transferor
has not entered into an arrangement or understanding with any other person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes, (iv) the Transferor is not a broker-dealer who purchased the
Outstanding Notes for resale pursuant to an exemption under the Securities Act,
and
28
<PAGE> 34
(v) the Transferor will be able to trade the Exchange Notes acquired in the
Exchange Offer without restriction under the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes. See "Plan of Distribution."
WITHDRAWAL RIGHTS
Outstanding Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date. For a withdrawal to be effective, a
written letter or facsimile transmission notice of withdrawal must be received
by the Exchange Agent at its address set forth in the Letter of Transmittal not
later than the close of business on the Expiration Date. Any such notice of
withdrawal must specify the person named in the Letter of Transmittal as having
tendered Outstanding Notes to be withdrawn, the certificate numbers and
principal amount of Outstanding Notes to be withdrawn, that such holder is
withdrawing its election to have such Outstanding Notes exchanged and the name
of the registered holder of such Outstanding Notes, and must be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has succeeded
to the beneficial ownership of the Outstanding Notes being withdrawn. The
Exchange Agent will return the properly withdrawn Outstanding Notes promptly
following receipt of notice of withdrawal. Properly withdrawn Outstanding Notes
may be retendered by following one of the procedures described above under
"-- Procedures for Tendering Outstanding Notes" at any time on or prior to the
Expiration Date. If Outstanding Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Outstanding Notes and otherwise comply with
the procedures of such facility. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by the Company, and
such determination will be final and binding on all parties.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Outstanding Notes validly tendered and not withdrawn
and the issuance of the Exchange Notes will be made on the Exchange Date. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted for
exchange validly tendered Outstanding Notes when, as and if the Company has
given written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of
Outstanding Notes for the purposes of receiving Exchange Notes from the Company
and causing the Outstanding Notes to be assigned, transferred and exchanged.
Upon the terms and subject to the conditions of the Exchange Offer, delivery of
Exchange Notes to be issued in exchange for accepted Outstanding Notes will be
made by the Exchange Agent promptly after acceptance of the tendered Outstanding
Notes. Any Outstanding Notes which have been tendered for exchange but which are
not exchanged for any reason will be returned to the holder thereof without cost
to such holder (or, in the case of Outstanding Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry procedures described above, such Outstanding Notes
will be credited to an account maintained by such holder with such Book-Entry
Transfer Facility for the Outstanding Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange Notes
in exchange for any properly tendered Outstanding Notes not previously accepted
and may terminate the Exchange Offer (by oral or written notice to the Exchange
Agent and by timely public announcement communicated, unless otherwise required
by applicable law or regulation, by making a release to the Dow Jones News
Service) or, at its option, modify or otherwise
29
<PAGE> 35
amend the Exchange Offer, if (i) there shall be threatened, instituted or
pending any action or proceeding before, or any injunction, order or decree
shall have been issued by, any court or governmental agency or other
governmental regulatory or administrative agency or commission (a) seeking to
restrain or prohibit the making or consummation of the Exchange Offer or any
other transaction contemplated by the Exchange Offer, (b) assessing or seeking
any damages as a result thereof or (c) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of the
Outstanding Notes pursuant to the Exchange Offer; or (ii) the Exchange Offer
shall violate any applicable law or any applicable interpretation of the staff
of the Commission.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in whole
or in part at any time or from time to time in the reasonable discretion of the
Company. The failure by the Company at any time to exercise any of the foregoing
rights will not be deemed a waiver of any such right, and each right will be
deemed an ongoing right which may be asserted at any time or from time to time.
In addition, the Company has reserved the right, notwithstanding the
satisfaction of each of the foregoing conditions, to terminate or amend the
Exchange Offer.
Any determination by the Company concerning the fulfillment or
non-fulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or qualification of the Indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act").
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. Questions relating to the procedure for tendering, as well as
requests for additional copies of this Prospectus or the Letter of Transmittal
and requests for Notices of Guaranteed Delivery, should be directed to the
Exchange Agent addressed as follows:
<TABLE>
<S> <C> <C>
By Registered or Certified Facsimile Transmission Number: By Hand/Overnight Delivery:
Mail:
(212) 571-3080
The Bank of New York (For Eligible Institutions The Bank of New York
Only)
101 Barclay Street Confirm by Telephone: 101 Barclay Street
(7 East) (212) 815-2742 Corporate Trust
New York, New York 10286 Services Window
Attn: Reorganization Section, For Information Call: Ground Level
Enrique Lopez (212) 815-2742 Attn: Reorganization Section,
Enrique Lopez
</TABLE>
Delivery of the Letter of Transmittal to an address other than as set forth
above, or transmission of instructions via facsimile other than as set forth
above, will not constitute a valid delivery.
The Bank of New York also acts as Trustee under the Indenture.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The expenses to be incurred in connection with the
Exchange Offer, including the fees and expenses of the Exchange Agent and
printing, accounting and legal fees, will be paid by the Company and are
estimated to be approximately $1.2 million.
30
<PAGE> 36
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Outstanding Notes in any jurisdiction
in which the making of the Exchange Offer or the acceptance thereof would not be
in compliance with the laws of such jurisdiction. However, the Company may, at
its discretion, take such action as it may deem necessary to make the Exchange
Offer in any such jurisdiction and extend the Exchange Offer to holders of
Outstanding Notes in such jurisdiction. In any jurisdiction the securities laws
or blue sky laws of which require the Exchange Offer to be made by a licensed
broker or dealer, the Exchange Offer is being made on behalf of the Company by
one or more registered brokers or dealers which are licensed under the laws of
such jurisdiction.
APPRAISAL RIGHTS
Holders of Outstanding Notes will not have dissenters' rights or appraisal
rights in connection with the Exchange Offer.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the carrying value of the
Outstanding Notes as reflected in the Company's accounting records on the date
of the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company upon the exchange of Exchange Notes for Outstanding
Notes. Expenses incurred in connection with the issuance of the Exchange Notes
will be amortized over the term of the Exchange Notes.
TRANSFER TAXES
Holders who tender their Outstanding Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith except that holders
who instruct the Company to register Exchange Notes in the name of, or request
Outstanding Notes not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax thereon.
FEDERAL INCOME TAX CONSEQUENCES
Holders of the Outstanding Notes contemplating acceptance of the Exchange
Offer should consult their own tax advisers with respect to their particular
circumstances and with respect to the effects of state, local or foreign tax
laws to which they may be subject. The following discussion is based upon the
provisions of the Internal Revenue Code of 1986, as amended, regulations,
rulings and judicial decisions, in each case as in effect on the date of this
Prospectus, all of which are subject to change.
The Company believes that the exchange of an Outstanding Note for an
Exchange Note by a Holder pursuant to the Exchange Offer will not constitute a
taxable exchange. Such an exchange will not result in taxable income, gain or
loss being recognized by such Holder or by the Company. Immediately after the
exchange, such Holder will have the same adjusted basis and holding period in
each Exchange Note received as such Holder had immediately prior to the exchange
in the corresponding Outstanding Note surrendered. The foregoing analysis is not
based upon an opinion of counsel and Holders of the Outstanding Notes
contemplating acceptance of the Exchange Offer should consult their own tax
advisors with respect to the effects of the Exchange Offer on the tax basis for
such Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a consequence of the offer or sale of the Outstanding Notes pursuant to
an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws, holders
of Outstanding Notes who do not exchange Outstanding Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Outstanding Notes as set forth in the legend thereon. In
general, the Outstanding Notes may not be offered or sold unless registered
31
<PAGE> 37
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
and applicable state securities laws. The Company does not currently anticipate
that it will register the Outstanding Notes under the Securities Act.
Upon consummation of the Exchange Offer, due to the restrictions on
transfer of the Outstanding Notes and the absence of such restrictions
applicable to the Exchange Notes, it is likely that the market, if any, for
Outstanding Notes will be relatively less liquid than the market for Exchange
Notes. Consequently, holders of Outstanding Notes who do not participate in the
Exchange Offer could experience significant diminution in the value of their
Outstanding Notes, compared to the value of the Exchange Notes.
32
<PAGE> 38
THE ANCHOR ACQUISITION AND THE NOTE OFFERING
The Anchor Acquisition. On February 5, 1997, pursuant to an Asset Purchase
Agreement dated December 18, 1996, as amended (the "Asset Purchase Agreement"),
between Consumers, Owens and Old Anchor (the rights and obligations of Consumers
under the Asset Purchase Agreement having been assigned to the Company), the
Company and Owens purchased substantially all of the assets of, and assumed
certain liabilities, of Old Anchor. Old Anchor's Antioch and Hayward, California
plants and its interest in Rocky Mountain Bottle Company were acquired, and the
related liabilities assumed, by Owens (the "Owens Purchase"). In June 1997,
Owens closed the Antioch plant. The Company purchased substantially all of the
other assets of Old Anchor, including eleven operating plants, several idled
plants and other related assets. The Company also assumed certain other
liabilities of Old Anchor, including certain of Old Anchor's liabilities in
respect of the Anchor Glass Container Corporation Service Retirement Plan, the
Anchor Glass Container Retirement Plan for Salaried Employees and the Pension
Plan for Hourly Employees of Latchford Glass Company and Associated Companies
(collectively, the "Plans"). The Company did not assume Old Anchor's liabilities
in respect of its bank debt, debt securities and industrial revenue bonds.
The acquisition price is subject to a final adjustment based on an audited
January 10, 1997 balance sheet. On June 13, 1997, Old Anchor delivered to the
Company the closing balance sheet which indicated that Old Anchor believed that
it was entitled to additional payments from the Company and Owens totaling
approximately $76.3 million. On July 28, 1997, the Company delivered its notice
of disagreement to Old Anchor, which requested a reduction of the purchase price
of approximately $96.8 million. Since that time, the parties have been
negotiating the amount of the adjustment, and in January 1998, have reached a
proposed settlement. The Proposed Settlement requires the payment by the Company
to Old Anchor of an additional $1.0 million in cash and the issuance of warrants
to purchase additional shares of common stock. In addition, the Company will
issue warrants to purchase additional shares of common stock to Consumers U.S.
or its affiliate. The Proposed Settlement is subject to final approval by the
Company, Old Anchor and the bankruptcy court.
The total sources and uses of funds in connection with the Anchor
Acquisition and the Owens Purchase were as follows (dollars in millions):
<TABLE>
<S> <C>
SOURCES OF FUNDS
- --------------------------------------------
Revolving Credit Facility........... $ 0.1
Anchor Loan Facility................ 130.0
Owens Purchase...................... 128.4
Owens purchase of inventory(1)...... 4.4
Series B Preferred Stock(2)......... 84.0
Class B Common Stock(2)............. 1.0
Series A Preferred Stock(3)(5)...... 56.0
Class A Common Stock(3)............. 2.5
------
TOTAL SOURCES OF FUNDS......... $406.4
======
USES OF FUNDS
- --------------------------------------------
Cash escrowed for creditors(4)...... $209.2
Repayment of DIP credit facility.... 108.6
Other priority claims............... 11.1
Cash pension payment(5)............. 9.1
Series A Preferred Stock pension
payment(5)........................ 9.0
Series A Preferred Stock(4)......... 47.0
Class A Common Stock(4)............. 2.5
Fees and expenses................... 9.9
------
TOTAL USES OF FUNDS............ $406.4
======
</TABLE>
- ---------------
(1) Anchor purchased certain inventory from Old Anchor, which was immediately
resold to Owens.
(2) Issued to Consumers U.S. in exchange for cash contribution.
(3) Represents (a) 1,879,320 shares of Series A Preferred Stock (valued at $47.0
million) and 490,898 shares of Class A Common Stock (valued at $2.5
million), issued to Smith Barney, Inc. ("Smith Barney") in escrow for the
benefit of certain creditors of Old Anchor in partial satisfaction of Old
Anchor's liabilities to such creditors, including, without limitation, the
holders of Old Anchor's debt securities and industrial revenue bonds and (b)
360,000 shares of Series A Preferred Stock (valued at $9.0 million)
contributed to the Plans.
(4) This amount is being held in escrow until the plan of reorganization for Old
Anchor is consummated. This cash will first be allocated to Old Anchor's
senior secured creditors whose claims aggregate $158.0 million. Thereafter,
the balance of this cash will be allocated among (x) the holders of Old
33
<PAGE> 39
Anchor's 10.25% Series A Senior Notes due 2002 and 9.875% Senior
Subordinated Debentures due 2008, the holders of which are unsecured
creditors with claims aggregating approximately $307.0 million, and (y)
certain other unsecured creditors of Old Anchor, in both cases to supplement
the 1,879,320 shares of Series A Preferred Stock (valued at $47.0 million)
and the 490,898 shares of Class A Common Stock (valued at $2.5 million)
issued to Smith Barney in escrow for such unsecured creditors.
(5) $9.1 million in cash plus 360,000 shares of Series A Preferred Stock (valued
at $9.0 million) were contributed to the Plans.
The Note Offering. The gross proceeds of the Note Offering were $150.0
million. The Company used approximately $130.0 million of such proceeds to repay
all outstanding Indebtedness under the Anchor Loan Facility, approximately $8.8
million to repay advances outstanding under the Revolving Credit Facility and
approximately $6.0 million to pay fees and expenses incidental to the Note
Offering with the remaining approximately $5.2 million of such proceeds used for
working capital purposes.
USE OF PROCEEDS
Neither the Company nor the Guarantor will receive any proceeds from the
Exchange Offer.
34
<PAGE> 40
CAPITALIZATION
The following table sets forth the cash position and capitalization of the
Company as of September 30, 1997.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................................. $ 804
========
Revolving Credit Facility(1).............................................. $ 5,861
Long-term debt (including current maturities):
11 1/4% First Mortgage Notes............................................ 150,000
Other Debt................................................................ 2,307
--------
Total debt...................................................... 158,168
--------
Series A Preferred Stock, par value $.01 per share; 2,239,320 shares
authorized; 2,239,320 shares issued and outstanding(2).................. 55,983
--------
Stockholders' equity:
Series B Preferred Stock, par value $.01 per share; 5,000,000 shares
authorized; 3,360,000 shares issued and outstanding.................. 34
Common Stock, par value $.10 per share; 50,000,000 shares authorized:
Class A Common Stock, 19,000,000 shares authorized; 490,898 shares
issued and outstanding.............................................. 49
Class B Common Stock, 28,000,000 shares authorized; 902,615 shares
issued and outstanding.............................................. 90
Class C Common Stock, 3,000,000 shares authorized; none issued and
outstanding(3)...................................................... --
Issuable preferred stock(4)............................................... 4,382
Warrants(3)............................................................... 10,518
Capital in excess of par value............................................ 92,294
Accumulated deficit....................................................... (20,344)
--------
Total stockholders' equity...................................... 87,023
--------
Total capitalization............................................ $301,174
========
</TABLE>
- ---------------
(1) Under the Revolving Credit Facility, the Company may borrow up to $110.0
million. See "Description of Revolving Credit Facility."
(2) The Series A Preferred Stock is subject to mandatory redemption in 2009.
(3) 2,107,843 shares in aggregate of the Company's Class C Common Stock, par
value $.10 per share (the "Class C Common Stock"), are issuable upon the
exercise of certain warrants issued to the Initial Purchasers in connection
with the Anchor Loan Facility and the Note Offering.
(4) Represents additional shares of Series B Preferred Stock issuable to
Consumers U.S. in satisfaction of dividends, accrued as of September 30,
1997, payable in kind to Consumers U.S. on its shares of Series B Preferred
Stock.
35
<PAGE> 41
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
The following Unaudited Pro Forma Statements of Operations of the Company
for the year ended December 31, 1996 and the nine months ended September 30,
1996 and 1997 (the "Pro Forma Statements of Operations") give effect to the
formation of the Company, the Anchor Acquisition and the Note Offering and the
application of the proceeds therefrom (the "Transactions"), as if each such
event had occurred on January 1, 1996 and 1997, respectively. The Pro Forma
Statements of Operations should be read in conjunction with "Management's
Discussion and Analysis of Pro Forma Financial Condition and Results of
Operations," the financial statements of the Company, together with the notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and with the historical consolidated financial statements
of Old Anchor, together with the notes thereto and the related "Management's
Discussion and Analysis of Financial Condition and Results of Operations for Old
Anchor," included elsewhere in this Prospectus. The Pro Forma Statements of
Operations do not purport to be indicative of the results that would have
actually been obtained had such Transactions been completed as of the assumed
dates and for the periods presented, or that may be obtained in the future. The
Anchor Acquisition has been accounted for using the purchase method of
accounting, pursuant to which the purchase price is allocated among the acquired
assets and liabilities in accordance with estimates of fair value as of the date
of acquisition. The purchase price is subject to adjustment as provided in the
Asset Purchase Agreement. On June 13, 1997, Old Anchor delivered to the Company
the closing balance sheet which indicated that Old Anchor believed that it was
entitled to additional payments from the Company and Owens totaling
approximately $76.3 million. On July 28, 1997, the Company delivered its notice
of disagreement to Old Anchor, which requested a reduction of the purchase price
of approximately $96.8 million. Since that time, the parties have been
negotiating the amount of the adjustment, and in January 1998, have reached a
proposed settlement. The Proposed Settlement requires the payment by the Company
to Old Anchor of an additional $1.0 million in cash and the issuance of warrants
to purchase additional shares of common stock. In addition, the Company will
issue warrants to purchase additional shares of common stock to Consumers U.S.
or its affiliate. The Proposed Settlement is subject to final approval by the
Company, Old Anchor and the bankruptcy court.
In addition, for purposes of the Pro Forma Statements of Operations, the
historical financial information of Old Anchor for the periods presented has
been adjusted to eliminate the effect of certain assets and liabilities of Old
Anchor not acquired or assumed by the Company in the Anchor Acquisition, in
accordance with the terms of the Asset Purchase Agreement.
36
<PAGE> 42
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ANCHOR
RESOLUTION
CORP. PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net sales............................................. $ 814,370 $ (91,689)(a) $ 722,681
Costs and expenses:
Cost of products sold............................... 831,612 (85,242)(a) 718,098
(13,920)(b)
(3,141)(c)
(13,519)(d)
2,308(e)
Selling and administrative expenses................. 39,570 -- 39,570
Restructuring and other charges..................... 49,973 -- 49,973
Impairment of long-lived assets..................... 490,232 (490,232)(b) --
Write-up of assets held for sale.................... (8,967) 5,200(i) (3,767)
--------- --------- ----------
Loss from operations.................................. (588,050) 506,857 (81,193)
Other income (expense), net........................... (10,020) 5,553(a) 1,995
6,462(f)
Interest expense...................................... (48,601) 29,153(g) (19,448)
--------- --------- ----------
Loss before reorganization items, income taxes and
extraordinary items................................. (646,671) 548,025 (98,646)
Reorganization items.................................. (5,008) -- (5,008)
Income taxes.......................................... (1,825) -- (1,825)
--------- --------- ----------
Loss before extraordinary items....................... $ (653,504) $ 548,025 $ (105,479)
========= ========= ==========
Preferred stock dividends............................. $ (12,318)(h) $ (12,318)
========= ==========
Loss before extraordinary items applicable to common
stock............................................... $ (653,504) $ 535,707 $ (117,797)
========= ========= ==========
Weighted average common shares outstanding............ 1,393,513
Loss per share applicable to common stock before
extraordinary items................................. $ (84.53)
OTHER DATA:
Net cash used in operating activities............... $ (28,411) $ 19,940 $ (8,471)
========= ========= ==========
Net cash used in investing activities............... $ (63,892) $(189,804) $ (253,696)
========= ========= ==========
Net cash provided by financing activities........... $ 78,886 $ 169,491 $ 249,377
========= ========= ==========
Adjusted EBITDA(j).................................. $ 34,824 $ (6,072) $ 28,752
========= ========= ==========
Depreciation and amortization....................... $ 101,656 $ (39,912) $ 61,744
========= ========= ==========
Deficiency of earnings to cover fixed charges....... $ 651,679 $(548,025) $ 103,654
========= ========= ==========
</TABLE>
See notes to unaudited pro forma statements of operations.
37
<PAGE> 43
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ANCHOR
RESOLUTION ANCHOR
CORP. PERIOD PERIOD FROM
FROM JAN. 1, FEB. 5, 1997
1997 TO TO PRO FORMA
FEB. 4, 1997 SEPT. 30, 1997 ADJUSTMENTS PRO FORMA
------------ -------------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales............................... $ 62,560 $ 415,636 $(8,483)(a) $ 469,713
Costs and expenses:
Cost of products sold................. 70,608 386,130 (8,207)(a) 448,095
(613)(d)
177(e)
Selling and administrative expenses... 3,745 18,127 -- 21,872
-------- -------- ------- ----------
Income (loss) from operations........... (11,793) 11,379 160 (254)
Other income (expense), net............. (595) 234 630(f) 269
Interest expense........................ (2,437) (12,725) 732(g) (14,430)
-------- -------- ------- ----------
Loss before reorganization items and
extraordinary item.................... (14,825) (1,112) 1,522 (14,415)
Reorganization items.................... (827) -- -- (827)
-------- -------- ------- ----------
Loss before extraordinary item.......... $(15,652) $ (1,112) $ 1,522 $ (15,242)
======== ======== ======= ==========
Preferred stock dividends............... $ (8,032) $(1,181)(h) $ (9,213)
======== ======= ==========
Loss before extraordinary item
applicable to common stock............ $(15,652) $ (9,144) $ 341 $ (24,455)
======== ======== ======= ==========
Weighted average common shares
outstanding........................... 1,183,909 1,393,513
Loss per share applicable to common
stock before extraordinary item....... $ (7.72) $ (17.55)
OTHER DATA:
Net cash provided by (used in)
operating activities............... $(11,427) $ 3,364 $ 65 $ (7,998)
======== ======== ======= ==========
Net cash used in investing
activities......................... $ (7,500) (231,333) $ 10 $ (238,823)
======== ======== ======= ==========
Net cash provided by financing
activities......................... $ 17,478 $ 228,773 $(7,605) $ 238,646
======== ======== ======= ==========
Adjusted EBITDA(j).................... $ (4,783) $ 48,611 $ (675) $ 43,153
======== ======== ======= ==========
Depreciation and amortization......... $ 7,605 $ 36,998 $(1,465) $ 43,138
======== ======== ======= ==========
Deficiency of earnings to cover fixed
charges............................ $ 15,652 $ 1,112 $(1,522) $ 15,242
======== ======== ======= ==========
</TABLE>
See notes to unaudited pro forma statements of operations.
38
<PAGE> 44
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ANCHOR
RESOLUTION
CORP. PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net sales............................................. $ 640,049 $ (71,317)(a) $ 568,732
Costs and expenses:
Cost of products sold............................... 636,917 (65,416)(a) 554,156
(10,440)(b)
(8,636)(d)
1,731(e)
Selling and administrative expenses................. 30,736 -- 30,736
Restructuring and other charges..................... 49,973 -- 49,973
--------- -------- ---------
Loss from operations.................................. (77,577) 11,444 (66,133)
Other income (expense), net........................... (3,379) 1,319(a) 2,413
4,473(f)
Interest expense...................................... (42,160) 27,730(g) (14,430)
--------- -------- ---------
Loss before reorganization items, income taxes and
extraordinary items................................. (123,116) 44,966 (78,150)
Reorganization items.................................. (1,576) -- (1,576)
Income taxes.......................................... (1,825) -- (1,825)
--------- -------- ---------
Loss before extraordinary items....................... $ (126,517) $ 44,966 $ (81,551)
========= ======== =========
Preferred stock dividends............................. $ (9,213)(h) $ (9,213)
======== =========
Loss before extraordinary items applicable to common
stock............................................... $ (126,517) $ 35,753 $ (90,764)
========= ======== =========
Weighted average common shares outstanding............ 1,393,513
Loss per share applicable to common stock before
extraordinary items................................. $ (65.13)
OTHER DATA:
Net cash used in operating activities............... $ (58,746) $ 17,369 $ (41,377)
========= ======== =========
Net cash used in investing activities............... $ (57,016) $(186,342) $ (243,358)
========= ======== =========
Net cash provided by financing activities........... $ 101,790 $ 126,457 $ 228,247
========= ======== =========
Adjusted EBITDA(j).................................. $ 44,256 $ (12,952) $ 31,304
========= ======== =========
Depreciation and amortization....................... $ 75,239 $ (30,188) $ 45,051
========= ======== =========
Deficiency of earnings to cover fixed charges....... $ 124,692 $ (44,966) $ 79,726
========= ======== =========
</TABLE>
See notes to unaudited pro forma statements of operations.
39
<PAGE> 45
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
The Unaudited Pro Forma Statements of Operations for the year ended
December 31, 1996 and the nine months ended September 30, 1997 and 1996, give
effect to the following unaudited pro forma adjustments:
(a) Reflects the elimination of the operations of Old Anchor plants purchased
by Owens and the elimination of Old Anchor's share of operations of the
Rocky Mountain Bottle Company joint venture for the periods presented.
(b) Reflects the elimination of Old Anchor's historical amortization of
goodwill for the periods presented and the elimination of Old Anchor's
historical impairment of long-lived assets as of December 31, 1996.
(c) Reflects the elimination of the LIFO (last-in, first-out) provision
recorded for the year ended December 31, 1996.
(d) Reflects the reduction of Old Anchor's historical depreciation for the
effects of the purchase price allocation to property, plant and equipment.
(e) Reflects the amortization of goodwill on a straight-line basis over 20
years.
(f) Reflects the elimination of the amortization of deferred financing fees
recorded by Old Anchor.
(g) Pro forma interest expense and amortization of financing costs has been
calculated on pro forma debt levels and applicable interest rates assuming
the Note Offering was consummated as of the beginning of the periods
indicated:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
Elimination of interest expense recorded by Old
Anchor........................................ $(48,601) $(2,437) $ (42,160)
Elimination of interest expense related to the
Anchor Loan Facility.......................... -- (3,220) --
Interest on borrowings under the Notes of $150.0
million at an interest rate of 11.25% assumed
to be outstanding for the full period......... 16,875 5,062 12,656
Interest on borrowings under the Revolving
Credit Facility of $0.1 million assuming an
interest rate of 8.25%........................ 8 (216) 6
Other interest expense.......................... 560 -- 264
Amortization of financing fees related to the
Notes over a term of eight years and the
Revolving Credit Facility over a term of five
years......................................... 2,005 79 1,504
-------- ------- --------
$(29,153) $ (732) $ (27,730)
======== ======= ========
</TABLE>
Any additional interest which has been described under The Exchange
Offer -- Purpose of the Exchange Offer has not been included in the pro
forma calculation of interest expense as it is not expected to have a
continuing impact on the Company.
On a historical basis, the Company has written off the capitalized deferred
financing fees of the Anchor Loan Facility as of the date that the Note
Offering was consummated. This amount, $11.2 million, was recorded as an
extraordinary loss in the second quarter of 1997.
(h) Reflects the dividends on Series A Preferred Stock of $56.0 million and
Series B Preferred Stock of $84.0 million.
(i) Reflects the elimination of a portion of Old Anchor's historical write-up
of assets held for sale related to plant facilities not acquired in the
Anchor Acquisition for the year ended December 31, 1996.
40
<PAGE> 46
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
(j) Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization) is an amount equal to income (loss) before income taxes and
extraordinary items, plus the amounts of restructuring charges,
reorganization items, the impairment of long-lived assets, interest,
depreciation and amortization and less the write-up of assets held for sale
included in the determination of income (loss) before income taxes and
extraordinary items. The Company believes that, in addition to cash flow
from operations and net earnings, Adjusted EBITDA is a useful financial
performance measurement for assessing operating performance as it provides
investors with an additional basis to evaluate the ability of the Company
to incur and service debt and to fund capital expenditures. In evaluating
Adjusted EBITDA, the Company believes that investors should consider, among
other things, the amount by which Adjusted EBITDA exceeds interest costs
for the period, how Adjusted EBITDA compares to principal repayments on
debt for the period and how Adjusted EBITDA compares to capital
expenditures for the period. To evaluate Adjusted EBITDA, the components of
Adjusted EBITDA, such as revenues and operating expenses and the
variability of such components over time, should also be considered.
Investors should be cautioned that the Company's method of calculating
Adjusted EBITDA may differ from the methods used by other companies and, as
a result, the Adjusted EBITDA measures disclosed herein may not be
comparable to other similarly titled measures disclosed by other companies.
41
<PAGE> 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRO FORMA RESULTS OF OPERATIONS
The discussion set forth below compares the Company's pro forma results of
operations for the nine months ended September 30, 1996 and 1997 after giving
effect to the formation of the Company, the Anchor Acquisition, the Note
Offering and the application of the net proceeds therefrom as if each such event
had occurred at the beginning of the periods presented. A discussion of Old
Anchor's historical results of operations for the year ended December 31, 1996
as compared to Old Anchor's historical results of operations for the year ended
December 31, 1995, and the year ended December 31, 1995 as compared to the year
ended December 31, 1994, is also included elsewhere in this Prospectus. The
information and data included in the following discussion has been derived from
the unaudited Pro Forma Financial Statements of the Company, and exclude the Old
Anchor plants and joint venture interest acquired by Owens in connection with
the Anchor Acquisition, and give effect to the replacement of Old Anchor's
capital structure with the capital structure of the Company. The Company is
implementing a new business strategy, including the Plant Closings and the
Headquarters Cost Reductions, although the effects on the Company's results of
operations resulting therefrom are not reflected in the pro forma results of
operations discussed below.
The data included in the following table for the nine months ended
September 30, 1996 and 1997 has been derived from the Pro Forma Statements of
Operations of the Company. See "Unaudited Pro Forma Financial Statements."
Management believes this data is not necessarily indicative of the results of
operations that would have been achieved by the Company had the Anchor
Acquisition actually occurred at the beginning of the respective periods.
Furthermore, management believes this data is not necessarily indicative of
Anchor's future results.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1996 % OF SALES 1997 % OF SALES
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Net sales............................................ $568,732 100.0% $469,713 100.0%
Cost of products sold................................ 554,156 97.4 448,095 95.4
Selling and administrative expenses.................. 30,736 5.4 21,872 4.7
Restructuring and other charges...................... 49,973 8.8 -- --
Loss from operations................................. (66,133) (11.6) (254) (0.1)
Interest expense..................................... (14,430) (2.5) (14,430) (3.1)
Loss before reorganization items and extraordinary
item............................................... (78,150) (13.7) (14,415) (3.1)
Loss before extraordinary item....................... (81,551) (14.3) (15,242) (3.2)
</TABLE>
PRO FORMA FIRST NINE MONTHS OF 1997 COMPARED TO PRO FORMA FIRST NINE MONTHS OF
1996
The loss from operations for the pro forma nine months ended September 30,
1997 was $0.3 million compared to a loss from operations of $66.1 million for
the pro forma nine months ended September 30, 1996. The loss before
extraordinary item was $15.2 million for the pro forma first nine months of 1997
compared to $81.6 million for the comparable pro forma period of 1996. Included
in the pro forma 1996 results was a first quarter charge of $50.0 million for
Old Anchor's 1996 restructuring program. Net sales for the pro forma first nine
months of 1997 were $469.7 million, a decrease of 17.4% compared with the 1996
pro forma first nine months.
Following the Anchor Acquisition on February 5, 1997, management began an
implementation of a business strategy that it believes can significantly improve
upon Old Anchor's operating results. The objectives of this strategy are to (i)
reduce the cost structure of the Company, (ii) improve production planning and
product mix and (iii) strengthen customer relations.
Cost reductions are being effected through the closure of certain plants to
remove excess capacity and a targeted expense reduction program to create a
leaner organization through the elimination of excess layers of management
including the consolidation of certain corporate functions. Since the Anchor
Acquisition, the
42
<PAGE> 48
Company has closed its Houston, Texas plant effective February 1997 and its
Dayville, Connecticut plant effective April 1997. The Company has reduced 25% of
corporate headquarters positions effective as of March 1997.
With the elimination of excess capacity, management believes it will be
able to improve efficiency and operating results by reallocating production
among the Company's manufacturing facilities according to machine strength and
by instituting longer production runs with fewer mold and color changes.
The Company believes that reestablishing the positive customer
relationships Old Anchor benefitted from in the past is essential to improving
financial performance. Management has already begun to rebuild relationships
with some of Old Anchor's larger volume customers.
LIQUIDITY AND CAPITAL RESOURCES
For a discussion of Liquidity and Capital Resources, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
43
<PAGE> 49
SELECTED FINANCIAL DATA
The following table sets forth certain historical financial information of
the Company and of Old Anchor. The selected financial data for the period from
February 5, 1997 to September 30, 1997 has been derived from the Company's
unaudited condensed financial statements included elsewhere in this Prospectus.
The selected financial data for the nine months ended September 30, 1996 and for
the period from January 1, 1997 to February 4, 1997 has been derived from Old
Anchor's unaudited condensed financial statements included elsewhere in this
Prospectus. The following information should be read in conjunction with the
Company's unaudited condensed financial statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OLD ANCHOR HISTORICAL
--------------------------------------- ANCHOR
NINE MONTHS PERIOD FROM PERIOD FROM
ENDED JANUARY 1, 1997 TO FEBRUARY 5, 1997 TO
SEPTEMBER 30, 1996 FEBRUARY 4, 1997 SEPTEMBER 30, 1997(1)
------------------ ------------------ ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $ 640,049 $ 62,560 $ 415,636
Cost of products sold...................... 636,917 70,608 386,130
Selling and administrative expenses........ 30,736 3,745 18,127
Restructuring and other charges(2)......... 49,973 -- --
-------- -------- -------
Income (loss) from operations.............. (77,577) (11,793) 11,379
Other income (expense), net................ (3,379) (595) 234
Interest expense(3)........................ (42,160) (2,437) (12,725)
-------- -------- -------
Loss before reorganization items, income
taxes and extraordinary items(5)......... (123,116) (14,825) (1,112)
Reorganization items....................... (1,576) (827) --
Income taxes(4)............................ (1,825) -- --
Extraordinary items(5)..................... (2,336) -- (11,200)
-------- -------- -------
Net loss................................... $ (128,853) $(15,652) $ (12,312)
======== ======== =======
Preferred stock dividends.................. $ (8,032)
=======
Loss before extraordinary items applicable
to common stock.......................... $ (9,144)
=======
Loss applicable to common stock............ $ (20,344)
=======
BALANCE SHEET DATA (at end of period):
Accounts receivable........................ $ 85,130 $ 60,978 $ 60,840
Inventories................................ 166,527 148,731 118,191
Total assets............................... 1,195,601 651,801 588,712
Total debt................................. 575,732 570,335 158,168
Total stockholders' equity (deficiency in
assets).................................. 253,234 (284,959) 87,023
</TABLE>
44
<PAGE> 50
<TABLE>
<CAPTION>
OLD ANCHOR OLD ANCHOR ANCHOR
NINE MONTHS PERIOD FROM PERIOD FROM
ENDED JANUARY 1, 1997 FEBRUARY 5, 1997
SEPTEMBER 30, TO FEBRUARY 4, TO SEPTEMBER 30,
1996 1997 1997
------------- ------------------ ----------------
<S> <C> <C> <C>
OTHER FINANCIAL DATA:
Net cash provided by (used in) operating
activities....................................... $ (58,746) $(11,427) $ 3,384
Net cash used in investing activities.............. (57,016) (7,500) (231,333)
Net cash provided by financing activities.......... 101,790 17,478 228,773
Adjusted EBITDA(6)................................. 44,256 (4,783) 48,611
Depreciation and amortization...................... 75,239 7,605 36,998
Capital expenditures............................... 36,144 7,184 21,152
Ratio of earnings to fixed charges(7).............. -- -- --
</TABLE>
- ---------------
(1) The Anchor Acquisition was consummated on February 5, 1997. Accordingly, the
information provided for Old Anchor for the nine months ended September 30,
1996 and for the period from January 1, 1997 to February 4, 1997 is not
comparable to the information provided for the Company for the period from
February 5, 1997 to September 30, 1997.
(2) Restructuring and other charges reflects Old Anchor's implementation of a
series of restructuring plans in an effort to respond to the continued
decline in industry sales volume combined with, in 1996, the loss of a
significant portion of the business of Old Anchor's largest customer. During
the year ended December 31, 1996, the Company recorded an adjustment to the
carrying value of certain idled facilities held for sale. These assets were
previously written down to an estimated net realizable value. Upon a current
evaluation of quotes and offers on these properties in 1996, Old Anchor
increased their net carrying value by approximately $9.0 million. The
balance of the restructuring liability is anticipated to be expended and
charged against the liability over the next three years.
(3) Because of the Chapter 11 proceeding of Old Anchor, there had been no
accrual of interest on the $100.0 million 10.25% Senior Notes or the $200.0
million 9.875% Senior Subordinated Debentures of Old Anchor since September
12, 1996. If accrued, interest expense would have increased $1.5 million
during the nine months ended September 30, 1996.
(4) Income tax provision reflects any additional valuation allowances required
to be recorded under Statement of Financial Accounting Standards No.
109 -- Accounting for Income Taxes ("SFAS 109"). The adoption of SFAS 109
effective January 1, 1993 resulted in an increase in the cumulative net
deferred tax asset by $1.8 million. Under SFAS 109, deferred income taxes
reflect the net tax effects of temporary differences between carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. If on the basis of available evidence, it is more likely than not
that all or a portion of the deferred tax asset will not be realized, the
asset must be reduced by a valuation allowance.
(5) Extraordinary items in the nine months ended September 30, 1996 and the
period from February 5, 1997 to September 30, 1997 resulted from the
write-off of financing costs related to debt extinguished during these
periods.
(6) Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization) ("Adjusted EBITDA") is an amount equal to income (loss) before
income taxes, reorganization items and
45
<PAGE> 51
extraordinary items plus the amounts of restructuring charges, interest,
depreciation and amortization as calculated below, using income (loss) from
operations as a starting point:
<TABLE>
<CAPTION>
OLD ANCHOR
--------------------------------------- ANCHOR
NINE MONTHS PERIOD FROM PERIOD FROM
ENDED JANUARY 1, 1997 TO FEBRUARY 5, 1997 TO
SEPTEMBER 30, 1996 FEBRUARY 4, 1997 SEPTEMBER 30, 1997
------------------ ------------------ ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) from operations........... $(77,577) $(11,793) $11,379
Other income (expense), net............. (3,379) (595) 234
Restructuring and other charges......... 49,973 -- --
Depreciation and amortization........... 75,239 7,605 36,998
-------- -------- -------
Adjusted EBITDA......................... $ 44,256 $ (4,783) $48,611
======== ======== =======
</TABLE>
The Company believes that, in addition to cash flow from operations and net
earnings, Adjusted EBITDA is a useful financial performance measurement for
assessing operating performance as it provides investors with an additional
basis to evaluate the ability of the Company to incur and service debt and
to fund capital expenditures. In evaluating Adjusted EBITDA, the Company
believes that investors should consider, among other things, the amount by
which Adjusted EBITDA exceeds interest costs for the period, how Adjusted
EBITDA compares to principal repayments on debt for the period and how
Adjusted EBITDA compares to capital expenditures for the period. To
evaluate Adjusted EBITDA, the components of Adjusted EBITDA, such as
revenues and operating expenses and the variability of such components over
time, should also be considered. Investors should be cautioned that the
Company's method of calculating Adjusted EBITDA may differ from the methods
used by other companies and, as a result, the Adjusted EBITDA measures
disclosed herein may not be comparable to other similarly titled measures
disclosed by other companies.
(7) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary items plus fixed
charges. Fixed charges consist of interest and amortization of debt expense
plus a portion of operating lease expense representative of the interest
factor. There was a deficiency of earnings to cover fixed charges in the
nine months ended September 30, 1996, the period from January 1, 1997 to
February 4, 1997 and the period from February 5, 1997 to September 30, 1997
of $124.7 million, $15.7 million and $1.1 million, respectively.
46
<PAGE> 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in January 1997 to consummate the Anchor
Acquisition. On February 5, 1997, pursuant to the Asset Purchase Agreement, the
Company and Owens acquired substantially all of the assets of, and assumed
certain liabilities, of Old Anchor. In the Anchor Acquisition, the Company
purchased eleven operating glass container manufacturing facilities and other
related assets. Prior to the Anchor Acquisition, the Company had no operations
and therefore the following discussion represents activity from February 5, 1997
through September 30, 1997 (the "1997 Period").
RESULTS OF OPERATIONS
Income from operations for the 1997 Period was $11.4 million, and the
Company recorded a net loss of $12.3 million. Included in the results of
operations for the 1997 Period is an extraordinary loss of $11.2 million for the
write-off of certain financing fees in connection with the issuance of the
Outstanding Notes and repayment of the Anchor Loan Facility. Without this
extraordinary loss, the Company would have had a net loss for the 1997 Period of
$1.1 million.
While operations for the Company are not comparable to those of Old Anchor,
sales for the continuing plants operated by the Company were $415.6 million for
the 34 weeks ended September 30, 1997 or approximately $12.2 million per week.
Sales for the comparable plants for the first nine months of 1996 (39 weeks)
under Old Anchor were approximately $507.0 million or approximately $13.0
million per week. Income from operations for the continuing plants for the 33
weeks ended September 30, 1997 was approximately $11.4 million while these same
plants produced an operating loss of approximately $16.0 million during the
first nine months of 1996.
Following the Anchor Acquisition, management began implementation of a
business strategy that it believes can significantly improve upon Old Anchor's
operating results. The objectives of this strategy are to (i) reduce the cost
structure of the Company, (ii) improve production planning and product mix and
(iii) strengthen customer relations.
Cost reductions are effected through the closure of certain plants to
remove excess capacity and a targeted expense reduction program to create a
leaner organization through the elimination of excess layers of management
including the consolidation of certain corporate functions. Since the Anchor
Acquisition, the Company has closed its Houston, Texas plant effective February
1997 and its Dayville, Connecticut plant effective April 1997 and removed from
production two furnaces, one at each of two other plants. The Company has
reduced approximately 25% of corporate headquarters positions. Under its
collective bargaining agreements, the Company granted wage increases of
approximately 7% during 1997, with certain contractual increases effected at the
date of the Anchor Acquisition and certain contractual increases effected April
1, 1997. On a comparison of continuing plants operated by the Company as
compared to the same nine plants for the same time period of the previous year,
the Company has substantially offset the impact of these wage increases through
a better utilization of the work force and headcount reductions.
With the elimination of excess capacity, management believes it will be
able to improve efficiency and operating results by reallocating production
among the Company's manufacturing facilities according to machine strength and
by instituting longer production runs with fewer mold and color changes.
The Company believes that reestablishing the positive customer
relationships Old Anchor benefitted from in the past is essential to improving
financial performance. Management has already begun to rebuild relationships
with some of Old Anchor's larger volume customers.
As part of the Anchor Acquisition, the Company entered into an agreement
with Owens whereby the Company continued to produce, at the Company's
manufacturing plants, bottles ordered by the Adolph Coors Company ("Coors") from
Owens during a transition period that ended in May 1997. Following this
transition period, the Company substantially replaced this volume with
comparable business.
47
<PAGE> 53
LIQUIDITY AND CAPITAL RESOURCES
In the 1997 Period, operating activities provided $3.3 million in cash,
reflecting a loss before extraordinary item adjusted for changes in working
capital items. Cash consumed in investing activities for the 1997 Period was
$231.3 million, principally reflecting the cash component of the Anchor
Acquisition. Additionally, in February 1997, the Company contributed $9.0
million in cash to the Company's defined benefit pension plans. Capital
expenditures in the 1997 Period were $21.0 million. Cash increased from
financing activities for the 1997 Period by $228.8 million reflecting the
issuance of capital stock and borrowings in connection with the Anchor
Acquisition.
The purchase price of the Anchor Acquisition was approximately $250.0
million and was comprised of: approximately $200.5 million in cash, $47.0
million face amount (1,879,320 shares) of Series A Preferred Stock and $2.5
million (490,898 shares) of Class A Common Stock. However, the purchase price
paid by the Company is subject to adjustment. On June 13, 1997, Old Anchor
delivered to the Company the closing balance sheet which indicated that Old
Anchor believed that it was entitled to additional payments from the Company and
Owens totaling approximately $76.3 million. On July 28, 1997, the Company
delivered its notice of disagreement to Old Anchor, which requested a reduction
of the purchase price of approximately $96.8 million. Since that time, the
parties have been negotiating the amount of the adjustment, and in January 1998,
have reached a proposed settlement. The Proposed Settlement requires the payment
by the Company to Old Anchor of an additional $1.0 million in cash and the
issuance warrants to purchase of additional shares of common stock. In addition,
the Company will issue warrants to purchase additional shares of common stock to
Consumers U.S. or its affiliate. The Proposed Settlement is subject to final
approval by the Company, Old Anchor and the bankruptcy court. Further, as a
result of its failure to have an Exchange Offer Registration Statement declared
effective and to have exchanged all Notes validly tendered, the Company is
paying additional interest in the amount of 1.5% per annum on the Notes as of
January 13, 1998. This additional interest is expected to be nonrecurring and
not significant to the Company's continuing operations.
The Company obtained the cash portion of the purchase price principally
from an $85.0 million cash investment by Consumers consisting of $84.0 million
face amount (3,360,000 shares) of Series B Preferred Stock and $1.0 million of
Class B Common Stock and borrowings under the $130.0 million Anchor Loan
Facility.
In conjunction with the Anchor Acquisition, the Company also entered into a
credit agreement providing for the $110.0 million Revolving Credit Facility. At
November 3, 1997, advances outstanding under the Revolving Credit Facility were
$19.6 million and the total outstanding letters of credit on this facility were
$12.8 million. See "Description of Revolving Credit Facility."
On April 17, 1997, the Company completed the Note Offering. The Outstanding
Notes are senior secured obligations of the Company, ranking senior in right of
payment to all existing and future subordinate indebtedness of the Company and
pari passu with all existing and future senior indebtedness of the Company. The
Outstanding Notes are guaranteed by Consumers U.S. Proceeds from the issuance of
the Outstanding Notes, net of fees, were approximately $144.0 million and were
used to repay $130.0 million outstanding under the Anchor Loan Facility and $8.8
million outstanding under the Revolving Credit Facility, with the balance used
for general corporate purposes. In connection with the refinancing of the Anchor
Loan Facility with the Note Offering, the Company also issued 702,615 shares of
Class B Common Stock to Consumers U.S. and 702,614 warrants to the Initial
Purchasers. The warrants and common stock are each valued at $5.00 per share.
The Revolving Credit Facility and the Indenture contain certain covenants
that restrict the Company from taking various actions, including, subject to
specified exceptions, the incurrence of additional indebtedness, the granting of
additional liens, the making of investments, the payment of dividends and other
restricted payments, mergers, acquisitions and other fundamental corporate
changes, capital expenditures, operating lease payments and transactions with
affiliates. The Revolving Credit Facility also contains certain financial
covenants that require the Company to meet and maintain certain financial tests
and minimum ratios, including a minimum working capital ratio, a minimum
consolidated net worth test and a minimum interest coverage ratio.
48
<PAGE> 54
The Company's plan is to achieve Year 2000 compliance while integrating the
operations of the Company and Consumers. The Company's information systems cover
a broad spectrum of software applications and hardware custom designed for its
manufacturing processes and are similar to those of Consumers. Consumers, after
an extensive study of its general technology needs, decided to upgrade its
information systems from a platform based on large IBM mainframes to a platform
based on mid-range database servers. This upgrade will resolve any Year 2000
issues. To better integrate its information systems with those of Consumers, the
Company will begin a similar upgrade of its systems in the second quarter of
1998 with a planned implementation date of March 1999, which management believes
provides sufficient time to resolve any unexpected issues. Certain of these
upgrades are included in the capital expenditure budget.
The Company expects significant expenditures in 1998, including interest
expense on the Notes, required pension plan contributions of approximately $17.0
million, payment in respect of the Company's supply agreement with The Stroh
Brewery Company of $7.0 million, capital expenditures of approximately $45.0
million and closing costs associated with the closed manufacturing facilities of
approximately $11.0 million. In addition, the Company is required to make
pension plan contributions for underfundings of $13.9 million in 1999 and $40.5
million to be contributed over the three years thereafter. Additionally, peak
needs are in spring and fall at which time working capital borrowings are
estimated to be $20.0 million higher than at other times of the year. The
Company's principal sources of liquidity through 1998 are expected to be funds
derived from operations, borrowings under the Revolving Credit Facility and
proceeds from asset sales.
IMPACT OF INFLATION
The impact of inflation on the costs of the Company, and the ability to
pass on cost increases in the form of increased sales prices, is dependent upon
market conditions. While the general level of inflation in the domestic economy
has been at relatively low levels, the Company has begun to pass on inflationary
cost increases either as a result of contractual arrangements permitting the
pass on of cost increases or as the result of recent negotiations with various
customers.
SEASONALITY
Due principally to the seasonal nature of the brewing, iced tea and other
beverage industries, in which demand is stronger during the summer months, the
Company's shipment volume is expected to be higher in the second and third
quarters. Consequently, the Company normally builds inventory during the first
quarter in anticipation of seasonal demands during the second and third
quarters. Historically, the Company has scheduled shutdowns of its plants for
furnace rebuilds and machine repairs in the first and fourth quarters of the
year to coincide with scheduled holiday and vacation time under its labor union
contracts. These shutdowns adversely affect profitability during the first and
fourth quarters. The Company is reviewing alternatives to reduce downtime during
these holiday periods in order to minimize disruptions to the production process
and its negative affect on profitability.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 -- Earnings per Share ("SFAS 128").
SFAS 128 differs from current accounting guidance in that earnings per share is
classified as basic earnings per share and diluted earnings per share, compared
to primary earnings per share and fully diluted earnings per share under current
standards. Basic earnings per share differs from primary earnings per share in
that it includes only the weighted average common shares outstanding and does
not include any dilutive securities in the calculation. Diluted earnings per
share under the new standard differs in certain calculations compared to fully
diluted earnings per share under the existing standards. Adoption of SFAS 128 is
required for interim and annual periods ending after December 15, 1997. Had the
Company applied the provisions of SFAS 128 in the period from February 5, 1997
to September 30, 1997 to the earnings per share calculations, there would have
been no impact compared to that which is reported.
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<PAGE> 55
BUSINESS
COMPANY OVERVIEW
On a pro forma basis after giving effect to the Anchor Acquisition, Anchor
is the third largest manufacturer of glass containers in the United States, with
an approximate 19% share of U. S. glass container sales in 1996. Anchor produces
a diverse line of flint (clear), amber, green and other colored glass containers
of various types, designs and sizes. The Company manufactures and sells its
products to many of the leading producers of beer, liquor, food, juice, tea,
soda and mineral water. The Company focuses on the production of beer containers
as this product category accounted for 50% of the Company's pro forma 1996 unit
sales, nearly twice the volume of its next largest category. After giving effect
to the Anchor Acquisition, for the year ended December 31, 1996, the Company had
pro forma net sales of $722.7 million.
Consumers, Canada's only glass container manufacturer, indirectly owns
approximately 59% of Anchor on a fully diluted basis. By management's estimates,
Consumers produced in excess of 80% of all glass containers sold in Canada in
1996, with U.S. glass container manufacturers (including Old Anchor) having
produced most of the remainder. On a pro forma combined basis, after giving
effect to the Anchor Acquisition, the Company and Consumers would have had total
net sales of over $1.0 billion in 1996, net of intercompany sales. See
"Prospectus Summary -- Corporate Structure."
The Company was formed in January 1997 by Consumers to consummate the
Anchor Acquisition. Prior to the Anchor Acquisition on February 5, 1997, the
Company did not conduct any operations. Consumers U.S. was also formed in
January 1997 by Consumers as a holding company for Anchor. Old Anchor was formed
by members of the management of the Glass Container Division of Anchor Hocking
Corporation (the "Glass Container Division") and persons associated with Wesray
Corporation to carry out the leveraged acquisition in 1983 of the business and
certain of the assets of the Glass Container Division. Old Anchor acquired
Midland Glass Company, Inc. in 1984 and Diamond-Bathurst Inc. in 1987.
In November 1989, Vitro S.A. ("Vitro") acquired substantially all of the
stock of Old Anchor. Simultaneously, Vitro acquired all of the stock of
Latchford Glass Company, which was subsequently merged into Old Anchor.
During 1995, Old Anchor's performance began to deteriorate. Management
believes such deterioration was due to a number of factors, including the
maintenance of excess production capacity at the expense of profitability. By
keeping plants operating at less than efficient levels of operation, management
believes Old Anchor suffered from high per unit production costs. In 1995 and
1996, Old Anchor lost significant sales volumes with long-term contract based
customers. Old Anchor continued to operate underutilized production capacity by
accepting contracts for shorter production runs, which require more frequent
retooling. In addition to filling plants with this lower margin business,
management believes Old Anchor manufactured product for customers at facilities
that were beyond a cost effective distribution range, incurring excessive
shipping and freight costs. In addition, in 1996, facing surplus production
capacity in a mature market, U.S. and Canadian glass container manufacturers
engaged in intense price competition. In September 1996, Old Anchor filed for
protection under Chapter 11 of the Bankruptcy Code.
A new senior management team, including executives from Consumers and its
majority shareholder, G&G, who led the turnarounds at both Consumers and
Glenshaw, will implement a series of turnaround initiatives at Anchor. This new
management team believes that Old Anchor was slow to respond to the changing
dynamics of the market for glass packaging. Burdened by over $550.0 million of
debt and with limited financial flexibility, Old Anchor's strategy focused on
aggressively increasing its market share in a competitive market that suffered
from substantial overcapacity. Additionally, new management believes that during
1995 and 1996 relationships with some of Old Anchor's customers deteriorated
because their needs were not properly addressed and the pricing terms of certain
long-term contracts with important customers were not honored.
Anchor's strategy to improve upon Old Anchor's operating performance is to
(i) establish and maintain strong customer relationships, (ii) provide high
quality products and service, (iii) control manufacturing,
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<PAGE> 56
distribution and overhead costs, and (iv) improve production planning and
product mix at the plant level to increase operating and distribution
efficiency. Consistent with this strategy, management of the Company and of
Consumers has closed two Anchor plants, removed of two furnaces from production,
one at each of two other Anchor plants and closed one Consumers plant.
Management believes that its strategy to eliminate excess capacity is consistent
with certain recent actions of the Company's two major competitors. The
consolidation in the glass packaging industry has resulted in the three leading
manufacturers producing 95% of 1996 U.S. sales.
COMPETITIVE STRENGTHS
Management believes the Company has the following key competitive
strengths:
EXPERIENCED TURNAROUND MANAGEMENT TEAM. John J. Ghaznavi, Chairman and
Chief Executive Officer of Anchor, and his team of managers plan to implement a
turnaround program at Anchor that will focus on reducing costs and optimizing
production efficiency at the plant level. Mr. Ghaznavi and this management team
have successfully implemented turnarounds at both Consumers and Glenshaw.
In 1993, through G&G, Mr. Ghaznavi acquired a controlling interest in
Consumers, which had experienced annual losses since 1987. Following such
acquisition, Mr. Ghaznavi installed experienced management and technical teams
that restructured Consumers' business. By rationalizing operations, improving
productivity, focusing on niche markets and introducing new production
technology, as well as building and capitalizing on strong customer
relationships, Mr. Ghaznavi and his team of managers were able to improve
Consumers' operating and distribution efficiency. Consumers' sales increased
from C$405.6 million in 1992 to C$462.3 million in 1996 during a period of
general industry decline, while EBITDA increased from C$33.6 million, or 8.3% of
sales, in 1992 to C$63.2 million, or 13.7% of sales, in 1996.
Mr. Ghaznavi and his team of managers also engineered a turnaround at
Glenshaw, a single plant U.S. glass container manufacturer that focuses on
low-volume, customized production runs. During the years preceding Mr.
Ghaznavi's acquisition of Glenshaw through G&G in 1988, Glenshaw had experienced
declining sales and operating losses. Since its acquisition by G&G, Glenshaw's
sales have more than doubled and EBITDA has more than tripled. However, prior
results of Consumers and Glenshaw are not indicative of the Company's future
results. The nature and risks of the restructuring carried out at Consumers and
Glenshaw, and market conditions faced by them, differ substantially from the
nature and risks of the business strategy for the Company described under
"-- Business Strategy."
Mr. Ghaznavi has extensive industry and customer networks. From 1995
through 1997, he served as Chairman of the Board of Trustees of the Glass
Packaging Institute, the leading industry organization that includes as its
members manufacturers representing over 95% of North America's glass container
production and remains a member of its board. Mr. Ghaznavi intends to build on
these industry and customer networks to establish new customer relationships, as
well as to recapture and strengthen Old Anchor's former customer relationships.
EFFICIENT MANUFACTURING FACILITIES. From 1991 to 1996, Old Anchor invested
in excess of $218.9 million to maintain and upgrade its machines and furnaces at
the facilities that management has identified as ongoing plants, resulting in
more efficient and modern glass production facilities. In addition, Old Anchor
invested $145.1 million in molds for all plants during the same period. As a
result of these expenditures and the reduction of capacity through plant
closings, the Company believes it has the manufacturing facilities which will
allow it to significantly increase efficiency. In conjunction with the Note
Offering, AAA estimated the market value for real property and the liquidation
in place value of the Company's nine operating plants, machinery and mold
facilities to be $243.0 million. Additionally, AAA has estimated the fair market
value of these properties on the premise of continued use to be approximately
$312.4 million. See Summarization Letters of AAA, attached as Annex A to this
Prospectus.
SUPERIOR DESIGN CAPABILITIES. Old Anchor had distinguished itself as a
premier provider of new product designs with the ability to integrate such
designs into the production process. The Company's willingness to
51
<PAGE> 57
work closely with customers to produce unique package designs is an effective
marketing tool and is expected to assist in reestablishing customer
relationships.
ACCESS TO OWENS TECHNOLOGY. Most of Anchor's production facilities utilize
proprietary glass manufacturing technology of Owens, which is generally
considered a recognized technological leader in the manufacture of glass
containers. In February 1997, the Company entered into a Technology Agreement
for a term of up to ten years with Owens to use Owens' proprietary glass
manufacturing technology. Management believes that the Technology Agreement
provides key benefits to Anchor in both marketing and manufacturing its
products.
BUSINESS STRATEGY
Management believes it can significantly improve upon Old Anchor's recent
operating results by implementing the following strategy:
REDUCE COST STRUCTURE. Management believes that Old Anchor maintained
excessive production capacity, which resulted in higher operating costs. In
addition, management believes that Old Anchor maintained disproportionately
large corporate overhead expenses in relation to its plant operations.
Management has already begun to implement its cost reduction strategy in the
following areas:
Plant Closings. Following the Anchor Acquisition, the Company closed its
Houston and Dayville plants in order to reduce excess capacity. In September
1997, Hillsboro, a glass container manufacturing plant owned by G&G,
discontinued manufacturing. All of Hillsboro's rights and obligations to fill
orders under a supply contract between Consumers and one of its major customers
have been purchased by Consumers and Anchor. In addition, management will
continue to monitor business conditions and utilization of plant capacity to
determine the appropriateness of further plant closings. The Plant Closings are
expected to eliminate an estimated $24.1 million of annual fixed costs based on
1996 costs at the two plants. These fixed costs include an estimated $16.5
million of annual indirect labor costs and an estimated $7.6 million of annual
fixed manufacturing costs (fuel, power and repairs) and operating costs
(equipment rentals, taxes and insurance). In connection with the Anchor
Acquisition, Anchor recorded a reserve for expenses estimated to be incurred in
connection with the closing of the Houston and Dayville plants of approximately
$33.0 million to be spent over a three year time frame, $20.0 million of which
has already been incurred.
Selling and Administrative Expense Savings. Anchor has implemented a
targeted expense reduction program, the objective of which is to create a leaner
organization through the elimination of excess layers of management and
consolidation of certain functions such as purchasing, sales, engineering and
MIS, with Consumers and Glenshaw. The Company has realized an estimated $7.2
million in annual cost savings through the elimination of 25% or 61 of Old
Anchor's corporate headquarters positions as of March 1997 and has realized an
additional estimated $6.2 million in annual cost savings from further
headquarters employee reductions and related expenses. Management estimates that
one-time severance costs approximate $2.2 million in connection with these staff
reductions, a majority of which has already been incurred. Further, in
connection with a plan to simplify the corporate ownership structure of
Consumers, Anchor and their affiliates, Glenshaw may become a subsidiary of
Anchor.
IMPROVE PRODUCTION PLANNING AND PRODUCT MIX. With the elimination of
excess capacity, management believes it will be able to improve efficiency and
operating results by reallocating production among the Company's manufacturing
facilities according to machine strength and by instituting longer production
runs with fewer mold and color changes. To implement this strategy, individual
plant managers are now responsible for managing each plant's financial
performance and each product sales organization is responsible for managing the
product mix and the financial performance of its product line.
STRENGTHEN CUSTOMER RELATIONS. The Company believes that reestablishing
the positive customer relationships Old Anchor benefitted from in the past is
essential to improving financial performance. Management believes that Old
Anchor's operating results suffered in part due to a shift in product mix toward
shorter production runs, which require more frequent retooling and increased
costs. This shift occurred when management of Old Anchor began to fill excess
capacity created by the loss of long-term contractual
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<PAGE> 58
customers with less desirable spot orders. Establishing long-term customer
relationships improves efficiency through longer production runs and more
predictable scheduling. Management at Anchor has already begun to rebuild
relationships with some of Old Anchor's larger volume customers, including
Anheuser-Busch, which purchased approximately $4.0 million gross in 1997 and
placed a purchase order for approximately $9.9 million gross in 1998, after
substantially reducing its purchases from Old Anchor.
EXPLOIT SYNERGIES. Management intends to exploit synergies that exist
between the Company and its affiliates, including Consumers and Glenshaw:
Purchasing. Management believes that it will be able to obtain lower costs
on certain of its raw materials than Old Anchor did in 1996 by combining
Anchor's purchasing with that of its affiliates thereby creating potential for
more favorable bulk purchasing rates. Management has already experienced cost
savings as compared to Old Anchor in bulk purchasing of soda ash, sand and
packaging materials.
Freight Savings. Management believes that Old Anchor maintained excess
manufacturing capacity and less than optimal plant by plant product mix relative
to its plant-specific machine strengths and the geographic needs of its
customers. As a result, management believes that Old Anchor suffered from
excessive freight and allowance costs as it sought to utilize excess capacity by
satisfying orders in plants beyond economical shipping distances. Certain
production has been, and will continue to be, reallocated among Anchor plants
and between Anchor and Consumers to maximize regional production where possible.
This represents an opportunity for Anchor to reduce shipping distances and thus
reduce freight and allowance costs.
Marketing. Management believes that its affiliation with Consumers and
Glenshaw will create a competitive advantage in marketing to the broader United
States and Canadian markets. Consumers has been marketing Anchor's production
capacity to those existing Canadian customers who currently have their U.S.
orders filled through competitors of Anchor.
PRODUCTS
The table below provides a summary by product group of Old Anchor's net
sales (in millions of dollars) and approximate percentage of net sales by
product group for the years 1994 through 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994 1995 1996
------------------ ---------------- ----------------
PRODUCT
- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beer.................................. $ 448.1 41.1% $377.1 39.4% $304.7 37.4%
Liquor/Wine........................... 197.9 18.2 202.6 21.2 200.4 24.6
Food.................................. 202.9 18.6 172.1 18.0 166.0 20.4
Tea................................... 126.0 11.6 104.7 10.9 61.0 7.5
Beverage/Water........................ 70.5 6.5 60.1 6.3 42.1 5.2
Other................................. 43.9 4.0 40.0 4.2 40.2 4.9
-------- ----- ------ ----- ------ -----
Total....................... $1,089.3 100.0% $956.6 100.0% $814.4 100.0%
======== ===== ====== ===== ====== =====
</TABLE>
There can be no assurance that the information provided in the preceding
table is indicative of the glass container product mix of the Company in 1998 or
in subsequent years. Management's strategy is to focus on shifting its product
mix towards those products management believes likely to both improve operating
results and increase unit volume. In particular, Anchor will focus on the
production of beer bottles, the market for which has grown at an average annual
rate of 7.0% from 1991 to 1996. In addition, management is also implementing a
strategy of cultivating longer term relationships with high volume customers.
CUSTOMERS
The Company produces glass containers mainly for a broad base of customers
in the food and beverage industries in the United States. The Company's ten
largest customers include well-known brand names such as Stroh's,
Anheuser-Busch, Latrobe (Rolling Rock), The Coca-Cola Trading Company
(non-carbonated), Bacardi International Limited, PepsiCo, Inc., Austin Nichols &
Co., Inc. (Yoo Hoo), The J.M. Smucker
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<PAGE> 59
Company, Saxco International Inc. and Specialty Products Company (Nabisco). The
majority of the Company's glass container designs are produced to customer
specifications and sold on a contract basis.
The Company's largest customer, Stroh's, accounted for 15.3% of its net
sales for the period from February 5, 1997 to September 30, 1997. Anheuser-Busch
and Stroh's accounted for 12.9% and 12.1%, respectively, of its pro forma net
sales in 1996. The loss of either of such customers could have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company's ten largest customers, named above, accounted for
approximately 59.9% of pro forma net sales in 1996, and 53.5% of net sales for
the period from February 5, 1997 to September 30, 1997.
Anchor has entered into a contract with Stroh's to become the exclusive
producer of all glass beer containers for Stroh's product in the United States.
In addition, following the Anchor Acquisition, the Company secured a purchase
order with Anheuser-Busch to produce, subject to Anheuser-Busch's requirements,
approximately 4.0 million gross during 1997, which represented approximately
12.0% of the Company's 1997 volume under contract. For 1998, the Company secured
another purchase order with Anheuser-Busch to produce, subject to
Anheuser-Busch's requirements, approximately 9.9 million gross, which represents
approximately 25.0% of the Company's 1998 volume under contract. During 1996,
Anheuser-Busch substantially reduced its purchases from Old Anchor to 6.8
million gross in 1996 and, before the Anchor Acquisition, had indicated its
intention to cease doing business with Old Anchor after 1996. Management
believes that the 1997 and 1998 requirements contracts for Anheuser-Busch
represents an initial step in its strategy to strengthen customer relationships.
As part of the Anchor Acquisition, the Company entered into an agreement
with Owens whereby the Company continued to produce, at the Company's
manufacturing plants, bottles ordered by Coors from Owens during a transition
period that ended in May 1997. Following this transition period, the Company
substantially replaced this volume with comparable business.
MARKETING AND DISTRIBUTION
The Company's products are primarily marketed by an internal sales and
marketing organization that consists of 13 direct sales people and 27 business
managers who are organized into teams with responsibility for each specific
product line. Old Anchor's sales force was principally compensated based on
increase of sales volume without regard to margin. Management has implemented a
sales compensation program based on improving margin at the plant level as well
as increases in sales volume. Marketing efforts by the Company's employees will
be supplemented by Mr. Ghaznavi and his team of managers who plan to leverage
their relationships in the glass industry to increase sales at the Company. As a
result of the Company's affiliation with Consumers and Glenshaw, Consumers and
Glenshaw sales personnel will also market the capabilities of Anchor with
respect to certain production in exchange for a market-based commission, thereby
resulting in increased sales opportunities at Anchor.
Certain production has been, and will continue to be, reallocated among its
ongoing plants in order to maximize machine capability and geographic proximity
to customers. In addition, Anchor intends to capitalize on its affiliation with
Consumers, with certain U.S. customers formerly served by Consumers having their
production shifted to U.S.-based Anchor facilities closer to such customers and
certain Canadian customers formerly served by Anchor having their production
shifted to Canadian-based Consumers facilities closer to such customers, in each
case in exchange for a market-based commission payable to the entity shifting
its existing production or responsible for the new business. With reduced
shipping distances as a result of this reallocation of production, Anchor
believes it will be able to reduce shipping time to customers, decrease levels
of breakage incurred in shipping product over longer distances and improve
efficiency at its plants resulting in faster and higher quality production and
service for its customers.
SEASONALITY
Due principally to the seasonal nature of the brewing, iced tea and other
beverage industries, in which demand is stronger during the summer months, the
Company's shipment volume is expected to be higher in the second and third
quarters. Consequently, the Company normally builds inventory during the first
quarter
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<PAGE> 60
in anticipation of seasonal demands during the second and third quarters.
Historically, the Company has scheduled shutdowns of its plants for furnace
rebuilds and machine repairs in the first and fourth quarters of the year to
coincide with scheduled holiday and vacation time under its labor union
contracts. These shutdowns adversely affect profitability during the first and
fourth quarters. The Company is reviewing alternatives to reduce downtime during
these holiday periods in order to minimize disruptions to the production process
and its negative affect on profitability.
FACILITIES
The Company's administrative and executive offices are located in Tampa,
Florida. The Company owns and operates nine glass manufacturing plants (giving
effect to the Plant Closings). The Company also leases a building located in
Streator, Illinois, that is used as a machine shop to rebuild glass-forming
related machinery and one mold shop located in Zanesville, Ohio, as well as
additional warehouses for finished products in various cities throughout the
United States. Substantially all of the Company's owned and leased properties
are pledged as collateral securing the Company's obligations under the Notes and
the Indenture.
As part of its long-term business strategy, the Company closed its Houston
plant effective as of February 1997 and its Dayville plant effective as of April
1997. Two furnaces and five machines have also been removed from service, one
furnace and one machine at the Company's Jacksonville plant and one furnace and
four machines at its Connellsville plant. In addition, management will continue
to monitor business conditions and utilization of plant capacity to determine
the appropriateness of further plant closings.
In conjunction with the Anchor Acquisition, AAA estimated the market value
for real property and the liquidation in place value of personal property
consisting of the Company's ongoing plants, machinery and mold facilities to be
$243.0 million. Additionally, AAA has estimated the fair market value of these
properties on the premise of continued use to be approximately $312.4 million.
See Summarization Letters of AAA, attached as Annex A to this Prospectus. The
following table sets forth certain information about the facilities owned and
being operated by the Company as of December 31, 1997.
<TABLE>
<CAPTION>
BUILDING
AREA
NUMBER OF NUMBER OF (SQ.
LOCATION(1) FURNACES MACHINES FT.)
- ------------------------------------------------------------ --------- --------- --------
<S> <C> <C> <C>
Operating Plants:
Jacksonville, Florida(2).................................. 3 5 624,000
Warner Robins, Georgia.................................... 2 8 864,000
Lawrenceburg, Indiana..................................... 1 4 504,000
Winchester, Indiana....................................... 2 6 627,000
Shakopee, Minnesota....................................... 2 6 360,000
Salem, New Jersey(3)...................................... 3 6 733,000
Elmira, New York.......................................... 2 6 912,000
Henryetta, Oklahoma....................................... 2 6 664,000
Connellsville, Pennsylvania(4)............................ 2 4 624,000
</TABLE>
- ---------------
(1) Keyser, West Virginia, Gas City, Indiana, Cliffwood, New Jersey, Royersford,
Pennsylvania, Chattanooga, Tennessee, Houston, Texas and Dayville,
Connecticut are closed plants that are part of the collateral securing the
Notes and the Company's obligations under the Indenture, but were not
included in AAA's appraisal.
(2) The Company removed one furnace and one machine from production at this
facility in February 1997.
(3) A portion of the site on which this facility is located is leased pursuant
to several long-term leases.
(4) The Company removed one furnace and four machines from production at this
facility in February 1997.
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<PAGE> 61
The following table sets forth certain information about the facilities
leased by the Company as of December 31, 1997 (other than the Tampa
headquarters):
<TABLE>
<CAPTION>
LEASE
BUILDING AREA EXPIRATION
LOCATION (SQ. FT.) DATE
- ------------------------------------------------------------ ------------- ---------------
<S> <C> <C>
Warehouses:
Dayville, Connecticut..................................... 985,000 August 2018
Jacksonville, Florida..................................... 120,000 August 1998
Adairsville, Georgia...................................... 165,000 June 1999
Winchester, Indiana....................................... 120,000 June 2000
Savage, Minnesota......................................... 102,000 month to month
Salem, New Jersey(1)...................................... land only January 2029
Mt. Pleasant, Pennsylvania................................ 100,000 month to month
Mississauga, Ontario, Canada.............................. 48,000 month to month
Fort Collins, Colorado.................................... 120,000 June 1998
Machine Shop:
Streator, Illinois........................................ 130,000 month to month
Mold Shop:
Zanesville, Ohio.......................................... 102,000 December 2008
</TABLE>
- ---------------
(1) The building is owned by the Company and has 733,000 square feet.
Headquarters Lease. In connection with the Anchor Acquisition, the Company
assumed and amended Old Anchor's lease of the headquarters facility located in
Tampa, Florida and a related option to purchase. The Company has exercised its
option to purchase and the amended lease expires on February 1, 1998. The
property is encumbered by a mortgage in favor of Citicorp which secures a loan
from Citicorp to the landlord, Fountain, the principal balance of which was
$10.2 million as of February 5, 1997. This mortgage indebtedness is required to
be repaid or refinanced by February 1, 1998. The Company's rights under the
Option Agreement have been assigned to a third party purchaser of the facility,
with a closing expected to occur in late January 1998. Contemporaneously with
the closing, the Company and the purchaser will enter into a lease pursuant to
which the Company will lease a portion of the headquarters facility for an
initial term of ten years. The balance of the space will be leased to other
tenants. The building has been appraised by an independent appraisal firm, as of
February 17, 1997, to have a current market value, assuming the building is
vacant, of $9.2 million and to have a market value, assuming continued occupancy
with market lease terms, of $11.1 million.
MANUFACTURING PROCESS
To manufacture glass containers, sand, limestone, soda ash and minor
ingredients, along with crushed recycled glass (also known as "cullet"), are
mixed in specific proportions and automatically fed into furnaces which,
operating at temperatures of up to 2,860 degrees Fahrenheit, melt the raw
material batch and produce molten glass. The molten glass flows from the furnace
through feeder orifices, is cut into gobs and then drops into molds located in
automatic "individual section" glass forming machines ("IS Machines"). In these
machines, mechanical devices and air pressure form the glass into its final
shape. The containers are conveyed through an oven known as an annealing lehr to
anneal (or harden) the glass. Surface coatings are applied to strengthen the
glass and lubricate it for easier handling.
Glass forming machines are generally operated for approximately five to
seven years before they are removed from the plant for rebuilding. When a
machine is removed for rebuilding, a new or rebuilt machine is immediately
installed in its place so as to minimize plant downtime.
IS Machines vary in size, usually having eight, ten or twelve "sections."
Each section in turn may have from two to four bottle-producing "cavities"
consisting of two sets of molds each. The first mold set receives the gob of
glass from the furnace feeder and forms a "parison," which is roughly in the
shape of the container.
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<PAGE> 62
The parison is then transferred by the machine to the second (finish) mold set
where it is blown into the final container shape using compressed air. During
each machine "cycle," an IS Machine produces one bottle in each of its cavities.
Accordingly, an eight-section double-cavity machine produces sixteen bottles per
machine cycle, while a ten-section triple-cavity machine produces thirty bottles
per machine cycle. Typically, the largest machines are the most productive as
they require less labor and related costs per unit produced.
Glass forming machines also differ in the "speed," or number of cycles per
unit of time, that they can achieve. Typically, the faster the machine, the more
efficient and productive it is as, among other things, the fixed labor costs per
unit produced are reduced. However, certain products are not necessarily
well-suited for the fastest IS Machines or those with the most bottle-producing
cavities. IS Machines with a high number of bottle producing cavities would not
be capable of producing particular product lines such as large or unusually
shaped liquor bottles.
Finally, IS Machines form containers by one of two processes: (i) the "blow
and blow" process, whereby both the parison and the final container are formed
using compressed air or (ii) the more advanced "press and blow" method, whereby,
a precisely aligned metal plunger is used to press the molten glass into shape
in the first mold set. The "press and blow" method has been used for many years
to form all wide mouth food containers. A significant manufacturing advance has
been the development of high speed IS Machines capable of producing high quality
beer and soft drink containers using the narrow-neck-press-and-blow process. The
narrow-neck-press-and-blow process enables bottles to be made with less glass
and still meet strength requirements, which results in production cost savings.
More importantly, it results in a lighter weight bottle that costs less to
produce in terms of raw materials and energy per unit. These lightweight bottles
are also typically produced at higher machine speeds that increase productivity
and further reduce per unit costs.
SUPPLIERS AND RAW MATERIALS
Sand, soda ash, limestone, cullet and corrugated packaging materials are
the principal materials used by the Company. All of these materials are
available from a number of suppliers and the Company is not dependent upon any
single supplier for any of these materials. Management believes that adequate
quantities of these materials are and will be available from various suppliers.
Material increases in the cost of any of these items could have a significant
impact on the Company's operating results.
All of the Company's glass melting furnaces are equipped to burn natural
gas, which is the primary fuel used at its manufacturing facilities. Backup
systems are in place at most facilities to permit the use of fuel oil or propane
should that become necessary. Electricity is used in certain instances for
supplementary melting. The Company expects to be continually involved in
programs to conserve and reduce its consumption of fuel. Although natural gas
remains generally less expensive than electricity, prices for natural gas have
fluctuated in recent years, with significant increases in 1993, declines in 1994
and moderate increases after some significant fluctuation, in 1995, 1996 and
1997. While certain of these energy sources may become increasingly in short
supply, or subject to governmental allocation or excise taxes, the Company
cannot predict the effects, if any, of such events on its future operations. In
addition, the Company utilizes a natural gas risk management program to hedge
future requirements and to minimize fluctuations in the price of natural gas.
COMPETITION
The glass container industry is a low growth and mature industry. This low
growth combined with excess capacity in the industry have made pricing an
important competitive factor. In addition to price, Anchor and the other
companies in the glass container manufacturing industry, compete on the basis of
quality, reliability of delivery and general customer service. The Company's
principal competitors are Owens and Ball-Foster. These competitors are larger
and have greater financial and other resources than the Company. The glass
container industry in the United States is highly concentrated, with the three
largest producers in 1996, which included Old Anchor, estimated to have
accounted for 95% of 1996 production. Owens is generally believed to be the
industry's lowest cost producer. Owens has a relatively large research and
development staff and has in place numerous technology licensing agreements with
other glass producers, including the Company. See "-- Intellectual Property."
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<PAGE> 63
The Company's business consists exclusively of the manufacture and sale of
glass containers. Certain other glass container manufacturers engage in more
diversified business activities than the Company (including the manufacture and
sale of plastic and metal containers). In addition, plastics and other forms of
alternative packaging have made substantial inroads into the container markets
in recent years and will continue to affect demand for glass container products.
According to industry sources, unit sales in the U.S. glass container
manufacturing industry in 1996 were down 2.1% from 1995. The compound annual
decline in unit shipments from 1991 to 1996 was approximately 1.5%. Competitive
pressures from alternative forms of packaging, including plastics, as well as
consolidation in the glass container industry, have resulted in excess capacity
and have led to severe pricing pressures on glass container manufacturers.
Further management believes that consistent productivity improvements among
glass and glass alternatives can be expected to continue to decrease capacity
utilization rates for the industry or result in additional plant closures. See
"Risk Factors -- Competition."
While competitive pressures from plastics are expected to remain intense,
management has identified several product segments where it believes that there
are still growth opportunities. In general, management believes that the beer
segment provides stronger potential for growth than the food segment which has
seen declines of over 7.0% in each of 1995 and 1996. In particular, sales of
glass beer containers, were up approximately 7.0% in 1996 and have experienced
comparable growth rates over the past five years. Management expects that glass
beer containers will continue to grow at a faster rate than beer consumption, as
they regain share from aluminum cans driven in part by the introduction of the
long neck style bottle. Glass beer bottles are also expected to continue to
benefit from consumer preferences for a more sophisticated appearing container.
During the period of its continued losses, insolvency and uncertainty
regarding future operations and ownership, Old Anchor's relationships with many
of its major customers were adversely affected and Old Anchor lost certain
customers or received volume reductions and in many cases reduced prices
substantially in order to maintain production volumes. In order to successfully
improve the Company's operating performance as compared to Old Anchor, the
Company will need to establish and maintain strong relationships with major
customers based upon competitive pricing. However no assurance can be given that
the Company will be able to achieve this objective.
QUALITY CONTROL
The Company maintains a program of quality control with respect to
suppliers, line performance and packaging integrity for glass containers. The
Company's production lines are equipped with a variety of automatic and
electronic devices that inspect containers for dimensional conformity, flaws in
the glass and various other performance attributes. Additionally, products are
sample inspected and tested by Company employees on the production line for
dimensions and performance and are also inspected and audited after packaging.
Containers which do not meet quality standards are crushed and recycled as raw
materials.
The Company monitors and updates its inspection programs to keep pace with
modern technologies and customer demands. The Company maintains its own
laboratory at its corporate headquarters where samples of glass and raw
materials from its plants are routinely chemically and electronically analyzed
to monitor compliance with quality standards. Laboratories are also maintained
at each manufacturing facility to test various physical characteristics of
products.
INTELLECTUAL PROPERTY
Pursuant to the Technology Agreement between Owens and Consumers, the
Company is entitled to use patents, trade secrets and other technical
information of Owens relating to glass manufacturing technology. The agreement,
entered into in February 1997, provides for a term of up to ten years. Owens is
generally considered a recognized technological leader in the manufacture of
glass containers.
While the Company holds various patents, trademarks and copyrights of its
own, it believes its business is not dependent upon any one of such patents,
trademarks or copyrights.
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EMPLOYEES
As of January 15, 1998, the Company employed approximately 3,350 persons on
a full-time basis. Approximately 550 of these employees are salaried office,
supervisory and sales personnel. The remaining employees are represented
principally by two unions, Glass, Molders, Pottery, Plastics and Allied Workers
(the "GMP"), which represents approximately 90% of the Company's hourly
employees, and the American Flint Glass Workers Union (the "AFGWU"), which
represents approximately 10% of the Company's hourly employees. The Company's
two labor contracts with the GMP and its two labor contracts with the AFGWU have
three year terms expiring on March 31, 1999 and August 31, 1999, respectively.
Old Anchor was granted a deferral of the scheduled 1996 wage increase under its
collective bargaining agreements. The Company granted the 1996 increase
effective as of the date of the Anchor Acquisition, and the 1997 increase
effective as of April 1, 1997. These two increases represent an approximate 7%
increase in wage rates as of April 1, 1997 as compared to 1996 wage rates. The
Company is subject to OSHA and other laws regulating safety and noise exposure
levels in the production area of its plants. See "-- Environmental and Other
Government Regulation -- Health and Safety Regulation"
Old Anchor had not experienced a work stoppage since an industry-wide
strike in 1968. The Company considers its employee relations to be good, and
does not anticipate any material work stoppages in the near term.
ENVIRONMENTAL AND OTHER GOVERNMENT REGULATION
Environmental Regulation and Compliance. The Company's operations are
subject to increasingly complex and detailed Federal, state and local laws and
regulations including, but not limited to, the Federal Water Pollution Control
Act of 1972, as amended, the U.S. Clean Air Act, as amended, and the Federal
Resource Conservation and Recovery Act, as amended, that are designed to protect
the environment. Among the activities subject to regulation are the disposal of
checker slag (furnace residue usually removed during furnace rebuilds), the
disposal of furnace bricks containing chromium, the disposal of waste, the
discharge of water used to clean machines and cooling water, dust produced by
the batch mixing process, underground storage tanks and, air emissions produced
by furnaces. In addition, the Company is required to obtain and maintain permits
in connection with its operations. Many environmental laws and regulations
provide for substantial fines and criminal sanctions for violations. The Company
believes it is in material compliance with applicable environmental laws and
regulations. It is difficult to predict the future development of such laws and
regulations or their impact on future earnings and operations, but the Company
anticipates that these standards will continue to require increased capital
expenditures. There can be no assurance that material costs or liabilities will
not be incurred.
Certain environmental laws, such as CERCLA and analogous State laws provide
for strict, joint and several liability for investigation and remediation of
releases of hazardous substances into the environment. Such laws may apply to
properties presently or formerly owned or operated by an entity or its
predecessors, as well as to conditions at properties at which wastes
attributable to an entity or its predecessors were disposed. There can be no
assurance that the Company or entities for which it may be responsible will not
incur such liability in a manner that could have a material adverse effect on
the financial condition or results of operations of the Company.
The Company is engaged in investigation and remediation projects at plants
currently being operated and at closed facilities. In addition, Old Anchor was
named as a PRP under CERCLA with respect to a number of sites. Of these sites,
the Company has assumed responsibility with respect to four sites that are
currently active. While the Company may be jointly and severally liable for
costs related to these sites, in most cases, it is only one of a number of PRPs
who are also jointly and severally liable. With respect to the four currently
active sites for which the Company has assumed responsibility, the Company
estimates that its share of the aggregate cleanup costs of such sites should not
exceed $2.0 million, and that the likely range after taking into consideration
the contributions anticipated from other potentially responsible parties could
be significantly less. However, no assurance can be given that the cleanup costs
of such sites will not exceed $2.0 million or that the Company will have these
funds available. The Company has established reserves of approximately
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<PAGE> 65
$16.0 million for environmental costs which it believes are adequate to address
the anticipated costs of remediation of these operated and closed facilities and
its liability as a PRP under CERCLA. The timing and magnitude of such costs
cannot always be determined with certainty due to, among other things,
incomplete information with respect to environmental conditions at certain
sites, the absence of regulatory determinations with respect to environmental
requirements at certain sites, new and amended environmental laws and
regulations, and uncertainties regarding the timing of remedial expenditures.
Capital expenditures required for environmental compliance were
approximately $1.8 million for 1997 and are anticipated to be approximately $1.5
million annually in 1998 and 1999. However, there can be no assurance that
future changes in such laws, regulations or interpretations thereof or the
nature of the Company's operations will not require the Company to make
significant additional capital expenditures to ensure compliance in the future.
ERISA and Pension Deficiencies. The Company maintains three defined
benefit plans and two profit sharing plans that, prior to the Anchor
Acquisition, were maintained by Old Anchor. These plans are covered by ERISA and
are tax qualified under the Code, subject to regulation by the Internal Revenue
Service and the Department of Labor. The three defined benefit plans are also
subject to regulation by the PBGC. The Company's two profit sharing plans
contain cash or deferred arrangements under Section 401(k) of the Code. The
Company's tax-qualified plans must meet stringent requirements both in form and
in operation in order to maintain their tax-qualified status. These requirements
are constantly changing with the enactment of new pension legislation, the
issuance of new Treasury regulations and other guidance from the Internal
Revenue Service. The loss of a plan's qualified status could result in the
assessment of tax on the plan's trust income, disallowance of the Company's tax
deduction for contributions, and immediate income tax liability upon individual
participant's benefits.
The three defined benefit plans are subject to minimum funding requirements
under the Code and Title IV of ERISA. These funding requirements include the
obligation to make quarterly contributions to the plans. Under ERISA, if any
contribution is missed which, when added to any other missed payment, exceeds
the amount of $1.0 million, an automatic lien in favor of the PBGC will arise on
all property of the Company and all members of its controlled group. In
addition, under ERISA, the PBGC can institute proceedings to terminate any
defined benefit plan for a number of reasons, including (i) the failure of the
plan to meet ERISA's minimum funding requirements, (ii) the inability of the
plan to pay benefits when due or (iii) the possible long-run loss of the PBGC
with respect to the plan may reasonably be expected to increase unreasonably if
the plan is not terminated. Upon termination of a plan, a lien arises in favor
of the PBGC for the amount of the underfunding of the plan.
On January 9, 1997, the PBGC notified Old Anchor that it intended to
institute involuntary termination proceedings with respect to the three defined
benefit plans then maintained by Old Anchor that are now maintained by the
Company. However, the PBGC reached an agreement with Vitro (the "Termination
Agreement"), the parent of Old Anchor, in which Vitro agreed to provide a
limited guaranty to the PBGC with respect to the unfunded benefit liabilities of
the Company's defined benefit plans, if the plans, or any one of them, are
terminated before August 1, 2006. As a result of this agreement with Vitro, the
threatened involuntary termination proceeding was never commenced. Under the
terms of the Termination Agreement, the PBGC agreed that it would not implement
proceedings to terminate the Company's defined benefit plans solely as a result
of the Anchor Acquisition or the transactions contemplated by the Asset Purchase
Agreement.
The defined benefit plan covering salaried employees was frozen at the end
of 1994, and, at the end of 1996, was not underfunded under SFAS No. 87.
However, the two defined benefit plans that are maintained for hourly employees
are significantly underfunded and will require substantial cash contributions
over the next few years. At the end of 1996, these two plans in the aggregate
had unfunded benefits under SFAS No. 87 totaling approximately $76.7 million.
Pension contributions made to the three defined benefit plans during 1997,
including the contributions made by the Company upon the closing of the Anchor
Acquisition ($9.1 million in cash and $9.0 million in Series A Preferred Stock,
including $8.1 million in cash and $8.0 million in Series A Preferred Stock
contributed to the two hourly plans), were approximately $38.4
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million. In addition, the underfunding of the two hourly plans required the
payment of increased premiums to the PBGC under its pension guaranty program of
approximately $1.8 million in 1997.
Pursuant to the Termination Agreement, a valuation of the shares of Series
A Preferred Stock contributed by the Company to the three defined benefit plans
has been performed by an independent appraiser. The Company is required to make
an additional contribution to the plans of $0.7 million to bring the value of
the contribution to $9.0 million.
Management believes that the Company is now in material compliance with all
laws and regulations governing its employee benefit plans. In addition, based
upon the Company's business plan, management believes the Company will have
sufficient cash flow to meet its obligations to make pension contributions and
pay PBGC premiums. However, there can be no assurance that future changes in
such laws or regulations, or interpretations thereof, changes in the Company's
business or in market conditions affecting the value of plan assets will not
require the Company to expend amounts that exceed those that are now
anticipated.
Employee Health and Safety Regulation. The Company's operations are
subject to a variety of worker safety laws. OSHA and analogous laws mandate
general requirements for safe workplaces for all employees. The Company believes
that its operations are in material compliance with applicable employee health
and safety laws.
Deposit and Recycling Legislation. In recent years, legislation has been
introduced at the Federal, state and local levels that would require a deposit
or tax, or impose other restrictions, on the sale or use of certain containers,
particularly beer and carbonated soft drink containers. To date, 10 states have
enacted some form of deposit legislation, although no such new legislation has
been enacted since 1986. The enactment of additional laws or comparable
administrative actions that would require a deposit on beer or soft drink
containers, or otherwise restrict their use, could have a material adverse
effect on the Company's business. In jurisdictions where deposit legislation has
been enacted, the consumption of beverages in glass bottles has generally
declined due largely to the preference of retailers for handling returned cans
and plastic bottles. Container deposit legislation continues to be considered
from time to time at various governmental levels.
In lieu of this type of deposit legislation, several states have enacted
various anti-littering recycling laws that do not involve the return of
containers to retailers. The use of recycled glass, and recycling in general,
are not expected to have a material adverse effect on the Company's operations.
LEGAL PROCEEDINGS
The Company is, and from time to time may be, a party to routine legal
proceedings incidental to the operation of its business. The outcome of these
proceedings is not expected to have a material adverse effect on the financial
condition or operating results of the Company, based on the Company's current
understanding of the relevant facts and law.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors and Officers. The following table sets forth certain information
regarding each of the Company's directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---
<S> <C> <C>
John J. Ghaznavi................... 62 Chairman, Chief Executive Officer and Director
Richard M. Deneau.................. 51 President and Chief Operating Officer
M. William Lightner, Jr............ 63 Senior Vice President -- Finance, Chief Financial
Officer, Treasurer and Director
David T. Gutowski.................. 49 Senior Vice President -- Administration, and
Director
C. Kent May........................ 58 Senior Vice President, General Counsel,
Secretary and Director
Paul H. Farrar..................... 63 Director
Roger L. Erb....................... 55 Senior Vice President -- Operations
Gordon S. Love..................... 47 Senior Vice President -- Sales and Marketing
Edward M. Jonas.................... 59 Controller
Eugene K. Pool..................... 61 Vice President, Associate General Counsel and
Assistant Secretary
John F. Robichaud.................. 52 Vice President -- Order Management and Scheduling
Logistics
George C. Lusby III................ 54 Industry Vice President -- Sales and Marketing
John L. Day........................ 51 Industry Vice President -- Sales and Marketing
Gregory C. Sinatro................. 46 Industry Vice President -- Sales and Marketing
</TABLE>
Term of Office. Each director serves until such director's successor is
elected and qualified or until such director's earlier resignation, retirement,
disqualification, removal from office or death. Each officer serves until the
first meeting of the Board of Directors following the next annual meeting of the
stockholders and until such officer's successor is chosen and qualified.
DIRECTORS AND OFFICERS OF CONSUMERS U.S.
Directors and Officers. The following table sets forth certain information
regarding each of Consumers U.S.'s directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---
<S> <C> <C>
John J. Ghaznavi................... 62 Chairman, Chief Executive Officer and Director
David T. Gutowski.................. 49 Vice-President, Treasurer, Assistant Secretary and
Director
C. Kent May........................ 58 Secretary and Director
M. William Lightner, Jr............ 63 Vice President and Chief Financial Officer
</TABLE>
Term of Office. Each director serves until the first annual meeting of
stockholders and until their successors are elected and qualified or until their
earlier resignation or removal, except as set forth in the Certificate of
Incorporation. Each officer serves until the meeting of the Board of Directors
following the next annual meeting of stockholders and until his successor shall
have been chosen and qualified.
John J. Ghaznavi became Chairman of the Board and Chief Executive Officer
of the Company in January 1997. He has been Chairman and Chief Executive Officer
of each of Consumers, Glenshaw and G&G since 1993, 1988 and 1987, respectively.
Mr. Ghaznavi currently serves as Chairman of the Board of Trustees of the Glass
Packaging Institute.
Richard M. Deneau assumed his duties as President and Chief Operating
Officer of the Company in July 1997. From January 1996 until June 1997, Mr.
Deneau was Senior Vice President and Chief Operating Officer of Ball-Foster.
From October 1992 to January 1996, he was Senior Vice President in charge of the
domestic beverage can operations of American National Can Company. Prior to
October 1992, Mr. Deneau was Senior
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Vice President of Sales at American National Can Company's division and the
predecessor of Ball-Foster, Foster Forbes ("Foster-Forbes").
M. William Lightner, Jr. joined the Company in January 1997 as a director
and as Vice President, Treasurer and Chief Financial Officer. He became Vice
President -- Finance in March 1997 and Senior Vice President -- Finance in June
1997. Since July 1994, Mr. Lightner has been Vice President of Finance and Chief
Financial Officer of Consumers. From 1989 to 1992, Mr. Lightner served as
Chairman of MICA Resources, a privately held aluminum processor and brokerage
company. Mr. Lightner was a partner with Arthur Andersen & Co. from 1969 to
1989.
David T. Gutowski joined the Company in January 1997 as a director and as a
Vice President and became Vice President -- Administration in March 1997 and
Senior Vice President -- Administration in June 1997. He has been a director of
Consumers since 1993. Mr. Gutowski served as Treasurer and Chief Financial
Officer of G&G since 1988.
C. Kent May became a director of the Company in January 1997 and became
Vice President, General Counsel and Secretary of the Company in March 1997. He
became Senior Vice President in June 1997. Mr. May has served as a director of
Consumers since 1993 and he was appointed General Counsel of Consumers in March
1997. Mr. May has been an associate, partner or member of the law firm of Eckert
Seamans Cherin & Mellott, LLC since 1964, and served as the managing partner of
such firm from 1991 to 1996.
Paul H. Farrar became a director of the Company in February 1997 and has
served as a director of Consumers since 1994 Mr. Farrar has been Chairman of
Adelaide Capital Corporation, an investment company, since 1994, and he served
as Senior Vice President of Canadian Imperial Bank of Commerce, a Canadian
chartered bank from 1986 to December 1993.
Roger L. Erb became Senior Vice President -- Operations of the Company in
October 1997. From September 1995 until June 1997, Mr. Erb was Senior Vice
President of Technical Services at Ball-Foster. Prior thereto, he was employed
at Foster Forbes, serving as Senior Vice President of Technical Services from
June 1994 to September 1995, Senior Vice President of Operations from January
1993 to June 1994, and Vice President of Technical Services prior to 1993.
Gordon S. Love became Senior Vice President -- Sales and Marketing of the
Company in July 1997. From October 1996 until June 1997, Mr. Love was Vice
President of Sales for Beer and Liquor at Ball-Foster. From September 1995 until
October 1996, he was Senior Vice President of Beverage Sales at Ball-Foster.
Prior thereto, he was employed at Foster Forbes, serving as Senior Vice
President of Sales and Marketing from July 1993 to September 1995, Vice
President of Sales from October 1992 to July 1993, and Beer Product Manager
prior to October 1992.
Edward M. Jonas joined the Company in February 1997 and became Controller
of the Company in March 1997. Mr. Jonas joined the predecessor to Old Anchor in
1968 and was Comptroller of Old Anchor from 1983 through early 1995.
Eugene K. Pool joined Old Anchor in June 1988 as Senior Counsel. Mr. Pool
was appointed Assistant Secretary of Old Anchor in 1988, Associate General
Counsel of Old Anchor in 1991 and Vice President -- Associate General Counsel of
Old Anchor in 1995. In February 1997, Mr. Pool became Assistant Secretary of the
Company and in March 1997, he became Vice President and Associate General
Counsel for the Company.
John F. Robichaud joined the Company in September 1997 as Vice
President -- Order Management and Scheduling Logistics. From 1992 until
September 1997 he was Director of Logistics for Consumers and from 1986 to 1992
was Director of Marketing for Consumers.
George C. Lusby III joined the Company in March 1997 as Industry Vice
President of Sales and Marketing. Mr. Lusby has served as Vice President of
Sales and Marketing and as a director of Glenshaw since 1987.
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John L. Day became Industry Vice President of Sales and Marketing for the
Company in March 1997. From September 1993 to February 1997, Mr. Day served as
Vice President -- Beer Sales of Old Anchor and from August 1990 to September
1993, he served as Director of Sales of Old Anchor.
Gregory C. Sinatro became Industry Vice President of Sales and Marketing
for the Company in March 1997. From October 1994 to February 1997, Mr. Sinatro
served as Senior Vice President of Food/Consumer Products of Old Anchor and from
January 1989 to September 1994, he served as Vice President -- Consumer Products
Division of Old Anchor.
BOARD OF DIRECTORS OF THE COMPANY
Classification of Board. Pursuant to the Amended and Restated Certificate
of Incorporation (the "Restated Charter") of the Company, until February 5,
2000, the holders of the Class A Common Stock are entitled to elect four
directors (the "Class A Directors") and the holders of the Class B Common Stock
are entitled to elect five directors (the "Class B Directors"). The Class A
Directors have not yet been designated. Messrs. Ghaznavi, Lightner, Gutowski,
Farrar and May are Class B Directors. In connection with the Proposed
Settlement, it is expected that the certificate of incorporation of the Company
will be amended to increase the number of directors to be elected by the holders
of Class B Common Stock.
From and after February 5, 2000, the Board of Directors has discretion to
determine the number of directors (each a "Director") constituting the Board of
Directors, and such number of Directors will be divided into three classes, as
nearly equal in the number of Directors as possible. The term of Directors of
the first, second and third class will expire at the first, second and third
annual meeting after their election, respectively. At each annual meeting, the
number of Directors constituting the class whose term has expired at the time of
such meeting will be elected to hold office until the third succeeding annual
meeting.
Until February 5, 2000, Class A Directors may be removed with or without
cause only by the holders of Class A Common Stock and Class B Directors may be
removed with or without cause only by the holders of Class B Common Stock.
Thereafter, all classes of Common Stock (as defined) of the Company will be
consolidated into one class of Common Stock, and, pursuant to the Bylaws of the
Company (the "Bylaws"), Directors may be removed only with cause by the
affirmative vote of the holders of 75% of the outstanding shares of capital
stock of the Company then entitled to vote at an election of Directors.
The foregoing provisions of the Restated Charter and the Bylaws are subject
to the rights, if any, of any series of preferred stock of the Company to elect
additional Directors under circumstances specified in the certificate of
designation relating to such preferred stock.
Officers of the Company serve at the discretion of the Board of Directors.
Compensation of Directors. Directors of the Company are entitled to
receive an annual director's fee of $7,000. In connection with the Proposed
Settlement, it is expected that the amount of the annual director's fee will be
increased to $15,000. In addition, fees of $750 are paid for each directors'
meeting and committee meeting attended unless more than one meeting is held on
the same day, in which case the fee for attending each subsequent meeting is
$500.
BOARD OF DIRECTORS OF CONSUMERS U.S.
Compensation of Directors. Directors of Consumers U.S. do not receive any
compensation or reimbursements.
EXECUTIVE COMPENSATION
The Company. The Company was organized in January 1997 and did not conduct
any operations or have any employees prior to the Anchor Acquisition in February
1997. As a result, the Company does not have any executive officers with respect
to whom disclosure of executive compensation is required under the Securities
Act or the rules and regulations promulgated thereunder.
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Consumers U.S. Consumers U.S. was organized in January 1997 as a holding
company for Anchor. Consumers U.S. does not conduct any operations. Officers and
director for Consumers U.S. are not compensated for acting in such capacity.
EMPLOYMENT CONTRACTS
The Company does not, as a general rule, enter into employment agreements
with its executive officers and/or other key employees. See "Risk
Factors--Dependence on Key Personnel and G&G."
EMPLOYEE PLAN
As part of the Anchor Acquisition, the Company assumed Old Anchor's
obligations under the Anchor Glass Container Corporation Executive/Key Employee
Retention Plan which covers approximately 35 employees including Messrs. Pool,
Day and Sinatro. Under this plan, if a participating employee is terminated by
the Company without cause or terminates his or her employment with the Company
for good reason (such as a reduction in base salary, a material change in
position, duties or responsibilities, or a material change in job location), the
Company is obligated to pay a severance benefit to such employee. If all
participating employees were to be terminated by the Company without cause
and/or were to terminate their employment with the Company for good reason, the
aggregate amount of severance benefits payable by the Company under this plan
would be $1.1 million.
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PRINCIPAL STOCKHOLDERS
PRINCIPAL STOCKHOLDERS OF COMPANY
The following table sets forth information with respect to the beneficial
ownership of the Company's Class A Common Stock and Class B Common Stock (the
"Voting Common Stock") as of January 15, 1998 by (i) each person who is known by
the Company to beneficially own 5% or more of such Voting Common Stock, (ii)
each Director of the Company, (iii) the Company's Chief Executive Officer and
(iv) all current Directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
CLASS AND AMOUNT OF
BENEFICIAL OWNERSHIP(1) PERCENTAGE PERCENTAGE
------------------------ (BY CLASS)(1) (BOTH CLASSES)(1)
NAME(1) PRIMARY AND ------------------------ ------------------------
-------- ACTUAL FULLY DILUTED PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
------- ------------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
John J. Ghaznavi(2)........................ -- -- -- -- -- --
M. William Lightner(3)..................... -- -- -- -- -- --
David T. Gutowski(4)....................... -- -- -- -- -- --
Paul H. Farrar(5).......................... -- -- -- -- -- --
C. Kent May(6)............................. -- -- -- -- -- --
All Directors and executive officers as a
group (14 persons)....................... -- -- -- -- -- --
FIVE PERCENT STOCKHOLDERS:
Smith Barney, as escrow
agent for certain creditors 490,898 8,321,398
of Old Anchor(7)......................... Class A Class A 100.0 84.7 90.2 31.0
Anchor Glass Container
Corporation Service -- 1,260,787
Retirement Plan(8)(9).................... Class A 72.0 12.9 47.5 4.7
Anchor Glass Container
Corporation Retirement
Plan for Salaried -- 158,921
Employees(8)(10)......................... Class A 24.5 1.6 10.2 0.6
Pension Plan for Hourly
Employees of Latchford
Glass Company and -- 80,292
Associated Companies(8)(11).............. Class A 14.1 0.8 5.5 0.3
902,615 17,309,942
Consumers U.S., Inc.(12)................... Class B Class B 100.0 100.0 97.2 63.8
</TABLE>
- ---------------
(1) Unless otherwise indicated in these footnotes, each stockholder has sole
voting and investment power with respect to shares beneficially owned and
all addresses are in care of the Company. All primary share amounts and
percentages reflect beneficial ownership determined pursuant to Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
All fully diluted share amounts and percentages reflect beneficial
ownership of Voting Common Stock determined on a fully diluted basis. All
information with respect to beneficial ownership has been furnished by the
respective Director, executive officer or stockholder, as the case may be,
as of December 31, 1996.
(2) Through G&G, Ghaznavi Canada Inc. and other affiliates, Mr. Ghaznavi
beneficially owns 21,619,584 shares of the voting common stock of
Consumers, including 1,588,126 shares issuable upon the exercise of
currently exercisable options.
(3) Mr. Lightner beneficially owns 61,500 shares of the voting common stock of
Consumers, including 60,000 shares issuable upon the exercise of currently
exercisable options, but not including 500 shares owned by Mr. Lightner's
spouse with respect to which Mr. Lightner disclaims beneficial ownership.
(4) Mr. Gutowski beneficially owns 63,000 shares of the voting common stock of
Consumers, including 55,000 shares issuable upon the exercise of currently
exercisable options, but not including 8,000 shares owned by Mr. Gutowski's
children with respect to which Mr. Gutowski disclaims beneficial ownership.
(5) Mr. Farrar beneficially owns 30,000 shares of the voting common stock of
Consumers, including 25,000 shares issuable upon the exercise of currently
exercisable options.
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(6) Mr. May beneficially owns 25,000 options to purchase shares of the voting
common stock of Consumers, all of which are issuable upon the exercise of
currently exercisable options.
(7) Includes 7,830,500 shares issuable upon conversion of 1,879,320 shares of
Series A Preferred Stock. The 490,898 shares of Class A Common Stock and
1,879,320 shares of Series A Preferred Stock are held by Smith Barney, as
escrow agent, pursuant to an escrow agreement between Old Anchor and Smith
Barney. Such shares are to be distributed to the creditors of Old Anchor or
to a court appointed disbursing agent upon the effective date of a plan of
reorganization of Old Anchor approved by the United States Bankruptcy Court
of the District of Delaware. Under the terms of such escrow agreement,
Smith Barney may not exercise any voting rights with respect to the Class A
Common Stock held in escrow except as expressly instructed in an order of
such Bankruptcy Court. The address of Smith Barney 388 Greenwich Street,
19th Floor, New York, New York 10013.
(8) This stockholder's shares of Series A Preferred Stock are held in trust by
The Chase Manhattan Bank, as trustee of such benefit plan and the current
address for this stockholder is c/o The Chase Manhattan Bank, 3 Chase
Metrotech Center, Brooklyn, New York 11245. However, an "investment
manager," as that term is defined in Section 3(38) of ERISA, will be
appointed to control the shares contributed to the plans. When appointed,
such investment manager will have exclusive control over this stockholder's
shares of Series A Preferred Stock and any shares of Class A Common Stock
into which such shares of Series A Preferred Stock may be converted.
Pursuant to an agreement among the Company, Consumers and the PBGC, a
valuation of the shares of Series A Preferred Stock contributed to the
Plans has been performed by an independent appraiser. The Company is
required to make an additional contribution to the plans of $0.7 million to
bring the value of the contribution to $9.0 million.
(9) All 1,260,787 shares of this stockholder's beneficially owned shares of
Class A Common Stock are issuable upon conversion of 302,589 shares of
Series A Preferred Stock.
(10) All 158,921 shares of this stockholder's beneficially owned shares are
issuable upon conversion of 38,141 shares of Series A Preferred Stock.
(11) All 80,292 shares of this stockholder's beneficially owned shares are
issuable upon conversion of 19,270 shares of Series A Preferred Stock.
(12) Includes 16,407,327 shares issuable upon conversion of 3,609,612 shares of
Series B Preferred Stock (including 249,612 shares of Series B Preferred
Stock, accrued as of December 31, 1997 as a payment in kind dividend). Does
not include, however, shares of Series B Preferred Stock which have accrued
since September 30, 1997 as a payment in kind dividend. On a fully diluted
basis, Consumers U.S. owns approximately 59% of the three classes of common
stock of the Company. Not including the Class C Common Stock (which is
nonvoting), Consumers U.S. owns approximately 63.8% of the voting common
stock of the Company on a fully diluted basis. See "Description of Capital
Stock." All of the shares of Class B Common Stock and Series B Preferred
Stock currently owned or subsequently acquired by Consumers U.S. will be
pledged to secure the Consumers U.S. guarantee of the Company's obligations
under the Notes and the Indenture. See "Description of Revolving Credit
Facility" and "Description of Notes." Pursuant to the Warrant Agreement,
upon the closing of the Note Offering, the Company issued to Consumers U.S.
702,615 shares of Class B Common Stock (or 2.5% of the Common Stock
outstanding on such date on a fully diluted basis outstanding or issuable
as of such date). The address for Consumers U.S. is 3140 William Flinn
Highway, Allison Park, Pennsylvania 15101.
PRINCIPAL STOCKHOLDERS OF CONSUMERS U.S.
All of the issued and outstanding capital stock of Consumers U.S. is owned
by Consumers International. All of such shares were pledged by Consumers
International to secure its obligations under the Consumers International Notes
and the Consumers International Indenture. See "Description of Revolving Credit
Facility" and "Description of Notes."
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CERTAIN TRANSACTIONS
The Company is part of a group of glass manufacturing companies (the
"Affiliated Glass Manufacturers") with Consumers and Glenshaw, each of which is
controlled by Mr. Ghaznavi through G&G. The Company intends to engage in a
variety of transactions with Consumers and Glenshaw as a part of its strategy to
achieve synergies among the companies. These expected transactions may include
bulk purchasing of raw and packaging materials, provision of technical and
engineering services, joint utilization of Anchor's mold and repair shops and
the possible consolidation of certain functions such as sales, engineering and
management information services.
The Company has entered into an Intercompany Agreement (the "Intercompany
Agreement") with G&G, Consumers, Consumers U.S., Consumers International Inc.,
Glenshaw, Hillsboro, I.M.T.E.C., Enterprises Inc., a machinery manufacturer
majority-owned by G&G, and certain related companies which establishes standards
for certain intercompany transactions. Pursuant to the Intercompany Agreement,
the Company may, from time to time, fill orders for customers of Affiliated
Glass Manufacturers and Affiliated Glass Manufacturers may, from time to time,
fill orders for customers of the Company. In such case, where the customer is
not a common customer, the company that does the manufacturing will pay a market
commission, set at 5% of the invoiced amount, to the company that referred the
customer. In the event of a transfer of a customer to the Company by a
Affiliated Glass Manufacturers or to a Affiliated Glass Manufacturers by the
Company, the transfer is treated as though the transferee had filled the orders
for the transferred customer.
In connection with any bulk purchasing of raw materials, packaging
materials, machinery, insurance, maintenance services, environmental services
and other items and services used in this business, each of the Affiliated Glass
Manufacturers will share out-of-pocket costs of the purchasing activities
without payment of commissions. Similarly, in connection with the provision of
technical, engineering or mold design services, the company providing the
services will receive reasonable per diem fees and costs for the employees
provided. For services such as the provision of molds, the company providing the
service will receive cost plus a reasonable market mark-up.
Transactions carried out in accordance with the Intercompany Agreement do
not require approval of the board of directors or fairness opinions. Any
amendment to the Intercompany Agreement is subject to the Indenture requirement
that it be in writing, on terms no less favorable to the Company than could have
been obtained in a comparable arms' length transaction between the Company and
third parties and is subject to the approval of the Board of Directors
("Affiliate Transaction Provisions"). The Revolving Credit Agreement and the
Indenture require that transactions between the Company and an affiliate be in
writing on no less favorable terms to the Company than would be obtainable in a
comparable arms' length transaction between the Company and a person that is not
an affiliate. In addition, transactions exceeding certain threshold values
require the approval of the Company's board of directors, the approval of the
Company's independent directors or an independent fairness opinion. See
"Description of Notes -- Certain Covenants -- Limitation on Transactions with
Affiliates."
Certain affiliates of the Company are engaged in businesses other than the
manufacture of glass containers, such as manufacturing or rehabilitating
manufacturing equipment, automobile and truck leasing, shipping and real estate
management. These transactions are subject to the Affiliate Transaction
Provisions of the Indenture.
The Company is party to the Management Agreement with G&G. Pursuant to the
Management Agreement, G&G is to provide specified managerial services for the
Company. For these services G&G is entitled to receive an annual management fee
of $3.0 million and to reimbursement of its out-of-pocket costs plus an
administrative charge not to exceed 10% of those costs. The Revolving Credit
Agreement and the Indenture limit management fee payments by the Company under
the Management Agreement to $1.5 million per year unless the Company meets
certain financial tests, in which case such fees will accrue. See "Description
of Notes -- Certain Covenants -- Limitation on Restricted Payments."
In September 1997, Hillsboro, a glass container manufacturing plant owned
by G&G, discontinued manufacturing. All of Hillsboro's rights and obligations to
fill orders under a supply contract between Consumers and one of its major
customers have been purchased by Consumers and Anchor. In addition, in
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connection with a plan to simplify the corporate ownership structure of
Consumers, Anchor and their affiliates, Glenshaw may become a subsidiary of
Anchor.
The Company from time to time has engaged the law firm of Eckert Seamans
Cherin & Mellott, LLC, to represent it on a variety of matters. C. Kent May, an
executive officer and director of the Company, is a member of such law firm.
DESCRIPTION OF CAPITAL STOCK
Anchor is authorized to issue 50,000,000 shares of Common Stock, having a
par value of $.10 per share (the "Common Stock"), and 20,000,000 shares of
preferred stock, having a par value of $0.01 per share and a liquidation value
of $25.00 per share (the "Preferred Stock").
COMMON STOCK
For the period from February 5, 1997 until February 5, 2000 (the "Initial
Period"), the Common Stock is divided into three classes, Class A and Class B,
which are voting, and Class C, which is nonvoting during the Initial Period.
During the Initial Period, the number of Directors of Anchor is fixed at nine,
with the holders of the Class A Common Stock having the right to elect four
Directors and the holders of the Class B Common Stock having the right to elect
five Directors. In connection with the Proposed Settlement, it is expected that
the certificate of incorporation of the Company will be amended to increase the
number of directors to be elected by the holders of Class B Common Stock. The
holders of the Class C Common Stock are not entitled to participate in the
election of Directors. Except as described in the immediately preceding sentence
with respect to election of Directors, there are no distinctions between the
rights of holders of shares of Class A Common Stock and Class B Common Stock.
The holders of Class C Common Stock have no voting rights during the Initial
Period. At the expiration of the Initial Period, the Class A Common Stock, the
Class B Common Stock and the Class C Common Stock will automatically be
consolidated into a single class of Common Stock with identical rights.
PREFERRED STOCK
Of the 20,000,000 authorized shares of Preferred Stock, (a) 2,239,320
shares have been designated as Series A Preferred Stock, (b) 5,000,000 shares
have been designated as Series B Preferred Stock and (c) 12,760,680 shares are
without designation at this time.
Series A Preferred Stock. The Series A Preferred Stock ranks, as to
dividends and redemption and upon liquidation, prior to all other classes and
series of capital stock of the Company, including the Series B Preferred Stock
and the Common Stock. The holders of the Series A Preferred Stock are entitled
to receive, when and as declared by the Board of Directors of the Company out of
legally available funds, cumulative dividends, payable quarterly in cash, at an
annual rate of ten percent of the liquidation value. Holders of the Series A
Preferred Stock are not entitled to vote except (a) as required by law, (b) on
certain matters affecting the rights of the holders of Series A Preferred Stock
and (c) in the event that scheduled cash dividends are unpaid for twelve
consecutive quarters, at which time (i) the number of Directors will be expanded
by three and (ii) the holders of the Series A Preferred Stock will have the
right to elect all three additional Directors until all accrued and unpaid
scheduled cash dividends have been paid.
The Company is required to redeem all outstanding shares of the Series A
Preferred Stock on February 5, 2009 and, on or after February 5, 2000, may, at
its option, redeem outstanding shares of Series A Preferred Stock if the trading
price of the Common Stock equals or exceeds $6.00 per share, in each case at a
price of $25.00 per share of Series A Preferred Stock so redeemed.
Shares of Series A Preferred Stock are convertible into shares of Class A
Common Stock, at the option of the holder, at a ratio determined by dividing the
liquidation value of the Series A Preferred Stock ($25.00) by $6.00. Such ratio
is subject to adjustment from time to time to prevent dilution.
Pursuant to the Asset Purchase Agreement, prior to the consummation of a
plan of reorganization with respect to Old Anchor, the Company is obligated to
register all of the shares of Class A Common Stock and Series A Preferred Stock
under the Exchange Act and to qualify such shares for listing on a nationally
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recognized United States securities exchange or on The Nasdaq Stock Market's
National Market(SM) ("Nasdaq").
Series B Preferred Stock. The Series B Preferred Stock ranks, as to
dividends and redemption and upon liquidation, junior to the Series A Preferred
Stock but senior to all other classes and series of capital stock of Anchor,
including the Common Stock. The holders of Series B Preferred Stock are entitled
to receive cumulative dividends, payable quarterly at an annual rate of eight
percent of the liquidation value. During the period from February 5, 1997
through and including December 31, 1999, the dividend is payable in additional
shares of Series B Preferred Stock. Thereafter, the dividends will be payable in
cash when and as declared by the Board of Directors out of legally available
funds. Holders of Series B Preferred Stock are not entitled to vote except (a)
as required by law, (b) on certain matters affecting the rights of the holders
of Series B Preferred Stock and (c) in the event that scheduled cash dividends
are unpaid for twelve consecutive quarters, at which time (i) the number of
Directors will be expanded by three and (ii) the holders of Series B Preferred
Stock will have the right to elect all three additional Directors until all
accrued and unpaid scheduled cash dividends have been paid.
Shares of Series B Preferred Stock are not subject to mandatory redemption.
On or after February 5, 2000, Anchor may, at its option, redeem outstanding
shares of Series B Preferred Stock if the trading price of the Common Stock
equals or exceeds $5.50 per share, at a price of $25.00 per share of Series B
Preferred Stock so redeemed.
Shares of Series B Preferred Stock are convertible into shares of Class B
Common Stock, at the option of the holder, at a ratio determined by dividing the
liquidation value of the Series B Preferred Stock ($25.00) by $5.50. Such ratio
is subject to adjustment from time to time to prevent dilution.
DESCRIPTION OF REVOLVING CREDIT FACILITY
GENERAL
In connection with the Anchor Acquisition, the Company entered into the
Anchor Loan Facility and the Revolving Credit Facility. The $130.0 million
Anchor Loan Facility was repaid in full on April 17, 1997 from the net proceeds
of the Note Offering. The Revolving Credit Facility enables the Company to
obtain revolving credit loans for working capital purposes and the issuance of
letters of credit for its account in an aggregate amount not to exceed $110.0
million. Revolving credit loans may be borrowed, repaid and reborrowed, and
letters of credit may be issued, at any time or from time to time in an
aggregate amount not to exceed the lesser of $110.0 million and the borrowing
base then in effect, less (in each case) the aggregate amount of all undrawn
amounts and unreimbursed drawings under letters of credit then outstanding and
the aggregate amount of then outstanding revolving credit loans. The borrowing
base consists of 85% of eligible accounts receivable plus 55% of eligible
inventory less the lease reserve amount then in effect for the Company's
headquarters. The Company is required to reserve up to $5.0 million against the
borrowing base until such time as the disposition of the Tampa headquarters
facilities has been completed. See "Business -- Facilities."
Revolving credit loans bear interest at a rate based upon either, at the
Company's option, (i) the higher of the prime rate of Bankers Trust Company,
0.5% in excess of the overnight federal funds rate and 0.5% in excess of the
adjusted certificate of deposit rate (as defined in the Revolving Credit
Facility), plus (in each case) a borrowing margin of 0-1.0%, depending upon the
aggregate amount of outstandings under the facility and the Company's leverage
ratio, or (ii) the average of the offering rates of banks in the New York
interbank eurodollar market for U.S. dollar deposits plus a borrowing margin of
1.5-2.5%, depending on the aggregate amount of outstandings under the facility
and the Company's leverage ratio.
The Company is also required to pay (x) a fee on the unused portion of each
lender's commitment at a rate of 0.5% thereof per annum, (y) a fee on the
aggregate amount of all Letter of Credit Liabilities during the immediately
preceding quarter at a rate equal to 1.5-2.5% thereof per annum, depending on
the aggregate amount of outstandings under the facility and the Company's
leverage ratio and (z) a fee on the daily weighted average face amount of the
letters of credit issued by any lender at a rate of 0.25% thereof.
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The Revolving Credit Facility terminates on February 5, 2002, unless
terminated sooner upon an event of default (as defined in the Revolving Credit
Facility), including a change in control (as defined in the Revolving Credit
Facility), and all revolving credit loans and Letter of Credit Liabilities will
be payable on such termination date or on such earlier date as may be
accelerated by the lenders following the occurrence of any event of default.
Anchor's obligations under the Revolving Credit Facility are secured by a
first priority lien on substantially all of Anchor's inventory and receivables
and related collateral (the "Bank Collateral"). In addition, Anchor's
obligations under the Revolving Credit Facility are guaranteed by Consumers U.S.
CERTAIN COVENANTS
The Revolving Credit Facility contains certain covenants that restrict the
Company from taking various actions, including, subject to specified exceptions,
the incurrence of additional Indebtedness, the granting of additional liens, the
making of investments, the payment of dividends and other restricted payments,
mergers, acquisitions and other fundamental corporate changes, capital
expenditures, operating lease payments and transactions with affiliates. The
Revolving Credit Facility also contains certain financial covenants that require
the Company meet and maintain certain financial tests and minimum ratios,
including a minimum working capital ratio, a minimum consolidated net worth test
and a minimum interest coverage ratio.
EVENTS OF DEFAULT
The Revolving Credit Facility contains customary events of default,
including nonpayment of principal, interest or fees, violation of covenants,
inaccuracy of representations or warranties in any material respect, cross
acceleration to certain other Indebtedness, bankruptcy, noncompliance with
certain provisions of ERISA, material judgements, failure of the collateral
documents, the guarantee by Consumers U.S., the Technology Agreement or the
Intercompany Agreement to be in full force and effect, the taking of any action
by the creditors of Consumers International to realize or foreclose upon the
capital stock of Consumers U.S. and change of control. The occurrence of any of
such events could result in acceleration of the Company's obligations under the
Revolving Credit Facility and foreclosure on the Bank Collateral, which could
have material adverse results to the holders of the Notes.
MANDATORY REPAYMENTS
The Revolving Credit Facility requires mandatory repayments and/or
reductions of the total commitments upon the happening of certain events,
including certain sales or issuances of the Company's equity or any contribution
to its capital, the incurrence of Indebtedness by the Company (other than as a
result of the offer and sale of the Notes), certain asset sales and a change of
control.
DESCRIPTION OF THE NOTES
GENERAL
The Exchange Notes will be issued under the indenture dated as of April 17,
1997 (the "Indenture") among the Company, the Parent Guarantor, the Subsidiary
Guarantors, if any, and The Bank of New York, as Trustee (the "Trustee"),
governing the Outstanding Notes. The following summary of certain provisions of
the Indenture, the Notes and the Security Documents does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of the Indenture and the Security Documents, including the
definitions of certain terms therein that are not otherwise defined in this
Prospectus. A copy of the Indenture may be obtained from the Company. As used in
this "Description of the Notes," the term "Company" refers to Anchor Glass
Container Corporation only and excludes its future Subsidiaries. The definitions
of certain capitalized terms used in the following summary are set forth under
" -- Certain Definitions" below.
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The Exchange Notes will be senior secured obligations of the Company,
ranking senior in right of payment to all existing and future subordinate
Indebtedness of the Company and pari passu with all existing and future senior
Indebtedness of the Company. The Exchange Notes will be fully and
unconditionally guaranteed by the Parent Guarantor and each future Restricted
Subsidiary. Each Guarantee will be a senior secured obligation of the applicable
Guarantor, ranking senior in right of payment to all existing and future
subordinate Indebtedness of such Guarantor and pari passu with all existing and
future senior Indebtedness of such Guarantor. As of the date of this Prospectus,
there are no Restricted Subsidiaries and thus no Subsidiary Guarantors.
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Exchange Notes. All
payments made by the Company under the Indenture will be made in cash in United
States dollars. The Exchange Notes may be presented for registration or transfer
and exchange at the principal corporate trust office of the Registrar. The
Company may change any Paying Agent and Registrar without notice to Holders of
the Exchange Notes, but will always maintain a Paying Agent in New York, New
York. The Company will pay principal (and premium, if any) on the Exchange Notes
at the Paying Agent's principal corporate trust office in New York, New York. At
the Company's option, principal and interest may be paid by wire transfer of
Federal funds or interest may be paid by check delivered to the Paying Agent's
principal corporate trust office or to the registered addresses of the Holders.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes are limited in aggregate principal amount to the lesser
of (i) $150.0 million and (ii) the aggregate principal amount of Outstanding
Notes tendered in the Exchange Offer, and will mature on April 1, 2005. Interest
on the Exchange Notes will accrue from and including the Exchange Date at a rate
of 11 1/4% per annum and will be payable semiannually on each April 1 and
October 1 to the persons who are registered Holders at the close of business on
the March 15 and September 15 immediately preceding the applicable interest
payment date commencing October 1, 1997. Additionally, interest on the Exchange
Notes will accrue from and including the most recent date on which interest has
been paid on the Outstanding Notes surrendered in exchange therefor or, if no
interest has been paid on the Outstanding Notes, from and including the Issue
Date, to but not including the Exchange Date. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
SINKING FUND
The Exchange Notes will not have the benefit of any sinking fund
obligations.
SECURITY
All of the obligations of the Company under the Notes and the Indenture
will be secured (subject to Permitted Liens) by (i) a first priority perfected
security interest in all of the Capital Stock of any future Restricted
Subsidiary held by the Company or of any consideration made part of the
Collateral pursuant to the "Limitation on the Sale of Assets" covenant held by
the Company, (ii) a first priority perfected security interest in substantially
all of the existing and future real property, personal property and other assets
of the Company other than the Bank Collateral, the Shared Collateral and
Purchase Money Assets, and (iii) a first priority perfected security interest in
Shared Collateral ranking pari passu with the security interest in favor of the
Revolving Credit Facility Secured Creditors (collectively, the "Note
Collateral"). The Parent Guarantee will be secured by a first priority perfected
security interest in all of the Capital Stock of the Company held by the Parent
Guarantor (the "Parent Guarantee Collateral"). Each Subsidiary Guarantee will be
secured (subject to Permitted Liens) by (i) a first priority perfected security
interest in all of the Capital Stock of any Restricted Subsidiary or of any
consideration made part of the Collateral pursuant to the "Limitation on the
Sale of Assets" covenant held by such Subsidiary Guarantor, (ii) a first
priority perfected security interest in all of the existing and future real
property, personal property and other assets of such Subsidiary Guarantor other
than the Bank Collateral, the Shared Collateral and Purchase Money Assets, and
(iii) a first priority perfected security interest in the Shared Collateral (if
applicable) ranking pari passu with a security interest
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in favor of the Revolving Credit Facility Secured Creditors (collectively, the
"Subsidiary Guarantee Collateral"). The Note Collateral and the Subsidiary
Guarantee Collateral are collectively referred to as the "Collateral."
Currently, there are no Restricted Subsidiaries and thus no Subsidiary
Guarantors, and the Parent Guarantor has no assets other than Capital Stock of
the Company.
Collateral consisting of real property (the "Real Property Collateral")
will be pledged to the Trustee for the benefit of the Holders pursuant to
mortgages or similar security arrangements. Each mortgage will encumber the
Company's fee and leasehold interests in the real property and fixtures
constituting the Real Property Collateral, and all proceeds thereof and
additions, improvements, alterations, replacements and repairs thereto, whether
now owned or hereafter acquired by the Company (other than Purchase Money
Assets). Certain real property used by the Company (including certain real
property on which factories are located) is owned by third parties and leased to
the Company pursuant to long-term leases. The Collateral also includes the
Company's interest in such leases as well as permits necessary to operate the
Real Property Collateral to the extent assignable under applicable law and the
relevant leases. The Company's leased warehouses and equipment leases existing
on the Issue Date are not part of the Collateral and future leases will not be
part of the Collateral if not assignable. Upon issuance of the Outstanding
Notes, the Trustee became the beneficiary of mortgagee's title insurance
policies insuring each mortgage as a first ranking mortgage lien on the relevant
Real Property Collateral, in each case subject to standard exceptions and Liens
permitted to be prior to the Trustee's Lien pursuant to the Indenture and
Security Documents. Collateral constituting personal Property (including all
equipment and machinery owned by the Company and the Company's leasehold
interest in certain equipment and machinery leased by the Company) will be
pledged by the Company pursuant to a general security agreement (the "Security
Agreement"). The Revolving Credit Facility will be secured by a first priority
lien on the Bank Collateral, together with a license to use intellectual
property and other intangibles in connection with any realization following a
default under the Revolving Credit Facility, and a security interest over Shared
Collateral ranking pari passu with the security interest in favor of the Notes.
See " -- Intercreditor Agreement."
If the Exchange Notes become due and payable prior to the final Stated
Maturity thereof for any reason or are not paid in full at the final Stated
Maturity thereof, the Trustee has (subject, in the case of Shared Collateral, to
the rights of the Revolving Credit Facility Secured Creditors) the right to
foreclose or otherwise realize upon the Collateral in accordance with
instructions from the Holders of a majority in aggregate principal amount of the
Exchange Notes and the Outstanding Notes or, in the absence of such
instructions, in such manner as the Trustee deems appropriate in its absolute
discretion. The proceeds received by the Trustee will be applied by the Trustee
first to pay the expenses of such foreclosure or realization and fees and other
amounts then payable to the Trustee under the Indenture and the Security
Documents and, thereafter, to pay all amounts owing to the Holders under the
Indenture, the Notes and the Security Documents (with any remaining proceeds to
be payable to the Company or as may otherwise be required by law).
By its nature, some or all of the Collateral will be illiquid and may have
no readily ascertainable market value. Accordingly, there can be no assurance
that the Collateral will be able to be sold in a short period of time, if at
all. To the extent that third parties enjoy Permitted Liens, such third parties
may have rights and remedies with respect to the Property subject to such Liens
that, if exercised, could adversely affect the value of the Collateral. To the
extent that third parties lease real or personal property to the Company,
defaults by the Company under such leases may adversely effect the value of the
respective leasehold interests and may result in the loss of such leasehold
interests. In addition, the ability of the Holders to realize upon the
Collateral may be subject to certain bankruptcy law limitations in the event of
a bankruptcy. An appraisal in respect of certain of the Collateral has been
prepared by American Appraisal Associates, Inc. See "Risk Factors -- Security
for the Notes" and Summarization Letters of AAA, attached as Annex A-1 and A-2
to this Prospectus.
The Parent Guarantor Collateral is subject to the sale by the Parent
Guarantor of the Capital Stock it holds of the Company and upon such sale will
be released from the Collateral. The proceeds of any such sales will be subject
to the provisions described below under the covenant "Change of Control" but the
proceeds of such sales will not be subject to the provisions described below
under the covenant "Limitation on the Sale of Assets".
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INTERCREDITOR AGREEMENT
The Trustee, on behalf of the Holders, has entered into an intercreditor
agreement (the "Intercreditor Agreement") with BT Commercial Corporation, as
credit agent under the Revolving Credit Facility (in such capacity, the "Credit
Agent") and as Shared Collateral agent under the Intercreditor Agreement (in
such capacity, the "Shared Collateral Agent"). The Intercreditor Agreement
provides, among other things, for the allocation of rights between the Trustee
and the Credit Agent with respect to Shared Collateral and for enforcement
provisions with respect thereto, including provisions (i) that the Trustee and
the Credit Agent will provide prompt notices to each other with respect to the
acceleration of the Notes or the Indebtedness under the Revolving Credit
Facility, as the case may be, and the commencement of any action to enforce the
rights of the Holders, the Trustee, the Revolving Credit Facility Secured
Creditors, or the Credit Agent with respect to the Collateral or the Bank
Collateral, as the case may be, (ii) that for a specific period following the
issuance of a notice of enforcement, the Credit Agent may enter upon all or any
portion of the Company's premises, use the Collateral to the extent necessary to
complete the manufacture of inventory, collect accounts and remove, sell or
otherwise dispose of the Bank Collateral, and (iii) with respect to the Shared
Collateral, enforcement of the Liens thereon and allocation of proceeds between
the Trustee for the benefit of the Holders and the Revolving Credit Facility
Secured Creditors.
The Bank Collateral includes all the Company's existing and after-acquired
receivables and inventory, and certain related assets, as well as all proceeds
on the foregoing. The Shared Collateral includes principally contract rights,
intellectual property rights, computer programs, insurance policies and certain
related assets, as well as all proceeds of the foregoing.
The holders of a majority at any time of the sum of the aggregate principal
amount of the Notes outstanding at such time and the aggregate of all principal
amounts (advanced or committed) owing at such time under the Revolving Credit
Facility (the "Required Parties") have the right to direct any remedial action
with respect to the Shared Collateral. The agent under the Revolving Credit
Facility as Shared Collateral Agent, in accordance with the instruction of the
Required Parties, has the right to adjust settlement of any insurance insuring
or otherwise constituting the Shared Collateral.
In the event of any sale or other disposition of the Shared Collateral, the
proceeds of such sale or disposition will first be distributed to pay the fees
and expenses of the Shared Collateral Agent and then to the Trustee and the
Credit Agent on a pro rata basis until the amounts owing to the Holders and the
Revolving Credit Facility Secured Creditors are paid in full.
OPTIONAL REDEMPTION
The Exchange Notes will not be redeemable (except pursuant to the following
two paragraphs) prior to April 1, 2001. The Exchange Notes will be redeemable,
at the Company's option, in whole at any time or in part from time to time at
the following redemption prices (expressed as percentages of the principal
amount thereof) if redeemed during the twelve-month period commencing on April 1
of the years set forth below, plus, in each case, accrued and unpaid interest,
if any, thereon to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2001............................................................ 105.625%
2002............................................................ 103.750%
2003............................................................ 101.875%
2004 and thereafter............................................. 100.000%
</TABLE>
At any time, or from time to time, on or prior to April 1, 2000, the
Company may, at its option, use the net cash proceeds of one or more offerings
of Common Stock (not constituting Disqualified Capital Stock) of the Company to
any Person other than the Company or any of its Subsidiaries (each, an "Equity
Offering") to redeem up to 35% of the aggregate principal amount of Notes
originally issued at a redemption price equal to 111.25% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the date of
redemption; provided, that at least 65% of the principal amount of Notes
originally issued remain outstanding immediately after giving effect to any such
redemption. In order to effect the foregoing redemption with the
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proceeds of any Equity Offering, the Company shall make such redemption not more
than 60 days after the consummation of any such Equity Offering.
Within 90 days of the consummation of any Change of Control Offer pursuant
to which the Company has repurchased at least 90% of the Notes outstanding
immediately prior to such Change of Control Offer, the Company may, at its
option, redeem all of the remaining Notes at a redemption price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, thereon
to the date of redemption.
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for 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 then listed on a
national securities exchange, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate; provided, however, that no Notes of
a principal amount of $1,000 or less shall be redeemed in part. Notice of
redemption shall be mailed by first-class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions thereof called for redemption as long
as the Company has deposited with the paying agent for the Notes funds in
satisfaction of the applicable redemption price pursuant to the Indenture. Notes
repurchased under the above provisions shall be delivered to the Trustee for
cancellation.
GUARANTEES
The Parent Guarantor, and each future Restricted Subsidiary, if any, will
fully and unconditionally guarantee, on a senior basis, jointly and severally,
to each Holder and the Trustee, the full and prompt performance of the Company's
obligations under the Indenture and the Exchange Notes, including the payment of
principal of and interest on the Exchange Notes. As of the Issue Date, the
Company does not have any Restricted Subsidiaries. However, the Indenture will
provide that if the Company or any Restricted Subsidiary shall acquire or create
after the Issue Date any Restricted Subsidiary, the Company will cause each such
Restricted Subsidiary to execute and deliver to the Trustee a supplemental
indenture pursuant to which each such Restricted Subsidiary shall fully and
unconditionally guarantee all of the obligations of the Company with respect to
the Notes on a senior basis together with an opinion of counsel (which counsel
may be an employee of the Company) to the effect that the supplemental indenture
has been duly executed and delivered by each such Restricted Subsidiary and is
in compliance in all material respects with the terms of the Indenture.
The obligations of each Subsidiary Guarantor shall be limited to the
maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Subsidiary Guarantor under its
Guarantee or pursuant to its contribution obligations under the Indenture, will
result in the obligations of such Subsidiary Guarantor under its Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under applicable
law. Each Subsidiary Guarantor that makes a payment or distribution under its
Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in an amount pro rata, based on the net assets of each Subsidiary
Guarantor, determined in accordance with GAAP.
The Parent Guarantor may not consolidate with or merge into or sell all or
substantially all of its assets to any Person except as provided under
"-- Limitation on Activities of the Parent Guarantor." Each Subsidiary Guarantor
may consolidate with or merge into or sell all or substantially all its assets
to other Persons upon the terms and conditions set forth in the Indenture. See
"-- Certain Covenants -- Merger, Consolidation and Sale of Assets." In the event
all of the Capital Stock of a Subsidiary Guarantor is sold by the Company and/or
one or more of its Restricted Subsidiaries and the sale complies with the
provisions set forth in "-- Certain Covenants -- Limitation on the Sale of
Assets," such Subsidiary Guarantor's Guarantee will be released.
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The Parent Guarantee and each Subsidiary Guarantee will be secured as set
forth in "Security".
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control, the
Company will be required to offer to repurchase (the "Change of Control Offer")
all of the Notes pursuant to the offer described below, at a purchase price in
cash equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase.
Within 30 days following the date upon which the Change of Control
occurred, unless the Company already mailed a notice of redemption to redeem all
of the Notes pursuant to the provisions of the section entitled "Optional
Redemption," the Company must send, by first class mail, a notice to each
Holder, with a copy to the Trustee, which notice shall govern the terms of the
Change of Control Offer. Such notice will state, among other things, the
purchase date, which must be no earlier than 30 days nor later than 60 days from
the date such notice is mailed, other than as may be required by law (the
"Change of Control Payment Date") and the procedure which the Holder must follow
to exercise such right. The Change of Control Offer is required to remain open
for at least 20 Business Days and until the close of business on the Change of
Control Payment Date.
Under the Company's Revolving Credit Facility, a Change of Control under
the Indenture would constitute an event of default permitting holders of any
Indebtedness thereunder to exercise remedies, including the right to seek
immediate payment of amounts then owing under such instrument.
If a Change of Control were to occur, there can be no assurance that the
Company would have sufficient funds to pay the repurchase price for all Notes
that the Company is required to repurchase. In the event that the Company were
required to repurchase outstanding Notes pursuant to a Change of Control Offer,
the Company expects that it would need to seek third-party financing to the
extent it does not have available funds to meet its repurchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing. Any failure of the Company to pay the purchase price with respect to
such Change of Control Offer when due will give the Trustee and the Holders of
the Notes the rights described under "-- Events of Default". Neither the Company
nor the Trustee may waive the obligation to make an offer to repurchase the
Notes upon the occurrence of a Change of Control.
The meaning of the phrase "all or substantially all" as used in the
definition of "Change of Control" with respect to a conveyance, transfer or
lease of assets varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under relevant law and is
subject to judicial interpretation. Accordingly, in certain circumstances, there
may be a degree of uncertainty in ascertaining whether a particular transaction
would involve a disposition of "all or substantially all" of the assets of the
Company, and therefore it may be unclear whether a Change of Control has
occurred and whether the Notes are subject to a Change of Control Offer.
The provisions of the Indenture relating to a Change of Control in and of
themselves may not afford Holders of the Notes protection in the event of a
highly leveraged transaction, reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect Holders of the
Notes, if such transaction is not the type of transaction included within the
definition of a Change of Control. See "-- Certain Definitions" for the
definition of "Change of Control". A transaction involving the Company's
management or its affiliates, or a transaction involving a recapitalization of
the Company, will result in a Change of Control only if it is the type of
transaction specified by such definition. The existence of the foregoing
provisions relating to a Change of Control may or may not deter a third party
from acquiring the Company in a transaction which constitutes a Change of
Control.
The Company will comply with the requirements of Section 14(e) of the
Exchange Act, if applicable, the provisions of Rule 13e-4 and Rule 14e-1, if
applicable, and any other tender offer rules under the Exchange Act or other
relevant United States Federal and state securities legislation which may then
be applicable and will file Schedule 13E-4 or Schedule 13E-4F or any other
schedule required thereunder in connection with
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any offer by the Company to repurchase Notes upon a Change of Control. Notes
repurchased pursuant to a Change of Control Offer shall be delivered to the
Trustee for cancellation.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness: (a) Neither the Company nor any of its
Restricted Subsidiaries will, directly or indirectly, Incur any Indebtedness
(including, without limitation, any Acquired Indebtedness) other than Permitted
Indebtedness; provided, however, the Company or any Restricted Subsidiary may
Incur Indebtedness (including, without limitation, Acquired Indebtedness), if
(i) no Default or Event of Default shall have occurred and be continuing on the
date of the proposed Incurrence thereof or would result as a consequence of such
proposed Incurrence and (ii) immediately before and immediately after giving
effect to such proposed Incurrence, the Consolidated Interest Coverage Ratio of
the Company and its Restricted Subsidiaries is at least equal to 2.5 to 1.0.
(b) Neither the Company nor any of its Restricted Subsidiaries will,
directly or indirectly, Incur Capitalized Lease Obligations, except pursuant to
clause (vi) of the definition of Permitted Indebtedness.
(c) Neither the Company nor any Restricted Subsidiary may, directly or
indirectly, in any event Incur any Indebtedness which by its terms (or by the
terms of any agreement governing such Indebtedness) is expressly subordinated to
any other Indebtedness of the Company or such Restricted Subsidiary, as the case
may be, unless such Indebtedness is also by its terms (or by the terms of any
agreement governing such Indebtedness) made expressly subordinate to the Notes
to the same extent and in the same manner, and so long as, such Indebtedness is
subordinated pursuant to subordination provisions that are no more favorable to
the holders of any other Indebtedness of the Company or such Restricted
Subsidiary, as the case may be.
Limitation on Restricted Payments. Neither the Company nor any of its
Restricted Subsidiaries will, directly or indirectly, (a) declare or pay any
dividend or make any distribution (other than dividends or distributions payable
solely in Qualified Capital Stock of the Company) to holders of the Company's
Capital Stock other than dividends or distributions paid to the Company or any
Restricted Subsidiary, (b) purchase, redeem or otherwise acquire or retire for
value any Capital Stock of the Company or any warrants, rights or options to
acquire shares of any class of such Capital Stock (other than Capital Stock,
warrants, rights or options held by the Company or any Restricted Subsidiary),
other than through the exchange therefor solely of Qualified Capital Stock of
the Company, (c) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
any Subordinated Obligation (other than the purchase, repurchase or other
acquisition of any Subordinated Obligation in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of such purchase, repurchase or other
acquisition, provided that any such purchase, repurchase or other acquisition is
done solely with the proceeds from any Refinancing Indebtedness), (d) make any
Investment (other than Permitted Investments) in any Person or (e) make any
payments to any Affiliate of the Company (other than the Company and its
Restricted Subsidiaries) as compensation for management services, except through
the issuance of Common Stock of the Company that is Qualified Capital Stock
(each of the foregoing prohibited actions set forth in clauses (a), (b), (c),
(d) and (e) being referred to as a "Restricted Payment"), unless such proposed
Restricted Payment is made after the earlier of (x) the date upon which the
independent auditors of the Company have completed and delivered to the Company
a limited review of the Company's financial statement for the third quarter of
1997 in accordance with the procedures specified by the American Institute of
Certified Public Accountants, SAS No. 71, Interim Financial Information and (y)
the date upon which the Company has filed with the Commission its audited
financial statements for the fiscal year ended December 31, 1997 and at the time
of such proposed Restricted Payment or immediately after giving effect thereto
(i) no Default or Event of Default has occurred and is continuing or would
result therefrom, (ii) the Company could incur at least $1.00 of additional
Indebtedness in accordance with the Consolidated Interest Coverage Ratio test of
paragraph (a) of the "Limitation on Indebtedness" covenant and (iii) the
aggregate amount of Restricted Payments (including such proposed Restricted
Payment) made subsequent to the Issue
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Date (the amount expended for such purposes, if other than in cash, being the
Fair Market Value of the relevant Property) does not exceed or would not exceed
the sum of: (A) 50% of the cumulative Consolidated Net Income (or, if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company
during the period (treating such period as a single accounting period) from
April 1, 1997 to the last day of the last full fiscal quarter preceding the date
of the proposed Restricted Payment; (B) 100% of the aggregate Net Equity
Proceeds received by the Company from any Person (other than from a Restricted
Subsidiary) from the issuance and sale subsequent to the Issue Date of Qualified
Capital Stock of the Company (excluding any Qualified Capital Stock of the
Company with respect to which the purchase price thereof has been financed
directly or indirectly using funds (i) borrowed from the Company or from any of
its Subsidiaries, unless and until and to the extent such borrowing is repaid or
(ii) contributed, extended, Guaranteed or advanced by the Company or by any of
its Subsidiaries (including, without limitation, in respect of any employee
stock ownership or benefit plan, unless and until and to the extent such
borrowing is repaid) and (C) an amount equal to the net reduction in any
Investment made by the Company and its Restricted Subsidiaries subsequent to the
Issue Date in any Person (including if such reduction occurs by reason of the
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary)
resulting from (x) net cash proceeds (or the Fair Market Value of property other
than cash or Cash Equivalents, provided that such property represents a return
of capital in respect of any such Investment that was made in the form of other
property other than cash or Cash Equivalents) received by the Company or its
Restricted Subsidiaries as repayment of any loan or advance or a return of
capital in respect, or as consideration for the sale, of such Investment (but
only to the extent the Company elects to exclude such amounts from the
calculation of Consolidated Net Income for the purposes of clause (A) above) or
(y) the release or cancellation of a Guarantee constituting such Investment, in
each case, with respect to any such Investment, not to exceed the amount of such
Investment previously made by the Company or any Restricted Subsidiary, that was
treated as a Restricted Payment pursuant to this paragraph.
Notwithstanding the foregoing, these provisions do not prohibit: (1) the
payment of any dividend or making of any distribution within 60 days after the
date of its declaration if the dividend or distribution would have been
permitted on the date of declaration; (2) the repurchase, redemption, retirement
or acquisition of Capital Stock of the Company or Subordinated Obligations of
the Company, or warrants, rights or options to acquire Capital Stock of the
Company, solely in exchange for shares of Qualified Capital Stock of the
Company; (3) any purchase or redemption of Subordinated Obligations made in
exchange for, or out of the proceeds of the substantially concurrent sale of
Refinancing Indebtedness or Indebtedness of the Company which is permitted to be
Incurred pursuant to the Consolidated Interest Coverage Ratio test of paragraph
(a) of the "Limitation on Indebtedness" covenant; (4) the payment of management
fees to G&G Investments under the Management Agreement of up to $1.5 million in
any calendar year; (5) the repurchase of Capital Stock of the Company from
current or former employees or directors of the Company or any of its
Subsidiaries pursuant to the terms of agreements (including employment
agreements) or plans approved by the Board of Directors under which such persons
purchase or sell or are granted the option to purchase or sell such shares of
Capital Stock to the extent such payments do not exceed $500,000 in any fiscal
year which, to the extent not used in any fiscal year, may be carried forward to
the next succeeding fiscal year, provided that the aggregate amount of all such
payments that may be made pursuant to this clause (5) may not exceed $2.5
million; (6) dividends or other Restricted Payments to make payments permitted
by clauses (vii) and (viii) of paragraph (b) under the "Limitation on
Transaction with Affiliates" covenant; (7) dividends payable on the Series A
Preferred Stock pursuant to the terms thereof in an aggregate amount not to
exceed $3 million; (8) Investments in Unrestricted Subsidiaries, partnerships or
joint ventures involving the Company or its Restricted Subsidiaries, in each
case primarily engaged in a Related Business if the aggregate amount of such
Investments made pursuant to this clause (8) (less an amount equal to the net
reduction in any such Investment (including if such reduction occurs by reason
of the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary)
made subsequent to the Issue Date resulting from (x) net cash proceeds (or the
Fair Market Value of tangible property, provided that such tangible property
represents a return of capital in respect of an Investment that was made in the
form of other tangible property and not an Investment that was made in the form
of cash) received by the Company or its Restricted Subsidiaries as repayment of
any loan or advance or a return of capital in respect, or as consideration for
the sale, of such Investment or (y) any release or cancellation of a Guarantee
constituting such Investment
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(but only to the extent the Company elects to exclude such amounts from the
calculation of Consolidated Net Income for the purpose of clause (A) of the
preceding paragraph), in each case, with regard to any Investment, not to exceed
the amount of such Investment previously made by the Company or any Restricted
Subsidiary pursuant to this clause (8) does not exceed $10 million; (9) the
purchase or redemption of any Indebtedness, to the extent required by the terms
of such Indebtedness following a Change of Control after the Company shall have
complied with the provisions under "-- Change of Control" above, including
payment of the applicable Change of Control purchase price; and (10) Investments
in Unrestricted Subsidiaries, partnerships or joint ventures organized and
operating principally in the United States involving the Company or its
Restricted Subsidiaries, in each case primarily engaged in a Related Business,
made in the form of contributions to such Unrestricted Subsidiaries,
partnerships or joint ventures of assets of Discontinued Plants; provided,
however, that, in the case of clauses (2), (3), (4), (5), (6), (7), (8), (9),
and (10) of this paragraph, no Default or Event of Default shall have occurred
or be continuing at the time of such payment or as a result thereof. In
determining the aggregate amount of Restricted Payments made subsequent to the
Issue Date, amounts expended pursuant to clauses (1), (5), (7) and (9) shall, in
each case, be included in such calculation. No payment or other transfer to the
Company or a Restricted Subsidiary shall, in any event, constitute a Restricted
Payment except for a contribution, transfer or other disposition of Collateral
in excess of $1 million in the aggregate in any fiscal year by the Company to
any of its Restricted Subsidiaries.
Limitation on the Sale of Assets. (a) Neither the Company nor any of its
Restricted Subsidiaries will consummate or permit, directly or indirectly, any
Asset Sale, unless (i) the Company or such Restricted Subsidiary, as the case
may be, receives consideration at the time of each such Asset Sale at least
equal to the Fair Market Value of the Property subject to such Asset Sale, (ii)
(x) at least 75% of the consideration received by the Company or such Restricted
Subsidiary is in the form of cash or Cash Equivalents, (or, in the case of an
Asset Sale of Discontinued Plants, at least 50% of such consideration is in such
form,); provided that this requirement with respect to cash or Cash Equivalents
shall not apply with respect to Investments made pursuant to clause (10) of the
second paragraph of the "Restricted Payments" covenant, and provided further
that the aggregate Fair Market Value of the consideration other than in the form
of cash or Cash Equivalents that may be received pursuant to clause (x) shall
not exceed $5.0 million in the aggregate held (including the amount of any such
consideration not collected or written off by the Company or any of its
Restricted Subsidiaries but excluding any such consideration received in
consideration for Discontinued Plants) by the Company and its Restricted
Subsidiaries and (y) any such consideration shall not consist of inventory or
accounts receivable or other Bank Collateral, (iii) such Asset Sale is not made
by the Company to any of its Restricted Subsidiaries, (iv) the Company shall
cause the Net Cash Proceeds received in respect thereof to be deposited in the
Collateral Account and the other consideration received to become Collateral as
and when received by the Company or by any Restricted Subsidiary, (v) no Default
or Event of Default shall have occurred and be continuing on the date of such
proposed Asset Sale or would result as a consequence of such Asset Sale and (vi)
such Asset Sale will not materially adversely affect or materially impair the
value of the remaining Collateral or materially interfere with the Trustee's
ability to realize such value and will not materially impair the maintenance and
operation of the remaining Collateral.
(b) The Company shall apply or cause such Restricted Subsidiary to apply,
the Net Cash Proceeds of such Asset Sale and any Insurance Proceeds or
Condemnation Proceeds, as the case may be, resulting from a Loss Event within
270 days of consummation of such Asset Sale or the collection of such Insurance
Proceeds or Condemnation Proceeds, as the case may be, for the following
purposes, individually or in combination:
(1) (i) to purchase or otherwise invest in Related Business
Investments which shall constitute additional Collateral under the relevant
Security Documents and which shall be subject to a first priority Lien in
favor of the Trustee for the benefit of the Holders, subject to Liens
permitted under the Security Documents in respect of the relevant item of
Collateral; provided, that (x) any Property constituting a Related Business
Investment shall not consist of inventory or accounts receivable or other
Bank Collateral and (y) such purchase or Investment shall be made by the
Company or such Restricted Subsidiary, or (ii) to purchase Notes in
open-market transactions; provided, that the Company shall be deemed to
have applied such Net Cash Proceeds, Insurance Proceeds or Condemnation
Proceeds pursuant to this clause (ii) in satisfaction of the requirements
of this covenant in an amount equal to the
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<PAGE> 85
lesser of (x) the purchase price paid in such open-market transactions and
(y) 100% of the principal amount of the Notes repurchased; provided,
further that the aggregate amount of Net Cash Proceeds, Insurance Proceeds
or Condemnation Proceeds that may be deemed to be applied pursuant to this
clause (ii) shall not exceed $5.0 million in the aggregate from the Issue
Date;
(2) with respect to any Net Cash Proceeds, Insurance Proceeds or
Condemnation Proceeds remaining after application pursuant to the preceding
paragraph (a) (the "Excess Proceeds Amount"), the Company shall make an
Asset Sale Offer for up to a maximum principal amount (expressed as an
integral multiple of $1,000) of Notes equal to the Excess Proceeds Amount
at a purchase price equal to 100% of the principal amount thereof plus
accrued and unpaid interest thereon, if any, to the date of purchase in
accordance with the procedures set forth in the Indenture. The Company may
defer the Asset Sale Offer until the aggregate unutilized Excess Proceeds
Amount equals or exceeds $10.0 million resulting from one or more Asset
Sales (at which time, the entire unutilized Excess Proceeds Amount, and not
just the amount in excess of $10.0 million, shall be applied as required
pursuant to this paragraph). All amounts remaining after the consummation
of any Asset Sale Offer pursuant to this paragraph shall remain subject to
the Lien of the Security Documents and may be used by the Company only to
purchase or otherwise invest in Related Business Investments (which shall
constitute additional Collateral under the Security Documents) other than
inventory or accounts receivables or other Bank Collateral or to purchase
Notes in open market transactions.
All Net Cash Proceeds, Insurance Proceeds and Condemnation Proceeds from
Loss Events and non-cash consideration from Asset Sales, including all Excess
Proceeds Amounts, shall, to the extent permitted by law, be subject to the
perfected first priority Lien in favor of the Trustee subject to Liens permitted
under the Security Documents in respect of the relevant item of Collateral. To
the extent not applied as set forth above, such Excess Proceeds Amounts shall
constitute Collateral and shall be delivered by the Company to the Trustee and
shall be deposited in the Collateral Account in accordance with the Indenture
and the Security Documents. Net Cash Proceeds of Asset Sales of Shared
Collateral will be held by the Credit Agent for the benefit of the Holders and
the Revolving Credit Facility Secured Creditors.
Notwithstanding the foregoing, any disposition of Collateral that is
governed under and complies with the "Merger, Consolidation and Sale of Assets"
covenant shall not be deemed to be an Asset Sale, as the case may be, except
that in the event of the transfer of substantially all (but not all) of the
Property of the Company and its Subsidiaries to a Person in a transaction
permitted under "-- Merger, Consolidation and Sale of Assets," the successor
corporation shall be deemed to have sold the Collateral not so transferred for
purposes of this covenant, and shall comply with the provisions of this covenant
with respect to such deemed sale as if it were an Asset Sale. In addition, the
Fair Market Value of such Property of the Company or its Subsidiaries deemed to
be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant.
Notice of an Asset Sale Offer will be mailed to the Holders as shown on the
register of Holders not less than 30 days nor more than 60 days before the
payment date for the Asset Sale Offer, with a copy to the Trustee, and shall
comply with the procedures set forth in the Indenture. Upon receiving notice of
the Asset Sale Offer, Holders may elect to tender their Notes in whole or in
part in integral multiples of $1,000 principal amount in exchange for cash. To
the extent Holders properly tender Notes in an amount exceeding the Excess
Proceeds Amount, Notes of tendering Holders will be repurchased on a pro rata
basis (based on amounts tendered). An Asset Sale Offer is required to remain
open for at least 20 Business Days and until the close of business on the
payment date for the Asset Sale Offer, or such longer period as may be required
by law.
If an offer is made to repurchase the Notes pursuant to an Asset Sale
Offer, the Company will comply with the requirements of Section 14(e) of the
Exchange Act, if applicable, the provisions of Rule 13e-4 and Rule 14e-1, if
applicable, and any other tender offer rules under the Exchange Act or other
relevant United States Federal and state securities legislation which may then
be applicable and will file Schedule 13E-4 or Schedule 13E-4F or any other
schedule required thereunder in connection with any offer by the Company to
purchase Notes pursuant to an Asset Sale Offer. Notes repurchased pursuant to
the "Limitation on the Sale of Assets" covenant shall be delivered to the
Trustee for cancellation.
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Limitation on Dividend and other Payment Restrictions Affecting
Subsidiaries. Neither the Company nor any of its Subsidiaries will, directly or
indirectly, create or otherwise cause or permit or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions to the Company
or to any Restricted Subsidiary (i) on its Capital Stock or (ii) with respect to
any other interest or participation in, or measured by, its profits; (b) make
loans or advances or pay any Indebtedness or other obligation owed to the
Company or to any Restricted Subsidiary; or (c) sell, lease or transfer any of
its Property to the Company or to any Restricted Subsidiary, except for such
encumbrances or restrictions existing under or by reason of: (1) applicable law;
(2) the Indenture and the Security Documents; (3) customary nonassignment
provisions of any contract or any lease governing a leasehold interest of the
Company or any Restricted Subsidiary; (4) any instrument governing Indebtedness
Incurred in accordance with and pursuant to clause (x) of the definition of
Permitted Indebtedness; provided, that, such encumbrance or restriction is not,
and will not be, applicable to any Person, or the Property of any Person, other
than the Person, or the Property of the Person, becoming a Restricted
Subsidiary; (5) restrictions imposed by Liens granted pursuant to clauses (vi),
(viii) and (ix) of the definition of Permitted Liens solely to the extent such
Liens encumber the transfer or other disposition of the assets subject to such
Liens; (6) any restriction or encumbrance contained in contracts for the sale of
assets to be consummated in accordance with the Indenture solely in respect of
the assets to be sold pursuant to such contract; (7) any encumbrance or
restriction contained in Refinancing Indebtedness Incurred to Refinance the
Indebtedness issued, assumed or Incurred pursuant to an agreement referred to in
clause (2), (4) or (5) above or clause (8) or (9) below; provided, that, the
provisions relating to such encumbrance or restriction contained in any such
Refinancing Indebtedness are no less favorable to the Company or such Restricted
Subsidiary or to the Holders in any material respect in the reasonable and good
faith judgment of the Board of Directors of the Company than the provisions
relating to such encumbrance or restriction contained in agreements referred to
in such clause (2), (4), (5), (8) or (9) as the case may be; (8) any agreement
in effect on the Issue Date; and (9) the Revolving Credit Facility.
Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries. The Company will not permit (i) any Restricted Subsidiary to
issue any Capital Stock other than to the Company or a Restricted Subsidiary; or
(ii) any Person (other than the Company or a Restricted Subsidiary) to, directly
or indirectly, own or control any Capital Stock of any Restricted Subsidiary
(other than directors' qualifying shares); provided, however, that clauses (i)
and (ii) will not prohibit any sale of 100% of the shares of the Capital Stock
of any Restricted Subsidiary owned by the Company or any Restricted Subsidiary
effected in accordance with the "Limitation on the Sale of Assets" covenant or
the "Merger, Consolidation and Sale of Assets" covenant.
Limitation on Liens. The Company will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist or remain in effect any Liens upon any
Property of the Company or of any of its Restricted Subsidiaries, whether owned
on the Issue Date or acquired after the Issue Date, or on any income or profits
therefrom, or assign or otherwise convey any right to receive income or profits
thereon other than Permitted Liens.
Merger, Consolidation and Sale of Assets. The Company will not, and will
not permit any Restricted Subsidiary to, in a single transaction or series of
related transactions, consolidate or merge with or into any Person (other than
the consolidation, merger or amalgamation of a Wholly-Owned Subsidiary with
another Wholly-Owned Subsidiary or into the Company), or sell, assign, transfer,
lease, convey or otherwise dispose of (or cause or permit any Subsidiary of the
Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or
substantially all of the Company's assets (determined on a consolidated basis
for the Company and the Company's Subsidiaries) unless: (i) either (1) the
Company, in the case of a transaction involving the Company, or such Restricted
Subsidiary, in the case of a transaction involving any Restricted Subsidiary,
shall be the surviving or continuing corporation or (2) the Person (if other
than the Company or such Restricted Subsidiary) formed by such consolidation or
into which the Company or such Restricted Subsidiary is merged or the Person
which acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of the Company and of the Company's
Subsidiaries (the "Surviving Entity") (x) shall be a corporation organized and
validly existing under the laws of the United States or any State thereof or the
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District of Columbia and (y) shall expressly assume, by supplemental indenture
(in form and substance satisfactory to the Trustee), executed and delivered to
the Trustee, the due and punctual payment of the principal of, and premium, if
any, and interest on all of the Notes and the performance of every covenant of
the Notes, the Indenture and the Security Documents on the part of the Company
to be performed or observed, in the case of a transaction involving the Company,
or the performance of every covenant of the Subsidiary Guarantee, the Indenture
and the Security Documents on the part of such Restricted Subsidiary to be
performed or observed, in the case of a transaction involving a Restricted
Subsidiary, and in each such case, the Company shall have taken all steps
necessary or reasonably requested by the Trustee to protect and perfect the
security interests granted or purported to be granted under the Security
Documents; (ii) in the case of a transaction involving the Company immediately
after giving effect to such transaction and the assumption contemplated by
clause (i)(2)(y) above (including, without limitation, giving effect to any
Indebtedness and Acquired Indebtedness Incurred or anticipated to be Incurred in
connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be, shall be able to Incur at least $1.00 of
additional Indebtedness pursuant to the Consolidated Interest Coverage Ratio
test of paragraph (a) of the "Limitation on Indebtedness" covenant; provided,
that, in determining the "Consolidated Interest Coverage Ratio" of the resulting
transferee or Surviving Entity, such ratio shall be calculated as if the
transaction (including the Incurrence of any Indebtedness or Acquired
Indebtedness) took place on the first day of the applicable Four Quarter Period;
(iii) immediately before and immediately after giving effect to such transaction
and the assumption contemplated by clause (i)(2)(y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness Incurred
or anticipated to be Incurred and any Lien granted in connection with or in
respect of the transaction) no Default and no Event of Default shall have
occurred or be continuing; (iv) in the case of a transaction involving the
Company, immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including, without limitation, giving
effect to any Indebtedness and Acquired Indebtedness Incurred or anticipated to
be Incurred in connection with or in respect of such transaction), the Company
or such Surviving Entity, as the case may be, shall have a Consolidated Net
Worth which is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction or series of transactions; (v) in the case
of a sale, assignment, transfer, lease, conveyance or other disposition of all
or substantially all of the Company's assets, the Surviving Entity shall have
received the Company's assets as an entirety or virtually as an entirety; and
(vi) the Company or the Surviving Entity shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with the applicable provisions
of the Indenture and that all conditions precedent in the Indenture relating to
such transaction have been satisfied.
For purposes of the foregoing, the transfer (by sale, assignment, transfer,
lease, conveyance or otherwise, in a single transaction or series of related
transactions) of all or substantially all of the properties or assets of one or
more Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Upon any such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition in accordance with the foregoing, the successor
Person formed by such consolidation or into which the Company is merged or to
which such sale, assignment, transfer , lease, conveyance or other disposition
is consolidated or made will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture with the same
effect as if such successor had been named as the Company therein, and
thereafter (except in the case of a sale, assignment, transfer, lease,
conveyance or other disposition) the predecessor corporation will be relieved of
all further obligations and covenants under the Indenture, the Notes and the
Security Documents.
The Parent Guarantor will not consolidate with or merge into or sell all or
substantially all of its assets to any Person except as permitted under
"Limitation on Activities of the Parent Guarantor."
Impairment of Security Interest. Neither the Company nor any of its
Subsidiaries will take or omit to take any action which action or omission could
reasonably be expected to have the result of materially and
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adversely affecting or materially impairing the security interests in favor of
the Trustee, on behalf of itself and the Holders, with respect to the
Collateral. Neither the Company nor any of its Subsidiaries will enter into any
agreement or instrument that by its terms requires the proceeds received from
any sale of Collateral (except, in the case of Shared Collateral, the Revolving
Credit Facility and the Intercreditor Agreement) to be applied to repay, redeem,
defease or otherwise acquire or retire any Indebtedness of any Person prior to
the repayment in full of the Notes or clause (viii) of the definition of
Permitted Liens.
Limitation on Transactions with Affiliates. (a) Neither the Company nor
any Restricted Subsidiary will, directly or indirectly, conduct any business or
enter into or permit to exist any transaction or series of related transactions
(including, but not limited to, the purchase, sale, conveyance, transfer,
disposition, exchange or lease of Property, the making of any payment, the
making of any Investment, the giving of any Guarantee, the rendering of services
or the paying of any commission) with, or for the benefit of, any of their
Affiliates (each an "Affiliate Transaction"), except under an agreement set
forth in writing which is on terms that are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could have been
obtained in a comparable transaction on an arms' length basis from a Person not
an Affiliate of the Company or such Restricted Subsidiary and if it involves a
purchase, such purchase is reasonably necessary in light of the operating
requirements of the Company and its Subsidiaries. If the Company or any
Restricted Subsidiary enters into an Affiliate Transaction (or a series of
related Affiliate Transactions) involving aggregate payments or other Property
with a Fair Market Value in excess of (i) $1.0 million, the Company or such
Restricted Subsidiary shall, prior to the consummation thereof, deliver to the
Trustee an Officers' Certificate certifying that such transaction or series of
related transactions complies with the foregoing provisions, (ii) $2.5 million,
the Company or such Restricted Subsidiary shall, prior to the consummation
thereof, deliver to the Trustee the Officers' Certificate specified in clause
(i) above and an approval by the Board of Directors of the Company (including a
majority of the independent directors thereof), such approval to be evidenced by
a Board Resolution stating that such Board of Directors has determined that such
transaction or series of related transactions complies with the foregoing
provisions and (iii) $5.0 million, the Company or such Restricted Subsidiary
shall, prior to the consummation thereof, deliver to the Trustee the Officers'
Certificate specified in clause (i) above, the Board Resolution specified in
clause (ii) above and a favorable opinion as to the fairness of such transaction
or series of related transactions to the Company or the relevant Restricted
Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor addressed to the Trustee.
(b) The foregoing restriction shall not apply to the following
transactions: (i) any transaction exclusively between the Company and any of its
Wholly-Owned Subsidiaries or exclusively between any Wholly-Owned Subsidiaries,
(ii) reasonable and customary fees paid to members of the Board of Directors of
the Company and of its Subsidiaries, (iii) loans and advances to employees,
officers and directors in the ordinary course of business in an aggregate
principal amount not to exceed $1.0 million at any one time outstanding and
advances to employees for moving, entertainment and travel expenses, drawing
accounts and similar expenditures in the ordinary course of business, (iv)
reasonable and customary fees and compensation paid to, and indemnity provided
on behalf of, officers, directors or employees of the Company or any of its
Subsidiaries, as determined by the Board of Directors of the Company or any such
Restricted Subsidiary or the senior management thereof in good faith, including,
without limitation, issuances of stock, payment of bonuses and other
transactions pursuant to employment or compensation agreements, stock option
agreements, indemnification agreements and other arrangements in effect on the
Issue Date or substantially similar thereto, (v) the payment of the management
fees to G&G Investments under the Management Agreement of up to $3.0 million in
any calendar year, (vi) other Restricted Payments made pursuant to the first
paragraph of the "Restricted Payments" covenant, (vii) payments or other
transactions pursuant to any tax sharing arrangement between the Company and any
other Person with which the Company files a consolidated tax return or with
which the Company is part of a consolidated group for tax purposes but only to
the extent that amounts payable from time to time by the Company under any such
agreement do not exceed the corresponding tax payments that the Company would
have been required to make to any relevant taxing authority had the Company not
joined in such consolidated or combined return, but instead had filed returns
including only the Company and (viii) transactions pursuant to the Intercompany
Agreement. The Company will not amend the Intercompany Agreement unless such
amendment is in writing and the Company determines that it contains
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terms no less favorable to the Company than could have been obtained in
comparable transactions on an arm's length basis from a Person not an Affiliate
of the Company, such determination to be evidenced by an Officers' Certificate
and a Board Resolution stating that a majority of the Board of Directors
(including a majority of the independent directors thereof) have determined that
such amendment complies with the foregoing provisions.
Limitations on Activities of the Parent Guarantor. The Parent Guarantor
will not (a) Incur any Indebtedness other than (i) the Guarantee or (ii) a
guarantee of the Indebtedness permitted under clause (ii) of the definition of
Permitted Indebtedness, (b) make any Investments other than in the Company, (c)
grant or suffer to exist a Lien in respect of any Capital Stock of the Company
held by it other than the security interest granted to secure the Notes or sell
or transfer any of such Capital Stock to any Affiliate other than in a
transaction pursuant to clause (e), (d) carry on any business other than the
holding of Capital Stock of the Company or (e) merge or consolidate with or
into, or sell substantially all of its assets to, any Person other than a U.S.
corporation that succeeds to the Parent Guarantor's obligations under the
Indenture, the Parent Guarantee and any Security Document and is in compliance
with and becomes subject to this covenant except for a merger or consolidation
in which the Parent Guarantor is the surviving corporation and following such
merger or consolidation is in compliance with this covenant.
RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors of the Company may designate or redesignate any
Subsidiary to be an Unrestricted Subsidiary if (i) the Subsidiary to be so
designated does not, directly or indirectly, own any Capital Stock or
Indebtedness of, or own or hold any Lien on any property or assets of, the
Company or any other Restricted Subsidiary, (ii) the Subsidiary to be so
designated is not obligated by any Indebtedness or Lien that, if in default,
would result (with the passage of time or notice or otherwise) in a default on
any Indebtedness of the Company or any Restricted Subsidiary, and (iii) either
(a) the Subsidiary to be so designated has total assets of $1,000 or less or (b)
such designation is effective immediately upon such Person becoming a Subsidiary
of the Company or of a Restricted Subsidiary and the amount of the Investment by
the Company or any of its Restricted Subsidiaries in such Subsidiary would be
permitted under "Certain Covenants -- Limitation on Restricted Payments." Unless
so designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of the Company or any Restricted Subsidiary will be classified as a
Restricted Subsidiary. Except as provided in the first sentence of this
paragraph, no Restricted Subsidiary may be redesignated as an Unrestricted
Subsidiary. Subject to the next paragraph, an Unrestricted Subsidiary may not be
redesignated as a Restricted Subsidiary.
The Company will not, and will not permit any Restricted Subsidiary to,
take any action or enter into any transaction or series of transactions that
would result in a Person becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of an Unrestricted Subsidiary or otherwise)
unless after giving effect to such action, transaction or series of
transactions, on a pro forma basis, (i) the Company could Incur at least $1.00
of additional Indebtedness pursuant to the Consolidated Interest Coverage Ratio
test of paragraph (a) of the "Limitation on Indebtedness" covenant, (ii) such
Restricted Subsidiary could then Incur under "-- Limitation on Indebtedness" all
Indebtedness as to which it is obligated at such time, (iii) no Default or Event
of Default would occur or be continuing, and (iv) there exist no Liens with
respect to the property or assets of such Restricted Subsidiary other than
Permitted Liens.
Any such designation by the Board of Directors of the Company will be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of such board giving effect to such designation and an Officers'
Certificate certifying that such designation complies with the foregoing
provisions.
As of the Issue Date, there are no Restricted Subsidiaries and no
Unrestricted Subsidiaries.
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EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of
Default":
(i) the failure to pay interest on any Note for a period of 30 days or
more after such interest becomes due and payable; or
(ii) the failure to (x) pay the principal of or premium, if any, on
any Note, when such principal becomes due and payable, at maturity, upon
repurchase (including, without limitation, pursuant to a Change of Control
Offer or an Asset Sale Offer), upon acceleration, upon redemption or
otherwise or (y) make a Change of Control Offer or an Asset Sale Offer
within the required period; or
(iii) a default in the observance or performance of any of the
agreements or covenants contained under "Merger, Consolidation and Sale of
Assets" or clause (e) of the "Limitation on Activities of Parent Guarantor"
covenant or the granting by the Company, any Restricted Subsidiary or the
Parent Guarantor of any Lien to secure Indebtedness in excess of $100,000
(other than a Permitted Lien);
(iv) a default in the observance or performance of any of the
agreements or covenants contained in the Indenture which default continues
for a period of 30 days after the Company receives written notice
specifying the default from the Trustee or from Holders of at least 25% in
principal amount of the outstanding Notes; or
(v) a default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or of any Specified Subsidiary of the Company,
whether such Indebtedness now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay at final
maturity the principal of or premium, if any, on such Indebtedness after
any applicable grace period provided in such Indebtedness on the date of
such default (a "Principal 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 Principal Payment Default or the maturity of which has been so
accelerated, is of at least $10.0 million in the aggregate; or
(vi) one or more judgments in an aggregate amount in excess of $10.0
million (which are not covered by third-party insurance as to which the
insurer is solvent and has not disclaimed coverage) being rendered against
the Company or any Specified Subsidiary of the Company and such judgments
remain undischarged, or unstayed or unsatisfied for a period of 60 days
after such judgment or judgments become final and non-appealable; or
(vii) certain events of bankruptcy, insolvency, wind-up or
reorganization affecting the Company or any of its Specified Subsidiaries
or the Parent Guarantor; or
(viii) (a) a default in the observance or performance of any covenant
or agreement contained in any Security Document which default continues for
15 days after notice has been given to the Company by the Trustee or the
holders of at least 25% in principal amount of the outstanding Notes, or
(b) for any reason other than the satisfaction in full and discharge of all
obligations secured thereby, any of the Security Documents cease to be in
full force and effect (other than in accordance with their respective
terms), or any of the Security Documents cease to give the Trustee the
Liens, rights, powers and privileges purported to be created thereby, or
any Security Document is declared null and void, or the Company or any of
its Restricted Subsidiaries denies any of its obligations under any
Security Document, in each case with respect to Collateral the aggregate
value of which is in excess of $5.0 million or the Collateral becomes
subject to one or more Liens other than Permitted Liens securing one or
more obligations in excess of $5.0 million in the aggregate; or
(ix) any Guarantee of a Specified Subsidiary or the Parent Guarantor
is declared null and void or ceases to be in full force and effect (except
as permitted under the Indenture) or any Guarantor shall deny or disaffirm
its obligations under its Guarantee.
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If an Event of Default (other than an Event of Default specified in clause
(vii) above with respect to the Company or the Parent Guarantor) occurs and is
continuing, then and in every such case the Trustee or the Holders of not less
than 25% in aggregate principal amount of the then outstanding Notes may declare
the unpaid principal of, premium, if any, and accrued and unpaid interest on,
all the Notes then outstanding to be due and payable, by a notice in writing to
the Company (and to the Trustee, if given by Holders) and upon such declaration
such principal amount, premium, if any, and accrued and unpaid interest will
become immediately due and payable. If an Event of Default specified in clause
(vii) above occurs with respect to the Company or the Parent Guarantor, all
unpaid principal of, and premium, if any, and accrued and unpaid interest on,
the Notes then outstanding will automatically become due and payable without any
declaration or other act on the part of the Trustee or any Holder.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of any Default or Event of Default (the term "Default" to include the
events specified above without grace or notice) known to it, give to the Holders
notice of such Default; provided, that, except in the case of a Default or an
Event of Default in the payment of principal of, or interest on, any Note, the
Trustee shall be protected in withholding such notice if it in good faith
determines that the withholding of such notice is in the interest of the
Holders.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may rescind an acceleration and its
consequences if all existing Events of Default (other than the nonpayment of
principal of and premium, if any, and interest on the Notes which has become due
solely by virtue of such acceleration) have been cured or waived and if the
rescission would not conflict with any judgment or decree. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a Default in the payment of the principal of or interest on any Notes or
a Default in respect of any term or provision of the Notes or the Indenture that
cannot be modified or amended without the consent of all Holders.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the Trust Indenture Act. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable indemnity. Subject to all
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding Notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
Under the Indenture, the Company is required to provide an Officers'
Certificate to the Trustee promptly upon the Company obtaining knowledge of any
Default or Event of Default that has occurred and describe such Default or Event
of Default and the status thereof. In addition, the Company shall provide an
annual Officers' Certificate within 120 days after the end of each fiscal year
as to whether or not they know of any Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Notes, except for (i) the rights of Holders of the Notes to receive payments in
respect of the principal of, premium, if any, and interest on the Notes when
such payments are due, (ii) the Company's 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 payments,
(iii) the rights, powers, trust, duties and immunities of the Trustee and the
Company's 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 released with respect to
certain covenants that are described in the Indenture and the Security Documents
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not
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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, reorganization and insolvency events of the Company)
described under "Description of the Notes -- Events of Default" will no longer
constitute an Event of Default with respect to the Notes. In addition, the
Collateral will be released upon Legal Defeasance or Covenant Defeasance.
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 U.S. government
obligations, 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, premium, if any, and interest on the Notes on the
stated date for payment thereof or on the applicable redemption date, as the
case may be; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee (a)(1) an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the holders of the 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, or (2) a ruling to such effect
from, or published by, the Internal Revenue Service and (B) an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the resulting trust will not be an "Investment Company" within the meaning
of the Investment Company Act of 1940 unless such trust is qualified thereunder
or exempt from regulation thereunder; (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 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, and that
the resulting trust will not be an "Investment Company" within the meaning of
the Investment Company Act of 1940 unless such trust is qualified thereunder or
exempt from regulation thereunder; (iv) no Default or Event of Default shall
have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default with respect to the Indenture resulting from the
Incurrence of Indebtedness, all or a portion of which will be used to defease
the Notes 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 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance shall not result in a breach or violation of, or constitute
a default under the Indenture or any other material agreement or instrument 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 Officers' Certificate stating that the deposit was not made by
the Company with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company or others; (vii) the Company shall have delivered
to the Trustee an Officers' Certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Indebtedness of the
Company other than the Notes and (B) assuming no intervening bankruptcy of the
Company between the date of deposit and the 91st day following the deposit and
that no Holder of the Notes is an insider of the Company, after the 91st day
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (ix) certain other customary conditions
precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture (and all Liens on Collateral granted in connection with the
issuance of the Notes) will be discharged and will cease to be of further effect
(except as to surviving rights, or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the
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Trustee for cancellation have become due and payable and the Company thereafter
has irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof; (ii) the Company has paid or caused to be paid all
other sums then due under the Indenture and under the Notes; and (iii) the
Company has delivered to the Trustee an Officers' Certificate and an opinion of
counsel stating that all conditions precedent under the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
POSSESSION, USE AND RELEASE OF COLLATERAL
Unless an Event of Default shall have occurred and be continuing, but
subject to the Indenture, the Company will have the right to remain in
possession and retain exclusive control of the Collateral securing the Notes
(other than amounts on deposit in the Collateral Account), to freely operate the
Collateral and to collect, invest and dispose of any income thereon.
Release of Collateral and Disposition of Collateral Without Release. Upon
delivery of an Officers' Certificate indicating compliance with the "Limitation
on the Sale of Assets" covenant, the Company may obtain a release from the Lien
of the Indenture and the Security Documents of Collateral subject to an Asset
Sale. So long as no Event of Default shall have occurred and be continuing, the
Company may, without any release or consent by the Trustee, conduct any number
of ordinary course activities in respect of the Collateral, including
dispositions of Collateral, upon satisfaction of certain conditions which shall
result in release of such Collateral. For example, among other things, subject
to dollar limitations and/or other conditions, the Company would be permitted to
sell or otherwise dispose of any Collateral pursuant to clause (d) of the
definition of Asset Sale; abandon, terminate, cancel, release or make
alterations in or substitutions of any leases or contracts subject to the Lien
of the Indenture or any of the Security Documents; surrender or modify any
franchise, license or permit subject to the Lien of the Indenture or any of the
Security Documents which it may own or under which it may be operating; alter,
repair, replace, change the location or position of and add to its structures,
machinery, systems, equipment, fixtures and appurtenances; demolish, dismantle,
tear down or scrap any Collateral or abandon any thereof; grant a nonexclusive
license of any intellectual property; abandon intellectual property under
certain circumstances; and grant leases in respect of real property under
certain circumstances.
THE COLLATERAL ACCOUNT
All amounts on deposit in the Collateral Account (including, without
limitation, Insurance Proceeds and Condemnation Proceeds from Loss Events
(subject to certain minimum thresholds), Partial Losses and Net Cash Proceeds
from Asset Sales) shall be held by the Trustee as a part of the Collateral
securing the Notes and, so long as no Event of Default shall have occurred and
be continuing, may either (i) be released in order to purchase Notes pursuant to
an Asset Sale Offer in accordance with the "Limitation on the Sale of Assets"
covenant or (ii) at the direction of the Company be applied by the Trustee from
time to time to the (x) payment of the principal of and interest on any Notes at
maturity if repayment is made in full or upon redemption in full or (y) to the
extent permitted under the "Limitation on the Sale of Assets" covenant, for the
repurchase of Notes in open market transactions or the purchase or other
investment in Related Business Investments. The Company may also withdraw
amounts on deposit in the Collateral Account constituting (a) Insurance Proceeds
or Condemnation Proceeds from a Partial Loss to reimburse the Company for repair
or replacement of such Collateral, subject to certain conditions or (b)
indemnity payments relating to the Collateral in order to satisfy
indemnification obligations relating to such Collateral or to repair or restore
the Collateral.
Amounts on deposit in the Collateral Account shall be invested in Cash
Equivalents pursuant to the instructions of the Company and, so long as no Event
of Default shall have occurred and be continuing, the Company shall be entitled
to any interest or dividends accrued, earned or paid on such Cash Equivalents.
The
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Trustee shall be entitled to apply any amounts on deposit in the Collateral
Account to the cure of any Default or Event of Default under the Indenture.
REPORTS TO HOLDERS
The Company will deliver to the Trustee and the Holders within 15 days
after the filing of the same with the Commission, copies of the quarterly and
annual reports and of the information, documents and other reports, if any,
which the Company is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company on or after January 1, 1998 will file with the Commission, to
the extent permitted, and provide the Trustee and Holders with such quarterly
and annual reports and such information that would be required to be contained
in a filing with the Commission if the Company were required to file such
reports under Sections 13 and 15(d) of the Exchange Act within the time periods
provided therein. Prior to January 1, 1998, if the Company is not required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act,
the Company will (a) prepare and deliver to the Trustee and the Holders
quarterly reports required by a company subject to the reporting requirements of
Sections 13 and 15(d) within the time periods specified therein and (b) issue a
press release within 45 days after the end of each fiscal quarter, including
summary operating results for the Company. In addition, the Company has agreed
that, for so long as any Notes remain outstanding, it will furnish to Holders
and securities analysts and prospective investors, upon their request, the
information specified in Rule 144(A)(d)(4) under the Securities Act. The Company
will also comply with the other provisions of 314(a) of the Trust Indenture Act.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies or making any change to comply
with any requirement under the Trust Indenture Act, so long as such change does
not adversely affect the rights of any of the Holders. Other modifications and
amendments of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding Notes issued under the
Indenture, except that, without the consent of each Holder of the Notes affected
thereby, no amendment may, directly or indirectly: (i) reduce the amount of
Notes whose Holders must consent to an amendment; (ii) reduce the rate of or
change the time for payment of interest, including defaulted interest, on any
Notes; (iii) reduce the principal of or change the fixed maturity of any Notes,
or change the date on which any Notes may be subject to redemption or
repurchase, or reduce the redemption or repurchase price therefor; (iv) make any
Notes payable in money other than that stated in the Notes; (v) make any change
in provisions of the Indenture protecting the right of each Holder to receive
payment of principal of and interest on such Note on or after the due date
thereof or to bring suit to enforce such payment, or permitting Holders of a
majority in principal amount of the Notes to waive Defaults or Events of
Default; (vi) amend, modify or change the obligation of the Company to make or
consummate a Change of Control Offer (including amending, modifying or changing
the definition of Change of Control), or, after the Company's obligation to
purchase the Notes arises thereunder, an Asset Sale Offer or waive any default
in the provisions thereof or modify any of the provisions or definitions with
respect to any Asset Sale Offer; (vii) adversely affect the ranking of Notes or
any Guarantee; or (viii) permit the creation of any Lien on the Collateral or
any part thereof (other than the Lien of the Indenture and the Security
Documents and any other Liens expressly permitted by the Security Documents), or
terminate the Lien of the Indenture and the Security Documents as to the
Collateral or any part thereof or deprive the Holders of the Notes of the
security afforded by the Lien of the Indenture and the Security Documents or any
part thereof, except as set forth under the "Limitation on Liens" covenant and
"Description of the Notes -- Possession, Use and Release of Collateral."
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of
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Default, the Trustee will exercise such rights and powers vested in it by the
Indenture, and use the same degree of care and skill in its exercise as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" of any Person means Indebtedness of another Person
and any of its Subsidiaries existing at the time such other Person becomes a
Subsidiary (Restricted Subsidiary in the case of the Company) of the referent
Person or at the time it merges or consolidates with the referent Person or any
of the referent Person's Subsidiaries (Restricted Subsidiaries in the case of
the Company) or assumed by the referent Person or any Subsidiary (Restricted
Subsidiary in the case of the Company) of the referent Person in connection with
the acquisition of assets from such other Person and in each case not Incurred
by such other Person or its Subsidiaries in connection with, or in anticipation
or contemplation of, such other Person becoming a Subsidiary (Restricted
Subsidiary in the case of the Company) of the referent Person or such
acquisition, merger or consolidation.
"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, the referent Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct or cause the direction of management or policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise (and the terms "controlling" and "controlled" have meanings
correlative of the foregoing) or the ownership of more than 10% of the Voting
Stock of such Person; provided that Bankers Trust Company and The
Toronto-Dominion Bank and each of their Affiliates will not be deemed to be
affiliates of the Company and for purposes of payment of employee compensation,
a person shall not be deemed to be an Affiliate of the Company by virtue of his
or her status as an officer or director of the Company absent other elements of
control.
"Affiliate Transaction" has the meaning set forth in "-- Certain
Covenants -- Limitation on Transactions with Affiliates".
"Anchor Acquisition" means the acquisition on February 5, 1997 by the
Company of certain assets and certain liabilities of Old Anchor pursuant to the
Asset Purchase Agreement dated December 18, 1996 among Consumers Packaging, Old
Anchor, Owens-Brockway Glass Container, Inc. (the rights and obligations of
Consumers Packaging thereunder having been assigned to the Company).
"Asset Acquisition" means (i) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged with the Company or any
Restricted Subsidiary or (ii) the acquisition by the Company or any Restricted
Subsidiary of assets of any Person comprising a division or line of business of
such Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease, assignment or other disposition or series of related sales,
issuances, conveyances, transfers, leases, assignments or other dispositions
(including, without limitation, by merger or consolidation, and whether by
operation of law or otherwise) for value by the Company or by any of its
Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any
Person (other than by a Restricted Subsidiary to the Company or another
Restricted Subsidiary) of (i) any Capital Stock of a Restricted Subsidiary held
or beneficially owned by the Company or any Restricted Subsidiary, (ii) any
other Property (excluding Capital Stock not covered in (i) or (iii)) of the
Company or of any Restricted Subsidiary or (iii) non-cash consideration received
by the Company or any Restricted Subsidiary pursuant to the "Limitation on Asset
Sales" covenant. Notwithstanding the foregoing, Asset Sales shall not include
(a) the creation of any Permitted Lien, (b) any disposition of Bank Collateral,
(c) the sale or other disposition of inventory in the ordinary course of
business, (d) the sale or other disposition of and any item of machinery,
equipment, furniture, apparatus, tools, implements or other similar
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Property, the Fair Market Value of which does not exceed $500,000 in a single or
series of related transactions or $2.5 million in the aggregate in any fiscal
year, or (e) the sale of receivables pursuant to a receivables securitization or
similar program.
"Asset Sale Offer" has the meaning set forth in "-- Certain
Covenants -- Limitation on the Sale of Assets".
"Attributable Indebtedness" means, in respect of a Sale and Leaseback
Transaction at the time of determination thereof the capitalized amount of
Indebtedness in respect of such transaction that would appear on the face of a
balance sheet of the lessee thereunder in accordance with GAAP.
"Authority" means any Federal, state, municipal or local government or
quasi-governmental agency or authority.
"Bank Collateral" has the meaning attributed to such term in the
Intercreditor Agreement in its form on the Issue Date.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means each day which is not a Saturday, a Sunday or any day
on which banking institutions are not required to open in the City of New York.
"Capital Stock" means (i) with respect to any person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person, and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease that are required to be
classified and accounted for as a capital lease obligations under GAAP and, for
purposes of this definition, the amount of such obligations at any date shall be
the capitalized amount of such obligations at such date, determined in
accordance with GAAP. Each Capitalized Lease Obligation shall be deemed to be
secured by a Lien on the property subject to the lease.
"Cash Equivalents" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States or Canadian Government or issued
by any agency thereof and backed by the full faith and credit of the United
States or Canada, in each case maturing within one year from the date of
acquisition thereof; (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having at least the second
highest rating obtainable from either Standard & Poor's Rating Group ("S&P") or
Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no
more than one year from the date of creation thereof and, at the time of
acquisition, having at least the second highest rating obtainable from either
S&P's or Moody's; (iv) certificates of deposit or bankers' acceptances maturing
within one year from the date of acquisition thereof issued by any commercial
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia that (a) is at least "adequately
capitalized" (as defined in the regulations of its primary federal banking
regulator) and (b) has Tier 1 capital (as defined in such regulations) of not
less than $500,000,000; (v) shares of any money market mutual fund that (a) has
its assets invested continuously in the types of investments referred to in
clauses (i) and (ii) above, (b) has net assets of not less than $500,000,000,
and (c) has at least the second highest rating obtainable from either S&P or
Moody's; and (vi) repurchase agreements with respect to, and which are fully
secured by a perfected security interest in, obligations of a type described in
clause (i) or clause (ii) above and are with any commercial bank described in
clause (iv) above.
"Casualty" with respect to any Collateral, means loss of, damage to or
destruction of all or any part of such Collateral.
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"Change of Control" means an event or series of events by which (a) (i) the
Permitted Holders shall cease to be the beneficial owner (including, without
limitation, economic interest and voting power), directly or indirectly, of at
least 40% (or after a Qualified Public Offering, 25%) of the Fully-Diluted
Voting Stock of Consumers Packaging, the Parent Guarantor or the Company, (ii)
the Parent Guarantor shall cease to be the owner (including, without limitation,
economic interest and voting power) directly of at least 40% (or after a
Qualified Public Offering, 25%) of the Fully-Diluted Voting Stock of the Company
or (iii) any Person or group (as defined under Rule 13d-3 under the Exchange
Act) other than one or more of the Permitted Holders or, in the case of the
Company, Smith Barney in its capacity as Escrow Agent for the creditors of Old
Anchor in connection with its Chapter 11 proceedings under the United States
Bankruptcy Code so long as it does not in fact exercise control over the
Company, becomes the beneficial owner (as defined under Rule 13d-3 under the
Exchange Act), directly or indirectly, of more of the Fully-Diluted Voting Stock
of Consumers Packaging, the Parent Guarantor or the Company, as the case may be,
than is then beneficially owned, directly or indirectly, by one or more of the
Permitted Holders; (b) during any period of two consecutive years or in the case
this event occurs within the first two years after Issue Date, such shorter
period as shall have begun on the Issue Date, individuals who at the beginning
of such period constituted the Board of Directors of the Company or Consumer
Packaging, as the case may be, on the Issue Date (together with any new or
replacement directors whose proposal for election by the shareholders of the
Company, Consumer Packaging or the Parent Guarantor, as the case may be, or by
the other directors was approved by a vote of 66 2/3% of the directors of the
Company or Consumers Packaging or the Parent Guarantor, as the case may be, then
still in office who were either directors on the Issue Date or whose election or
nomination for election was previously so approved) shall cease for any reason
to constitute a majority of the members of the Board of Directors of the Company
or Consumers Packaging or the Parent Guarantor, as the case may be, then still
in office; provided that if any Person or group other than the applicable
Permitted Holders is able to elect a majority of the Board of Directors of
Consumers Packaging or the Company or the Parent Guarantor, as the case may be,
pursuant to an agreement with one or more Persons, a Change of Control shall be
deemed to have occurred; (c) the Company or Consumers Packaging or the Parent
Guarantor, as the case may be, consolidates with or merges with or into another
Person or any Person consolidates with, or merges with or into, the Company,
Consumers Packaging or the Parent Guarantor, as the case may be (in each case,
whether or not in compliance with the terms of the Indenture), in any such event
pursuant to a transaction in which immediately after the consummation thereof
Persons owning a majority of the Voting Stock of the Company or Consumers
Packaging or the Parent Guarantor, as the case may be, immediately prior to such
consummation shall cease to own a majority of the Voting Stock of the Company or
Consumers Packaging or the Parent Guarantor, as the case may be, or the
surviving entity if other than the Company or Consumers Packaging or the Parent
Guarantor, as the case may be; or (d) the Company or Consumers Packaging
conveys, transfers or leases all or substantially all of its assets.
"Change of Control Offer" has the meaning set forth in "-- Change of
Control."
"Collateral" has the meaning set forth in "-- Security."
"Collateral Account" means the collateral account established by the
Trustee pursuant to the Indenture.
"Commission" means the Securities and Exchange Commission.
"Commodity Agreement" of any Person means any forward contract, commodity
swap, commodity option or other similar financial agreement or arrangement
relating to, or the value of which is dependent upon, fluctuations in commodity
prices.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Condemnation" means any taking of the Collateral or any part thereof, in
or by condemnation, expropriation or similar proceeding, eminent domain
proceedings, seizure or forfeiture, pursuant to any law,
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general or special, or by reason of the temporary requisition of the use or
occupancy of the Collateral, or any part thereof, by any Authority.
"Condemnation Proceeds" means any awards, proceeds, payment or other
compensation arising out of a Condemnation.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income plus (ii) to the
extent that any of the following shall have been taken into account in
determining Consolidated Net Income, (A) all net income taxes of such Person and
its Subsidiaries (Restricted Subsidiaries in the case of the Company) paid or
accrued in accordance with GAAP for such period (without including or taking
into account income taxes attributable to extraordinary, unusual or nonrecurring
gains or losses or taxes attributable to sales or dispositions of assets outside
the ordinary course of business), Consolidated Interest Expense, amortization
expense and depreciation expense (including depreciation or amortization expense
included in cost of goods sold), and (B) other noncash items (other than noncash
interest) reducing Consolidated Net Income, other than any noncash item which
requires the accrual of or a reserve for cash charges for any future period,
less other noncash items increasing Consolidated Net Income, all as determined
on a consolidated basis for such Person and its Subsidiaries (Restricted
Subsidiaries in the case of the Company) in conformity with GAAP.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense and
(ii) the product of (x) the amount of all cash dividend payments on any series
of Preferred Stock or Disqualified Capital Stock of such Person and of its
Subsidiaries (Restricted Subsidiaries in the case of the Company) paid, accrued
or scheduled to be paid or accreted during such period times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective consolidated federal, state and local tax rate of such Person,
expressed as a decimal.
"Consolidated Interest Coverage Ratio" means, with respect to any Person,
the ratio of Consolidated EBITDA of such Person during the Four Quarter Period
ending on or prior to the date of the transaction or event giving rise to the
need to calculate the Consolidated Interest Coverage Ratio (the "Transaction
Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period.
In addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to (i) the Incurrence or repayment of any Indebtedness of such
Person or any of its Subsidiaries (Restricted Subsidiaries in the case of the
Company) (and the application of the proceeds thereof) giving rise to the need
to make such calculation and any Incurrence of other Indebtedness (and the
application of the proceeds thereof), other than the Incurrence or repayment
(not resulting in a permanent reduction of available borrowings) of Indebtedness
in the ordinary course of business pursuant to working capital facilities
(including the Revolving Credit Facility), at any time subsequent to the first
day of the Four Quarter Period and on or prior to the Transaction Date, as if
such Incurrence or repayment, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Four Quarter Period, (ii)
any Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
Person or one of its Subsidiaries (Restricted Subsidiaries in the case of the
Company) (including any Person who becomes a Subsidiary (Restricted Subsidiary
in the case of the Company) as a result of any such Asset Acquisition) Incurring
Acquired Indebtedness at any time subsequent to the to the first day of the Four
Quarter Period and on or prior to the Transaction Date), as if such Asset Sale
or Asset Acquisition (including the Incurrence of any such Indebtedness or
Acquired Indebtedness and also including or deducting any Consolidated EBITDA
associated with such Asset Acquisition or Asset Sale, respectively) occurred on
the first day of the Four Quarter Period; provided that the Consolidated EBITDA
of any Person acquired shall be included only to the extent includable pursuant
to the definition of "Consolidated Net Income". For purposes of this definition,
(x) whenever pro forma effect is to be given to any of the foregoing
transactions, the pro forma calculations will be determined in accordance with
Regulation S-X promulgated by the Commission and (y) the Company's Consolidated
EBITDA, Consolidated Fixed Charges, Consolidated Interest Expense and
Consolidated Net Income for the second, third and fourth quarters of 1996 shall
be Pro Forma. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Interest Coverage Ratio",
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(1) interest on Indebtedness determined on a fluctuating basis as of the
Transaction Date (including Indebtedness actually Incurred on the Transaction
Date) and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) notwithstanding clause (1)
above, interest on Indebtedness determined on a fluctuating basis, to the extent
such interest is covered by agreements relating to Interest Swap Obligations,
shall be deemed to accrue at the rate per annum resulting after giving effect to
the operation of such agreements; and (3) interest on Indebtedness Incurred in
the ordinary course of business pursuant to working capital facilities
(including the Revolving Credit Facility) shall be determined as if the average
amount of borrowings outstanding thereunder during the Four Quarter Period shall
have been outstanding on every day of such Four Quarter Period and interest had
accrued at the rate determined pursuant to the preceding clauses (1) or (2)
(whether or not such Indebtedness shall have been outstanding on the Transaction
Date).
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate of the interest expense (without deduction of interest
income) of such Person and its Subsidiaries (Restricted Subsidiaries in the case
of the Company) for such period, on a consolidated basis, as determined in
accordance with GAAP and including, without duplication, (a) all amortization of
original issue discount; (b) the interest component of Capitalized Lease
Obligations paid or accrued by such Person and its Subsidiaries (Restricted
Subsidiaries in the case of the Company) during such period; (c) net cash costs
under all Interest Swap Obligations (including amortization of fees); (d) all
capitalized interest; (e) to the extent that such Person or any of its
Subsidiaries (Restricted Subsidiaries in the case of the Company) guarantees
interest on any debt of any borrower, interest paid by such borrower during such
period on such debt but only to the extent of the amount of the interest
Guaranteed; (f) all amortization or write off of deferred financing costs of
such Person and its consolidated Subsidiaries (Restricted Subsidiaries in the
case of the Company) during such period (other than the write-off of financing
fees related to the Company's Senior Credit Agreement dated February 5, 1997 and
any premium or penalty paid in connection with redeeming or retiring
Indebtedness of such Person and its consolidated Subsidiaries (Restricted
Subsidiaries in the case of the Company) prior to the Stated Maturity thereof;
and (g) the interest portion of any deferred payment obligations for such
period.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Subsidiaries
(Restricted Subsidiaries in the case of the Company) for such period on a
consolidated basis, determined in accordance with GAAP; provided that there
shall be excluded therefrom (a) after-tax gains from Asset Sales or abandonments
or reserves relating thereto, (b) after-tax items classified as extraordinary or
nonrecurring gains or losses, (c) the net income of any Person acquired in a
"pooling of interests" transaction accrued prior to the date it becomes a
Subsidiary (Restricted Subsidiary in the case of the Company) of the referent
Person or is merged or consolidated with the referent Person or any Subsidiary
of the referent Person, (d) the net income (but not loss) of any Subsidiary
(Restricted Subsidiary in the case of the Company) of the referent Person to the
extent that the declaration of dividends or similar distributions by that
Subsidiary of that income is restricted by a contract, operation of law or
otherwise, except to the extent of dividends or distributions paid in the form
of cash or Cash Equivalents to the referent Person or to a Subsidiary
(Restricted Subsidiaries in the case of the Company) of the referent Person by
such Person, (e) the net income of any Person, other than a Subsidiary
(Restricted Subsidiary in the case of the Company) of the referent Person,
except to the extent of dividends or distributions paid in the form of cash or
Cash Equivalents to the referent Person or to a Subsidiary (Restricted
Subsidiaries in the case of the Company) of the referent Person by such Person,
(f) any restoration to income of any contingency reserve except to the extent
that provision for such reserve was made out of Consolidated Net Income accrued
at any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earning of the successor corporation prior to such consolidation, merger or
transfer of assets.
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"Consolidated Net Worth" of any Person means the total of the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person.
"Currency Agreements" means, in respect of a Person, any foreign exchange
currency futures or options, currency swap agreements, forward exchange rate
agreements, exchange rate collar agreements, exchange rate insurance or other
agreements or arrangements, or combination thereof, as to which such Person is a
party or a beneficiary.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Discontinued Plant" means plants of the Company closed prior to the Issue
Date including, without limitation, those located in Dayville, Connecticut and
Houston, Texas, and one plant closed by the Company after the Issue Date which
is specified as such in an Officers' Certificate.
"Discontinued Plant Asset Sale" means an Asset Sale of a Discontinued
Plant.
"Discontinued Plant Closing Costs" means cash expenses incurred by the
Company and its Restricted Subsidiaries as a result of the closing of a
Discontinued Plant no later than 270 days after a Discontinued Plant Asset Sale.
"Disqualified Capital Stock" means any Capital Stock that, 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 is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
first anniversary date on which the Notes mature; provided, however, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require the Company to repurchase or
redeem such Capital Stock upon the occurrence of a Change of Control occurring
on or prior to the first anniversary date on which the Notes mature shall not
constitute Disqualified Stock if (i) the change of control provisions applicable
to such Capital Stock are no more favorable to the holders of such Capital Stock
than the provisions applicable to the Notes contained in the covenant described
under Change of Control" and (ii) such Capital Stock specifically provides that
the Company will not repurchase or redeem any such stock pursuant to such
provisions prior to the Company's repurchase of such Notes as are required to be
repurchased pursuant to the covenant described under "Change of Control."
"Equity Offerings" has the meaning set forth in "-- Optional Redemption."
"Events of Default" has the meaning set forth in "-- Events of Default."
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"Excess Proceeds Amount" has the meaning set forth under "Limitation on the
Sale of Assets."
"Fair Market Value" or "Fair Value" means, with respect to any Property,
the price which could be negotiated in an arm's-length transaction, for cash,
between an informed, willing and able seller and an informed and willing and
able buyer, neither of whom is under undue pressure or compulsion to complete
the transaction. Fair Market Value shall be determined by the Company acting
reasonably and in good faith; provided, however, that if the value of the
aggregate consideration to be received by the Company or any of its Subsidiaries
from any Asset Sale could reasonably be expected to exceed (i) $5.0 million,
Fair Market Value shall be determined by the Board of Directors of the Company
as evidenced by a Board Resolution delivered to the Trustee or (ii) $10.0
million, Fair Market Value shall also be determined by an Independent Financial
Advisor in a written opinion addressed to the Trustee.
"Financial Advisor" means an accounting, appraisal or investment banking
firm of nationally recognized standing in the United States that is, in the
reasonable and good faith judgment of the Board of Directors of the Company,
qualified to perform the task for which such firm has been engaged.
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"Four Quarter Period" means, in respect of any Person at any time, the most
recently completed four consecutive full fiscal quarters; provided, that, in the
case of the Company, the first fiscal quarter of 1997 shall be the period from
February 5, 1997 through March 31, 1997.
"Fully-Diluted Voting Stock" means, in respect of any Person at any time,
the Voting Stock of such Person assuming that all outstanding options, warrants
or other rights to acquire such Voting Stock have been exercised and all
outstanding securities convertible into or exchangeable for such Voting Stock
have been converted or exchanged at such time, in each case in accordance with
their terms in effect at such time.
"G&G Investments" means G&G Investments, Inc., a Delaware corporation.
"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 may be approved by a significant segment of the accounting
profession of the United States, which are applicable as of the date of
determination.
"Guarantee" means any obligation, contingent or otherwise, of any Person,
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay for (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to take-or-pay
or to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, that, the term "Guarantee"
will not include endorsements for collection or deposit in the ordinary course
of business. The term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor" means (a) each Restricted Subsidiary and (b) Consumers U.S.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"Incurrence", "Incurred", "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, that (A) any Indebtedness of a Person
existing at the time such Person becomes (after the Issue Date) a Restricted
Subsidiary (whether by merger, consolidation, acquisition or otherwise) of the
Company shall be deemed to be Incurred by such Subsidiary at the time it becomes
a Restricted Subsidiary and (B) any amendment, modification or waiver of any
document pursuant to which Indebtedness was previously Incurred shall be deemed
(without duplication), as of the date of and after giving effect to, such
amendment, modification or waiver, to be an Incurrence of additional
Indebtedness unless such amendment, modification or waiver does not (i) increase
the principal or premium thereof or interest rate thereon (including by way of
original issue discount) or (ii) change to an earlier date the Stated Maturity
thereof or the date of any scheduled or required principal payment thereon or
the time or circumstances under which such Indebtedness shall be redeemed;
provided, however, that a change in GAAP that results in an obligation of such
Person that exists at such time becoming Indebtedness will not be deemed an
Incurrence of such Indebtedness.
"Indebtedness" means with respect to any Person, without duplication, (i)
the principal of and premium (if any) in respect of indebtedness of such Person
for borrowed money, (ii) the principal of and premium (if any) in respect of
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all Capitalized Lease Obligations of such Person,
including, without limitation, Attributable Indebtedness, (iv) all obligations
of such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all obligations under any title retention
agreement (but excluding trade accounts payable in the ordinary course of
business that are not overdue by 90 days or more or are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted),
(v) all reimbursement obligations of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (vi) all Indebtedness of
others (including all dividends of other Persons for the payment of which
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is) Guaranteed, directly or indirectly, by such Person or that is otherwise its
legal liability or which such Person has agreed to purchase or repurchase or in
respect of which such Person has agreed contingently to supply or advance funds,
(vii) net liabilities of such Person under Interest Swap Obligations, Commodity
Agreements and Currency Agreements, (viii) all Indebtedness of others secured by
(or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien on any Property (including, without
limitation, leasehold interests and any other tangible or intangible property)
of such Person, whether or not such Indebtedness is assumed by such Person or is
not otherwise such Person's legal liability; provided that if the obligations so
secured have not been assumed by such Person or are otherwise not such Person's
legal liability, the amount of such Indebtedness for the purposes of this
definition shall be limited to the lesser of the amount of such Indebtedness
secured by such Lien or the Fair Market Value of the Property subject to such
Lien and (ix) all Disqualified Capital Stock issued by such Person, with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends if any. For
purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, provided, that,
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the full amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP. Notwithstanding the foregoing, (x)
Indebtedness shall not include any endorsements for collection or deposit in the
ordinary course of business or any Indebtedness that has been defeased or
satisfied in accordance with the terms of the documents governing such
Indebtedness and is no longer considered Indebtedness under GAAP and (y) any
realization of a Permitted Lien on Bank Collateral shall not constitute the
Incurrence of Indebtedness.
"Independent" when used with respect to any specified Person means a Person
who (a) is in fact independent, (b) does not have any direct financial interest
or any material indirect financial interest in the Company or any of its
Subsidiaries, or in any Affiliate of the Company or any of its Subsidiaries and
(c) is not an officer, employee, promoter, trustee, partner, director or person
performing similar functions for the Company or any of its Subsidiaries.
Whenever it is provided in the Indenture that any Independent Person's opinion
or certificate shall be furnished to the Trustee, such Person shall be appointed
by the Company in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read this definition and that the
signer is Independent within the meaning thereof.
"Independent Financial Advisor" means a Financial Advisor that is
Independent.
"Insurance Proceeds" mean any payment, proceeds or other amounts received
at any time under any insurance policy as compensation in respect of a Casualty
provided that, business interruption insurance proceeds shall not constitute
Insurance Proceeds.
"Intercompany Agreement" means the Intercompany Agreement dated as of the
Issue Date, by and between the Company, G&G Investments, Inc., Glenshaw Glass
Company, Hillsboro Glass Company I.M.T.E.C. Enterprises, Inc., Consumers
Packaging Inc., Consumers International Inc., Consumers U.S., Inc., BT
Commercial Corporation, the Trustee and the trustee for the 10 1/4% Senior
Secured Notes due 2005 of Consumers International.
"Intercompany Indebtedness" means any Indebtedness of the Company or any
Restricted Subsidiary which, in the case of the Company, is owing to any
Restricted Subsidiary and which, in the case of any such Restricted Subsidiary,
is owing to the Company or any Restricted Subsidiary; provided, that if as of
any date any Person other than the Company or a Restricted Subsidiary owns or
holds such Indebtedness, or holds any Lien in respect thereof, such Indebtedness
shall no longer be Intercompany Indebtedness permitted to be Incurred pursuant
to "-- Limitation on Indebtedness".
"Intercreditor Agreement" means the Intercreditor Agreement described under
"-- Intercreditor Agreement".
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"Interest Swap Obligations" means the obligations of any Person under any
interest rate swap agreement, interest rate cap, collar or floor agreement or
other similar financial agreement or other interest rate hedge or arrangement
designed to protect the Company or any of its Subsidiaries against or manage
exposure to fluctuations in interest rates.
"Investment" by any Person means any direct or indirect (i) loan, advance
or other extension of credit or capital contribution (by means of transfers of
cash or other Property (valued at the Fair Market Value thereof as of the date
of transfer) to others or payments for Property or services for the account or
use of others, or otherwise); (ii) purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidences of equity ownership or
Indebtedness issued by any other Person (whether by merger, consolidation,
amalgamation or otherwise (but excluding any merger, consolidation or
amalgamation subject to the "Merger, Consolidation and Sale of Assets" covenant)
and whether or not purchased directly from the issuer of such securities or
evidences of Indebtedness); (iii) Guarantee or assumption of any Indebtedness or
any other obligation of any other Person; (iv) all other items that would be
classified as investments (including, without limitation, purchases of assets
outside the ordinary course of business) on a balance sheet of such Person
prepared in accordance with GAAP, and (v) any payment made by such Person to any
other Person in order to obtain a commitment from such other Person to purchase
products or services from such Person, but excluding the purchase of assets
(which for this purpose shall not include any equity or debt securities) used in
a Related Business and excluding any trade accounts receivable in the ordinary
course of business and notes receivable from employees received solely in
exchange for the issuance by the Company to such employees of Qualified Capital
Stock. The amount of any Investment shall not be adjusted for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, pledge, assignment, security interest,
charge easement, restriction, covenant, right of way, adverse claim affecting
title to real or personal property, or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest) and any option, trust
or other preferential arrangement having the practical effect of any of the
foregoing.
"Loss Event" means a Condemnation or Casualty involving an actual or
constructive total loss or agreed or compromised actual or constructive total
loss of all or substantially all of any Collateral Property, except where the
Company reasonably concludes that Restoration of such Collateral Property can be
made in accordance with this Indenture and elects to do so in an Officers'
Certificate delivered to the Trustee within 90 days of the relevant Condemnation
or Casualty.
"Management Agreement" means the Management Agreement between G&G
Investments and the Company as in effect on the Issue Date.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, cash proceeds of
such Asset Sale (including Cash Equivalents) net of reasonable transaction costs
of sale including, but not limited to, (i) income taxes reasonably estimated to
be payable as a result of such Asset Sale, (ii) payment of the outstanding
principal amount of, premium or penalty, if any, and interest on, any
Indebtedness that is secured by a Permitted Lien on the property or assets in
question and that is required to be repaid under the terms thereof as a result
of such Asset Sale, (iii) any underwriting, brokerage or other customary selling
commissions and reasonable legal, advisory and other fees and expenses,
including title and recording expenses and reasonable expenses incurred for
preparing such assets for sale, associated therewith, and (iv) payments of
unassumed liabilities (not constituting Indebtedness) relating to the assets
sold at the time of, or within 30 days after, the date of such sale; provided
that the Net Cash Proceeds in the case of any Discontinued Plant Asset Sale will
be deemed to have been applied in accordance with the "Limitation on Sales of
Assets" covenant if used to pay Discontinued Plant Closing Costs attributable to
such Discontinued Plant subject to a limit of up to $5 million per Discontinued
Plant and up to $20.0 million in the aggregate for all Discontinued Plant Asset
Sales from the Issue Date.
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"Net Equity Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate net cash proceeds received
by the Company, after payment of expenses, commissions and the like (including,
without limitation, brokerage, legal, accounting and investment banking fees and
commissions) incurred in connection therewith, and (b) in the case of any
exchange, exercise, conversion or surrender of any outstanding Indebtedness of
the Company or any Restricted Subsidiary for or into shares of Qualified Capital
Stock of the Company, the amount of such Indebtedness (or, if such Indebtedness
was issued at an amount less than the stated principal amount thereof, the
accrued amount thereof as determined in accordance with GAAP) as reflected in
the consolidated financial statements of the Company prepared in accordance with
GAAP as of the most recent date next preceding the date of such exchange,
exercise, conversion or surrender (plus any additional amount required to be
paid in cash by the holder of such Indebtedness to the Company or to any
Restricted Subsidiary upon such exchange, exercise, conversion or surrender and
less any and all payments made to the holders of such Indebtedness, and all
other expenses incurred by the Company in connection therewith), in each case
(a) and (b) to the extent consummated after the Issue Date; provided that the
exchange, exercise, conversion or surrender of any Subordinated Obligations
shall not be or be deemed to be included in Net Equity Proceeds unless such
Subordinated Obligation was issued after the Issue Date.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other amounts
payable under the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed by two officers of the
Company.
"Old Anchor" means Anchor Resolution Corp., a Delaware corporation
(formerly Anchor Glass Container Corporation).
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee.
"Parent Guarantee" means the Guarantee of the Notes made by the Parent
Guarantor.
"Parent Guarantor" means (i) Consumers U.S. or (ii) any Person that becomes
a Parent Guarantor pursuant to the "Limitations on Activities of the Parent
Guarantor" covenant.
"Permitted Holders" means (a) in the case of Consumers Packaging, (i) John
J. Ghaznavi; (ii) the spouse, parents, siblings, descendants (including children
or grandchildren by adoption) of John J. Ghaznavi or of such spouse or siblings;
(iii) in the event of the incompetence or death of any of John J. Ghaznavi or
any of the Persons described in clause (ii), such Person's estate, executor,
administrator, committee or other personal representative in each case who at
any particular date shall beneficially own or have the right to acquire,
directly or indirectly, Voting Stock of Consumers Packaging; (iv) any trusts
created for the sole benefit of John J. Ghaznavi or the Persons described in
clauses (ii) or (iii) or any trust for the benefit of such trust; or (v) any
Person of which John J. Ghaznavi or any of the Persons described in clauses (ii)
or (iii) (x) "beneficially owns" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) on a fully-diluted basis all of the Voting Stock of such Person or
(y) is the sole trustee or general partner, or otherwise has the sole power to
manage the business and affairs, of such Person and (b) in the case of the
Company and the Parent Guarantor, Consumers Packaging and its Wholly-Owned
Subsidiaries.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes and the Indenture, including
Indebtedness in respect of obligations of the Company to the Trustee;
(ii) Indebtedness outstanding from time to time pursuant to the
Revolving Credit Facility in an amount not to exceed the greater of (a)
$125.0 million and (b) the sum of 90% of the gross book value of the
accounts receivable of the Company and its Subsidiaries and 70% of the
gross book value of the inventory of the Company and its Subsidiaries, in
each case calculated in accordance with GAAP;
(iii) Indebtedness outstanding on the Issue Date;
(iv) Commodity Agreements; provided, however, that such Commodity
Agreements are entered into for the purpose of reducing risk in the
ordinary course of the financial management of the Company
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or any Restricted Subsidiary and designed to protect the Company or such
Restricted Subsidiary against fluctuations in commodity prices;
(v) Indebtedness Incurred in connection with (a) Interest Swap
Obligations and Currency Agreements relating to Indebtedness permitted
pursuant to the "Limitation on Indebtedness" covenant that are entered into
for the purpose of reducing risk in the ordinary course of the financial
management of the Company or any Restricted Subsidiary; provided, however,
that the notional amount of each such Interest Swap Obligation and Currency
Agreement does not exceed the principal amount of the Indebtedness to which
the Interest Swap Obligation or the Currency Agreement, as the case may be,
relates, or (b) Currency Agreements that are entered into in the ordinary
course of the financial management of the Company or any of its Restricted
Subsidiaries and designed to protect the Company or such Restricted
Subsidiary against fluctuations in foreign currency exchange rates;
(vi) Indebtedness of the Company or any Restricted Subsidiary
represented by Capitalized Lease Obligations, mortgage financings or other
purchase money obligations or obligations under other financing
transactions relating to capital expenditures, in each case Incurred for
the purpose of financing all or any part of the purchase price or cost of
construction or improvement of property used in a Related Business not to
exceed (a) in any fiscal year the lesser of (1) $10.0 million and (2) 25%
of the Company's capital expenditures as determined in accordance with GAAP
for the prior fiscal year and (b) $35.0 million in the aggregate
outstanding at any one time;
(vii) additional Indebtedness Incurred by the Company or any
Restricted Subsidiaries not to exceed $10.0 million outstanding at any
time;
(viii) Intercompany Indebtedness;
(ix) Refinancing Indebtedness;
(x) Indebtedness of any Person that becomes a Restricted Subsidiary
after the Issue Date which Indebtedness existed at the time such Person
becomes a Restricted Subsidiary; provided that (a) such Indebtedness was
not Incurred as a result of or in connection with or anticipation of such
Person becoming a Restricted Subsidiary and (b) to the extent the principal
amount of such Indebtedness and any other Indebtedness previously permitted
pursuant to this clause (x) exceeds $5.0 million in the aggregate at the
time such Restricted Subsidiary is acquired by the Company, immediately
before and immediately after giving effect to such Person becoming a
Restricted Subsidiary (as if such existing Indebtedness were Incurred on
the first day of the Four Quarter Period) the Company could Incur at least
$1.00 of additional Indebtedness in accordance with the Consolidated
Interest Coverage Ratio test of paragraph (a) of the "Limitation on
Indebtedness" covenant; and
(xi) reimbursement obligations relating to undrawn standby letters of
credit and obligations in respect of performance bonds and surety bonds, in
each case issued in the ordinary course of business.
"Permitted Investments" means (a) Investments in cash and Cash Equivalents;
(b) loans, Guarantees and reasonable advances to employees of the Company or any
Restricted Subsidiary made in the ordinary course of business of the Company or
such Restricted Subsidiary, as the case may be, in an aggregate principal amount
not exceeding $1.0 million at any time outstanding; (c) Investments by the
Company or by any Restricted Subsidiary in the Company or a Restricted
Subsidiary or a Person which will, upon the making of such Investment, become a
Restricted Subsidiary; (d) Investments by the Company or by any Restricted
Subsidiary in another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or any Restricted Subsidiary in
compliance with the provisions of the "Merger, Consolidation and Sale of Assets"
covenant; provided, however, that the primary business of such Restricted
Subsidiary is a Related Business; (e) non-cash consideration received in
accordance with the "Limitation on the Sale of Assets" covenant; (f) advances to
suppliers and customers in the ordinary course of business; (g) Investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of suppliers and customers or in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in the
ordinary course of business; (h) guarantees by the Company and its Restricted
Subsidiaries of the obligations of one another
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under the Revolving Credit Facility; (i) sales of goods or services on trade
credit terms consistent with the Company's and its Subsidiaries' past practices
or otherwise consistent with trade credit terms in common use in the industry
and recorded as accounts receivable on the balance sheet of the Person making
such sale, and (j) lease, utility and other similar deposits in the ordinary
course of business; provided, further, that any contribution, transfer or other
disposition of Collateral in excess of $1.0 million in the aggregate in any
fiscal year by the Company to any of its Restricted Subsidiaries, shall not
constitute a Permitted Investment.
"Permitted Liens" means, without duplication, each of the following:
(i) Liens securing the Notes;
(ii) Liens for taxes or governmental assessments, charges, levies or
claims not yet delinquent or for which a bond has been posted in an amount
equal to the contested amount (including potential interest and penalties
thereon) not interfering in any material respect with the ordinary
operation of any Collateral or materially and adversely affecting the value
thereof;
(iii) statutory Liens of landlords, carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other like Liens arising in the
ordinary course of business of ownership and operation of the relevant
property relating to obligations either (a) not yet delinquent or (b) being
contested in good faith by appropriate proceedings and as to which
appropriate reserves or other provisions have been made in advance in
accordance with GAAP, in each case, not interfering in any material respect
with the ordinary operation of any Collateral or materially and adversely
affecting the value thereof;
(iv) Liens in connection with workers' compensation, unemployment
insurance and other similar legislation, surety or appeal bonds,
performance bonds or other obligations of a like nature (in each case not
constituting Indebtedness) arising in the ordinary course of business not
interfering in any material respect with the ordinary operation of any
Collateral or materially and adversely affecting the value thereof;
(v) zoning restrictions, licenses, easements, servitudes, rights of
way, title defects, covenants running with the land and other similar
charges or encumbrances or restrictions not interfering in any material
respect with the ordinary operation of any Collateral or materially and
adversely affecting the value thereof;
(vi) assignments, leases, or subleases at Discontinued Plants not
materially and adversely affecting the value thereof;
(vii) Liens on any Collateral permitted under the Security Document
applicable thereto;
(viii) Liens granted by the Company or any Restricted Subsidiary to
secure Indebtedness Incurred pursuant to clause (vi) of the definition of
Permitted Indebtedness, in each case representing all or part of the cost
of purchase, lease, construction or improvement of Property acquired,
constructed or improved after the date hereof owed to a Person not an
Affiliate of the Company; provided, however, that (x) in any such case such
Lien shall extend only to the specific Property of the Company or any
Restricted Subsidiary leased, acquired, constructed or improved with the
proceeds of such Indebtedness and (y) prior to granting any such Lien, the
Company shall provide the Trustee with an Officers' Certificate stating
that the Property subject to such Lien and the Collateral could be operated
independently and such Property could be disposed of independently of the
Collateral without interfering with the continued operation and maintenance
of the Collateral, and without impairing the value of the Collateral or
interfering with the Trustee's ability to realize such value; provided
further that (A) the aggregate amount of Indebtedness secured by any such
Lien shall not exceed the Fair Market Value (or, if less, the cost) of the
Property so acquired or leased and (B) such Liens shall not encumber any
other Property of the Company or of any Restricted Subsidiary and shall
attach to such Property within 60 days of the acquisition or lease of, or
completion of construction on, such Property;
(ix) Liens on the Bank Collateral and the Shared Collateral securing
the Revolving Credit Facility;
(x) Liens existing on the Issue Date; and
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(xi) Liens on Property of a Person at the time such Person was merged
with the Company or a Restricted Subsidiary, Liens on acquired Property
existing at the time of acquisition thereof and Liens upon any Property of
a Person existing at the time such Person becomes a Restricted Subsidiary;
provided in each case (x) that such Property was not acquired with the
proceeds of any Asset Sale or as a replacement for any Collateral and (y)
that such Liens were not created in contemplation of such merger or
acquisition, as the case may be, and such Liens only extend to such merged
or acquired Property.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Principal Payment Default" has the meaning set forth in clause (v) of
"-- Events of Default."
"Pro Forma" shall mean for any period the pro forma Consolidated EBITDA,
Consolidated Fixed Charges, Consolidated Interest Expense or Consolidated Net
Income of the Company after giving effect to the offering of the Notes on the
Issue Date and the application of the net proceeds therefrom and the Anchor
Acquisition as if such transactions had occurred on January 1, 1996 and to any
other transactions or events for which pro forma effect is to be given pursuant
to the definition of Consolidated Interest Coverage Ratio calculated in
accordance with Regulation S-X as promulgated by the Commission applied to the
audited financial statements of Old Anchor for the 1996 fiscal year and, where
necessary, the unaudited financial statements of such company for the second and
third fiscal quarters of 1996; it being understood that prior to giving effect
to any transactions or events for which pro forma effect is to be given pursuant
to the definition of Consolidated Interest Coverage Ratio that Consolidated
EBITDA for the Company for each of the second, third and fourth fiscal quarters
of 1996 shall be $21.6 million, $8.8 million and negative $9.9 million,
respectively.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real or immovable, personal or
moveable or mixed, or tangible or corporeal, or intangible or incorporeal,
including, without limitation, Capital Stock in any other Person.
"Purchase Money Assets" means Property made subject to a Lien in accordance
with clause (viii) of the definition of Permitted Liens.
"Qualified Capital Stock" means (i) any Capital Stock that is not
Disqualified Capital Stock and (ii) each warrant, right or option to acquire
Capital Stock that is not Disqualified Capital Stock other than any such
warrant, right or other option to acquire such Capital Stock that is, 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
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the first anniversary date on which the Notes mature.
"Qualified Public Offering" means an underwritten public offering of the
Common Stock of the Company pursuant to a Registration Statement filed with the
Commission in accordance with the Securities Act resulting in Net Equity
Proceeds of at least $75.0 million.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or a
Restricted Subsidiary of Indebtedness of the Company or a Restricted Subsidiary
initially Incurred in accordance with the Limitation on Indebtedness covenant,
including the Notes (other than pursuant to clause (ii), (iv), (v), (vi), (vii),
(viii) or (xi) of the definition of Permitted Indebtedness) that does not (i)
result in an increase in the aggregate principal amount of Indebtedness of such
Person as of the date of such proposed Refinancing (plus the amount of any
premium required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by such Person
in connection with such
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Refinancing) or (ii) create Indebtedness with (a) a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (b) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided that if such
Indebtedness being Refinanced is subordinate or junior to the Notes or any
Guarantee, then such Refinancing Indebtedness shall be subordinate to the Notes
or such Guarantee at least to the same extent and in the same manner as the
Indebtedness being Refinanced.
"Related Business" means the businesses carried out by the Company or a
Restricted Subsidiary on the date hereof and any reasonable extensions thereof,
including, without limitation, the manufacture and sale of plastic containers
and plastic and metal closures.
"Related Business Investment" means any expenditure by the Company or a
Restricted Subsidiary, as the case may be, to acquire assets (which shall not
include any equity or debt security) used in the ordinary course of a Related
Business of the Company or such Restricted Subsidiary, as the case may be, which
shall constitute Collateral.
"Released Interests" has the meaning set forth in "-- Possession, Use and
Release of Collateral -- Release of Collateral."
"Restoration" means the restoration of all or any portion of the Collateral
in connection with any destruction or condemnation thereof.
"Restricted Subsidiary" means, as of the date of determination, any
Subsidiary of the Company, other than an Unrestricted Subsidiary.
"Revolving Credit Agreement" has the meaning set forth in the definition of
"Revolving Credit Facility."
"Revolving Credit Facility" means agreements with one or more Persons or
syndicates of Persons providing for financing for the Company and its
Subsidiaries, and all related security agreements, guarantees, notes and other
agreements relating to same, as the same may be amended, modified or
supplemented from time to time, and any agreement or agreements evidencing the
refinancing, modification, replacement, renewal, restatement, refunding,
deferral, extension, substitution or supplement thereof including, without
limitation, any arrangement involving a Wholly-Owned Subsidiary, the sole
activity of which is the financing of receivables, and including the revolving
credit facility under that certain Credit Agreement dated as of February 5, 1997
(the "Revolving Credit Agreement") among the Company, Bankers Trust Company, as
issuing bank, BT Commercial Corporation, as agent, PNC Bank, as issuing bank and
the financial institutions party thereto in their capacities as lenders
thereunder, and any security documents and guarantees delivered in connection
therewith.
"Revolving Credit Facility Secured Creditors" means the agent and the
financial institutions party to the Revolving Credit Agreement described in the
definition of "Revolving Credit Facility" in their capacities as lenders
thereunder.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any Property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary.
"Shared Collateral" has the meaning assigned to such term in the
Intercreditor Agreement.
"Specified Subsidiary" means any Subsidiary of the Company other than (x)
an Unrestricted Subsidiary which is not organized under the laws of the United
States of America, any state thereof or the District of Columbia or under the
laws of Canada or any province thereof or (y) a Subsidiary of the Company which
would not constitute a "significant subsidiary" of the Company as defined in
Rule 1.02 of Regulation S-X promulgated by the Commission, except that for
purposes of this definition, all reference therein to ten (10) percent shall be
deemed to be references to five (5) percent.
"S&P" means Standard & Poor's Corporation and its successors.
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"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company, the Parent
Guarantor or any Subsidiary Guarantor (whether outstanding on the Issue Date or
thereafter Incurred) which is subordinate or junior in right of payment to the
Notes, the Parent Guarantee or any Subsidiary Guarantee pursuant to a written
agreement or by operation of law.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantee" means the Guarantee of the Notes made by a
Subsidiary Guarantor.
"Subsidiary Guarantor" means each future Restricted Subsidiary; provided
that any Person constituting a Subsidiary Guarantor as described above shall
cease to constitute a Subsidiary Guarantor when its Guarantee is released in
accordance with the terms of the Indenture.
"Surviving Entity" means the Person (if other than the Company) formed by
any consolidation of the Company with any Person or into which the Company is
merged or the Person which acquires by conveyance, transfer or lease the
properties and assets of the Company and of the Company's Subsidiaries as an
entirety or virtually as an entirety.
"Unrestricted Subsidiary" means (i) each Subsidiary of the Company that the
Company has designated pursuant to the provisions described under "-- Restricted
and Unrestricted Subsidiaries" as an Unrestricted Subsidiary and that has not
been redesignated a Restricted Subsidiary and (ii) any Subsidiary of an
Unrestricted Subsidiary.
"Voting Stock" with respect to any Person, means securities of any class of
Capital Stock of such Person entitling the holders thereof (whether at all times
or only so long as no senior class of stock has voting power by reason of any
contingency) to vote in the election of members of the Board of Directors (or
equivalent governing body) of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the total of the
product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly-Owned Subsidiary" means, in respect of the Company, a Restricted
Subsidiary, all the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or another Wholly-Owned Subsidiary of the
Company.
CERTAIN LIMITATIONS ON ABILITY TO REALIZE ON COLLATERAL
Bankruptcy Considerations. The right of the Trustee under the Indenture to
repossess and dispose of the Collateral upon the occurrence of an Event of
Default under the Indenture is likely to be significantly impaired by applicable
bankruptcy law if a bankruptcy case were to be commenced by or against the
Company prior to the Trustee's having repossessed and disposed of the
Collateral. Under the federal bankruptcy laws, secured creditors, such as the
Trustee, are prohibited from foreclosing upon, realizing upon or repossessing
security from a debtor in a bankruptcy case, or from disposing of security
repossessed from such debtor, without bankruptcy court approval. Moreover, the
federal bankruptcy laws permit the debtor to continue to
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retain and to use collateral even though the debtor is in default under the
applicable debt instruments, provided that the secured creditor is given
"adequate protection." The meaning of the term "adequate protection" may vary
according to circumstances, but it is intended in general to protect the value
of the secured creditor's interest in the Collateral and may include cash
payments or the granting of additional security, if and at such times as the
court in its discretion determines (after request by the creditor), for any
diminution in the value of the creditor's interest in Collateral as a result of
the stay of repossession or disposition or any use of the Collateral by the
debtor during the pendency of the bankruptcy case. In view of the lack of a
precise definition of the term "adequate protection" and the broad discretionary
powers of a bankruptcy court, it is impossible to predict how long payments
under the Notes could be delayed following commencement of a bankruptcy case,
whether or when the Trustee could repossess or dispose of the Collateral or
whether or to what extent holders of the Notes would be compensated for any
diminution in value of the Collateral through the requirement of "adequate
protection." Furthermore, in the event that the bankruptcy court determines that
the value of the Collateral is not sufficient to repay all amounts due on the
Notes, the holders of the Notes would hold undersecured claims. Applicable
federal bankruptcy laws do not permit the payment and/or accrual of interest,
costs and attorney's fees for "undersecured claims" during the pendency of a
debtor's bankruptcy case.
In addition, if prior to or at the time of any bankruptcy case being
commenced by or against the Company, the value of the Collateral is less than
the total amount remaining to be paid on the Notes, the issue of whether
payments on the Notes within ninety days (or one year with respect to payments
to "insiders" as defined under the federal bankruptcy laws) of the commencement
of such bankruptcy case are preferential and may be recaptured may arise under
the federal bankruptcy laws. To the extent that such issue arises, there may in
certain circumstances be defenses applicable to the recapture of potentially
preferential payments under the federal bankruptcy laws, including among other
things, that such payments were made in the ordinary course of business or
financial affairs of the Company according to ordinary business terms.
Fraudulent Conveyance. The issuance of the Notes by the Company and the
granting of liens to secure the Notes, as well as the issuance of the Guarantees
by the Guarantors, are subject to the Fraudulent Conveyance Laws. If a court
makes certain findings, it could take certain actions detrimental to the holders
of the Notes. See "Risk Factors -- Fraudulent Conveyance Risks."
Environmental Considerations. The Real Property Collateral is subject to
extensive and increasingly stringent environmental laws and regulations.
Although management believes that the Real Property Collateral is in substantial
compliance with these regulations, other than any non-compliance the liability
for which has been reserved in the Company's financial statements, the failure
of any Real Property Collateral to remain in compliance therewith or the
presence of hazardous substances at any of the Real Property Collateral could
adversely affect the value of the Real Property Collateral or the operations
conducted thereon. Furthermore, certain of the Real Property Collateral will
require significant capital expenditures to remain in compliance with existing
and future environmental regulations. See "Risk Factors -- Environmental and
Other Government Regulation."
Under the federal laws of the United States and many state laws,
contamination of a property may give rise to a lien on the property to assure
the payment of the costs of clean-up. In a number of states, including New
Jersey and Connecticut, under certain circumstances, such a lien may have
priority over all existing liens (a "superlien") including those of existing
mortgages. In addition, a lender may be exposed to unforeseen environmental
liabilities when taking a security interest in real property. Under the federal
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
and similar state laws, a lender may be liable in certain circumstances, as an
"owner" or "operator", for environmental clean-up costs on a mortgaged property.
Although CERCLA excludes from liability "a person who, without participating in
the management of a facility, holds indicia of ownership primarily to protect
his security interest," a lender may be held liable under CERCLA as an owner or
operator if its employees or agents participate in the management of the
property. Judicial decisions interpreting the secured creditor exemption had
varied widely, and one decision, United States v. Fleet Factors Corp., 901 F.2d
1550 (11th Cir. 1990), cert. denied, 498 U.S. 1046 (1991), had indicated that a
lender's mere power to affect and influence a borrower's operations might be
sufficient to subject the lender to CERCLA liability. However, on September 30,
1996, the Asset
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Conservation, Lender Liability, and Deposit Insurance Protection Act of 1996
(the "Lender Liability Act") became law. The Lender Liability Act clarifies the
secured creditor exemption to impose liability only on a secured creditor who
exercises control over operational aspects of the facility and thus is
"participating in management." A number of environmentally related activities
before the loan is made and during its pendency, as well as "workout" steps to
protect a security interest are identified as permissible to protect a security
interest without triggering liability. The Lender Liability Act also identifies
the circumstances in which foreclosure and post-foreclosure activities will not
trigger CERCLA liability.
The Lender Liability Act amends the federal Solid Waste Disposal Act
("SWDA") to limit the liability of lenders holding a security interests for
costs of cleaning up contamination from underground storage tanks. However, the
Lender Liability Act has no effect on other federal environmental laws or on
state environmental laws similar to CERCLA or the SWDA that may impose liability
on lenders and other persons, and not all of those laws provide for a secured
creditor exemption. Liability under many of these federal and state laws may
exist even if the lender did not cause or contribute to the contamination and
regardless of whether the lender has actually taken possession of the property
through foreclosure, deed in lieu of foreclosure or otherwise. Moreover, such
liability is not limited to the original or unamortized principal balance of a
loan or to the value of the property securing a loan.
Under the Indenture, the Trustee, prior to taking certain actions, may
request that holders provide an indemnification against its costs, expenses
under CERCLA or similar laws, and liabilities. It is possible that cleanup costs
under CERCLA or similar laws could become a liability of the Trustee and cause a
loss to any holder of Notes that provided an indemnification. In addition, such
holders may act directly rather than through the Trustee, in specified
circumstances, in order to pursue a remedy under the Indenture. If holders
exercise that right, they could be deemed to be lenders who are subject to the
risks discussed above.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material U.S. Federal income tax
consequences of the acceptance of, and participation in, the Exchange Offer by
initial Holders of the Notes who are subject to U.S. Federal income taxation on
a net basis with respect to the Notes ("U.S. persons") and who hold their Notes
as capital assets. This discussion is based upon the provisions of the Internal
Revenue Code of 1986, as amended, U.S. Treasury regulations, rulings and
judicial decisions now in effect, all of which are subject to change without
notice, possibly with retroactive effect. There can be no assurance that the
U.S. Internal Revenue Service will take a similar view of the U.S. Federal
income tax consequences of the acquisition, ownership or disposition of the
Notes.
This discussion does not address all aspects of the U.S. Federal income tax
laws that may be relevant to a particular investor in light of that investor's
particular circumstances, or to certain types of investors subject to special
treatment under such laws (for example, dealers in securities or currencies, S
corporations, life insurance companies, financial institutions, tax-exempt
organizations, taxpayers subject to the alternative minimum tax rules or having
a functional currency other than the U.S. dollar, and non-U.S. persons). This
discussion also does not address Notes held as a hedge against currency or other
risks, as part of a "straddle" with other investments, or as part of a
"synthetic security" or other integrated investment (including a "conversion
transaction") comprised of a Note and one or more other investments. Holders of
the Outstanding Notes contemplating acceptance of the Exchange Offer should
consult their own tax advisers with respect to the U.S. Federal income tax
consequences of their acceptance of, and participation in, the Exchange Offer in
light of their particular circumstances.
This discussion does not address the tax laws of any state, local or
foreign government (or of any political subdivision thereof), or of any estate,
gift, transfer or other non-income tax laws that may be applicable to the
Notes or Holders thereof. Holders of the Outstanding Notes contemplating
acceptance of the Exchange Offer should consult their own tax advisers with
respect to the effects of any such tax laws to which they may be subject.
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The Company believes that the exchange of an Outstanding Note for an
Exchange Note by a Holder pursuant to the Exchange Offer will not constitute a
taxable exchange. Such an exchange will not result in taxable income, gain or
loss being recognized by such Holder or by the Company. Immediately after the
exchange, such Holder will have the same adjusted basis and holding period in
each Exchange Note received as such Holder had immediately prior to the exchange
in the corresponding Outstanding Note surrendered. The foregoing analysis is not
based upon an opinion of counsel and Holders of the Outstanding Notes
contemplating acceptance of the Exchange Offer should consult their own tax
advisors with respect to the effects of the Exchange Offer on the tax basis for
such Exchange Notes.
OUTSTANDING NOTES REGISTRATION RIGHTS
The Company and Consumers U.S. entered into a Registration Rights Agreement
on April 17, 1997, pursuant to which the Company and the Guarantor agreed to, at
their own cost, (i) within 90 days after the Issue Date, file an Exchange Offer
Registration Statement pursuant to which Outstanding Notes could be exchanged
for Exchange Notes, (ii) use their best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
180 days after the Issue Date, (iii) to keep the Exchange Offer open for not
less than 30 days (or longer if required by applicable law) after the date
notice of the Exchange Offer is mailed to the holders of the Outstanding Notes
and (iv) use their best efforts to consummate the Exchange Offer within 225 days
after the Issue Date.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company and the Guarantor to effect the Exchange Offer, or if
for any other reason the Exchange Offer is not consummated within 225 days after
the Issue Date, or, under certain circumstances, if the Initial Purchasers shall
so request, each of the Company and the Guarantor, jointly and severally, will
at its cost, (a) as promptly as practicable, file a shelf registration statement
covering resales of the Outstanding Notes (a "Shelf Registration Statement"),
(b) use its best efforts to cause such Shelf Registration Statement to be
declared effective under the Securities Act and (c) use its best efforts to keep
effective such Shelf Registration Statement until the earlier of two years after
the Issue Date and such time as all of the Outstanding Notes covered thereby
have been sold thereunder. The Company will, in the event of the filing of a
Shelf Registration Statement, provide to each holder of the Outstanding Notes
copies of the prospectus which is a part of such Shelf Registration Statement,
notify each such holder when such Shelf Registration Statement has become
effective and take certain other actions as are required to permit unrestricted
resales of the Outstanding Notes. A holder that sells its Outstanding Notes
pursuant to a Shelf Registration Statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such holder (including certain indemnification obligations).
If the Company and the Guarantor fail to comply with the above provisions
or if any such registration statement fails to become effective, then, as
liquidated damages, additional interest (the "Additional Interest") shall become
payable with respect to the Outstanding Notes as follows:
(i) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed on or prior to the Filing Date (as defined),
Additional Interest shall accrue on the Outstanding Notes over and above
the stated interest at a rate of 0.50% per annum for the first 90 days
commencing on the 91st day after the Issue Date, such Additional Interest
rate increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period;
(ii) if the Exchange Offer Registration Statement or Shelf
Registration Statement is not declared effective within 180 days (210 days
in the case of a Shelf Registration Statement) following the Issue Date,
Additional Interest shall accrue on the Outstanding Notes over and above
the stated interest at a rate of 0.50% per annum for the first 90 days
commencing on the 181st day after the Issue Date (commencing on the 211th
day after the Issue Date in the case of a Shelf Registration Statement),
such Additional Interest rate increasing by an additional 0.50% per annum
at the beginning of each subsequent 90-day period; and
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(iii) if (A) the Company and the Guarantor have not exchanged all
Notes validly tendered in accordance with the terms of the Exchange Offer
on or prior to 225 days after the Issue Date or (B) the Exchange Offer
Registration Statement ceases to be effective at any time prior to the time
that the Exchange Offer is consummated or (C) if applicable, if a Shelf
Registration Statement has been declared effective and a Shelf Registration
Statement ceases to be effective at any time prior to the second
anniversary of the Issue Date (unless all the Outstanding Notes covered
thereby have been sold thereunder), then Additional Interest shall accrue
on the Outstanding Notes over and above the stated interest at a rate of
0.50% per annum for the first 90 days commencing on (x) the 226th day after
the Issue Date with respect to Outstanding Notes validly tendered and not
exchanged by the Company, in the case of (A) above, or (y) the day such
Shelf Registration Statement ceases to be effective in the case of (B)
above, such Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each subsequent 90-day period; provided, however,
that the Additional Interest rate on the Outstanding Notes may not exceed
in the aggregate 1.5% per annum; and provided further, that (1) upon the
filing of the Exchange Offer Registration Statement or Shelf Registration
Statement (in the case of clause (i) above), (2) upon the effectiveness of
the Shelf Registration Statement (in the case of (ii) above), or (3) upon
the exchange of Exchange Notes for all Outstanding Notes tendered (in the
case of clause (iii)(A) above), or upon the effectiveness of the Shelf
Registration Statement, which had ceased to remain effective (in the case
of clause (iii)(B) above), Additional Interest on the Outstanding Notes as
a result of such clause (or the relevant subclause thereof), as the case
may be, shall cease to accrue.
As used herein, "Filing Date" means (A) if no Registration Statement has
been filed by the Company pursuant to this Agreement, the 90th day after the
Issue Date; provided, however, that if notice regarding the obligation to file a
Shelf Registration Statement (a "Shelf Notice") is given within 10 days of the
Filing Date as determined under clause (A) above, then the Filing Date with
respect to the Shelf Registration Statement shall be the 15th calendar day after
the date of the giving of such Shelf Notice; or (B) in each other case (which
may be applicable notwithstanding the consummation of the Exchange Offer), the
30th day after the delivery of a Shelf Notice.
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable in case, on the same original interest payment dates
as the Outstanding Notes. The amount of Additional Interest will be determined
by multiplying the applicable Additional Interest rate by the principal amount
of the Outstanding Notes multiplied by a fraction, the numerator of which is the
number of days such Additional Interest rate was applicable during such period
(determined on the basis of a 360-day year comprised of twelve 30-day months),
and the denominator of which is 360.
As a result of its failure to have an Exchange Offer Registration Statement
or Shelf Registration Statement declared effective on or prior to October 14,
1997 (the 180th day after the Issue Date) and its failure to have exchanged all
Notes validly tendered in accordance with the terms of the Exchange Offer on or
prior to November 28, 1997 (the 225th day after the Issue Date), the Company is
currently paying Additional Interest in the amount of 1.5% per annum on the
Notes.
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, all the provisions of the Registration Rights Agreement, a copy
of which will be available upon request to the Company.
BOOK-ENTRY; DELIVERY AND FORM
The Outstanding Notes were issued in the form of one global certificate
(the "Outstanding Global Note") for QIBs. The Exchange Notes will initially be
issued in the form of one or more global certificates (collectively, the
"Exchange Global Notes"). The Outstanding Global Note was deposited on the date
of closing of the sale of the Outstanding Notes, and the Exchange Global Notes
will be deposited on the date of closing of the Exchange Offer, with, or on
behalf of, DTC and registered in the name of a nominee of DTC. The term "Global
Notes" means the Outstanding Global Notes or the Exchange Global Notes, as the
context may require.
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Exchange Notes to be held by "accredited investors" (as such term is
defined in Rule 501 under the Securities Act) (each an "Accredited Investor")
will be issued in registered definitive form without coupons ("Certificated
Securities"). Upon the transfer of Certificated Securities by an Accredited
Investor to a QIB, such Certificated Securities will, unless the Global Notes
have previously been exchanged in whole for Certificated Securities, be
exchanged for an interest in a Global Note.
The Global Notes. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Notes to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Notes will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
Such accounts initially will be designated by or on behalf of the Initial
Purchasers and ownership of beneficial interests in the Global Notes will be
limited to persons who have accounts with DTC, including Euroclear and Cedel
("participants") or persons who hold interests through participants. QIBs may
hold their interests in the Global Notes directly through DTC if they are
participants in such system, or indirectly through organizations which are
participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in the Global Notes will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any), interest (including
Additional Interest) on, the Global Notes will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest (including Additional Interest) on the
Global Notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Notes as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
the Global Notes held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in a Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Notes
for Certificated Securities, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the
109
<PAGE> 115
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee 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.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Notes.
PLAN OF DISTRIBUTION
Except as provided herein, this Prospectus may not be used for an offer to
resell, resale or other retransfer of Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver this
Prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Note received in
exchange for Outstanding Notes where such Outstanding Notes were acquired by
such broker-dealer for its own account as a result of market-making activities
or other trading activities. The Company acknowledges and each Holder, other
than a broker-dealer, must acknowledge that it is not engaged in, does not
intend to engage in, and has no arrangement or understanding with any person to
participate in, any distribution of Exchange Notes.
The Company will not receive any proceeds from the exchange of Outstanding
Notes for Exchange Notes or from the resale of Exchange Notes by broker-dealers.
Exchange Notes received by broker-dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, or at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through broker-dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any person that participates in the
distribution of such Exchange Notes may be deemed an "underwriter" within the
meaning of the Securities Act, and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such broker-dealers may
be deemed to be underwriting compensation under the Securities Act.
By tendering Outstanding Notes and executing the Letter of Transmittal, a
party tendering Outstanding Notes for Exchange certifies that (i) it is not an
affiliate of the Company or Consumers U.S. or, if such tendering party is an
affiliate of the Company or Consumers U.S., it will comply with the registration
and prospectus requirements of the Securities Act to the extent applicable, (ii)
the Exchange Notes are being acquired in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is the Holder
thereof, (iii) such tendering party has not entered into any arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of Exchange Notes, (iv) such tendering party is
not a broker-dealer who purchased the Outstanding Notes for resale pursuant to
an exemption under the Securities Act and (v) such tendering party will be able
to trade the Exchange Notes acquired in the Exchange Offer without restriction
under the Securities Act. The Letter of
110
<PAGE> 116
Transmittal also states that by acknowledging that it will deliver a prospectus,
and by delivering such a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
In addition, in connection with any resales of Exchange Notes, any
broker-dealer (a "Participating Broker-Dealer") who acquired the Outstanding
Notes for its own account as a result of market-making activities or other
trading activities must deliver a prospectus meeting the requirements of the
Securities Act. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sale of the Outstanding Notes) with this Prospectus. For a period of
180 days after the Exchange Date, the Company and will make this Prospectus, as
it may be amended or supplemented from time to time, available to any
Participating Broker-Dealer for use in connection with any such resale of
Exchange Notes, provided that such Participating Broker-Dealer indicates in the
Letter of Transmittal that it is a broker-dealer. In addition, until
, 1998, (90 days after the date of this Prospectus), all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for Outstanding Notes pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company or the Parent Guarantor of the happening
of any event which makes any statement in this Prospectus untrue in any material
respect or which requires the making of any changes in this Prospectus in order
to make the statement therein not misleading (which notice the Company and the
Parent Guarantor agree to deliver promptly to such broker-dealer), such
broker-dealer will suspend the use of this Prospectus until the Company and the
Parent Guarantor have amended or supplemented this Prospectus to correct such
misstatement or omission and have furnished copies of the amended or
supplemented Prospectus to such broker-dealer. If the Company or the Parent
Guarantor gives any such notice to suspend the use of the Prospectus, it will
extend the 180-day period referred to above by the number of days during the
period from and including the date of the giving of such notice up to and
including when broker-dealers shall have received copies of the supplemented or
amended Prospectus necessary to permit resales of Exchange Notes.
The Company has agreed to pay all expenses incident to the Exchange Offer
(other than commissions or concessions of any broker-dealers) and will indemnify
the Holders of the Outstanding Notes (including participating broker-dealers)
participating in the Exchange Offer against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
Eckert Seamans Cherin & Mellott, LLC, Pittsburgh, Pennsylvania. Jones, Day,
Reavis & Pogue, New York, New York is acting as special counsel to the Company
in connection with certain legal matters relating to the Exchange Offer and will
give an opinion on certain New York law matters, including the binding effect of
the Exchange Notes. C. Kent May, a member of Eckert Seamans Cherin & Mellott,
LLC, is an executive officer and a director of the Company.
INDEPENDENT ACCOUNTANTS
Old Anchor's consolidated balance sheets as of December 31, 1995 and 1996
and its consolidated statements of operations, cash flows and stockholder's
equity (deficiency in assets) for each of the three years in the period ended
December 31, 1996 included in this Prospectus have been previously audited by
Deloitte & Touche LLP ("Deloitte"), independent accountants to Old Anchor (whose
report disclaimed an opinion on the 1996 consolidated financial statements of
Old Anchor and included explanatory paragraphs referring to the bankruptcy
proceedings of the Company and to the remaining deficiency in assets after the
sale of substantially all of the assets and business of the Company and the
substantial doubt that it raises relative to the ability of the Company to
continue as a going concern). Pursuant to the Asset Purchase Agreement, the
purchase price for the Anchor Acquisition is subject to adjustment based on an
audited balance sheet (the "Closing Balance Sheet"). As discussed under "The
Anchor Acquisition and the Note Offering," the parties are in settlement
negotiations regarding the appropriate adjustment. As Deloitte audited the
Closing Balance Sheet (without providing an audit opinion) and continues to be
the independent accountants to Old Anchor,
111
<PAGE> 117
Old Anchor informed the Company that it was inappropriate for Deloitte to
provide its consent to the use of its audit report in this Prospectus.
Accordingly, Arthur Andersen LLP audited the financial statements of Old Anchor
for these periods.
EXPERTS
The Summarization Letters of AAA, contained in Annex A hereto and the
descriptions thereof under the heading "Risk Factors -- Security for the Notes"
with respect to AAA's appraisal of the estimated value of the existing assets of
the Company constituting the Collateral have been included in this Prospectus in
reliance upon the authority of AAA as experts in such matters.
Old Anchor's consolidated balance sheets as of December 31, 1995 and 1996
and its consolidated statements of operations, cash flows and stockholder's
equity (deficiency in assets) for each of the three years in the period ended
December 31, 1996 included in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as stated in their report included
herein (which report includes an explanatory paragraph referring to the
bankruptcy proceedings of Old Anchor and to the remaining deficiency in assets
after the sale of substantially all of the assets and business of Old Anchor and
the substantial doubt that it raises relative to the ability of Old Anchor to
continue as a going concern).
The Company's balance sheet as of June 30, 1997 and its statements of
operations, cash flows and stockholders' equity for the period from February 5,
1997 to June 30, 1997 and the Parent Guarantor's consolidated balance sheet as
of June 30, 1997 and its statements of operations, cash flows and stockholder's
equity for the period from February 5, 1997 to June 30, 1997 included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
112
<PAGE> 118
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
AUDITED FINANCIAL STATEMENTS OF ANCHOR
Report of Independent Public Accountants...................................... F-2
Balance Sheet at June 30, 1997................................................ F-3
Statement of Operations Period from February 5, 1997 to June 30, 1997......... F-4
Statement of Stockholders' Equity Period from February 5, 1997 to June 30,
1997......................................................................... F-5
Statement of Cash Flows Period from February 5, 1997 to June 30, 1997......... F-6
Notes to Financial Statements................................................. F-7
UNAUDITED CONDENSED FINANCIAL STATEMENTS OF ANCHOR
Condensed Balance Sheet September 30, 1997.................................... F-19
Condensed Statement of Operations Period from February 5, 1997 to September
30, 1997..................................................................... F-20
Condensed Statement of Stockholders' Equity Period from February 5, 1997 to
September 30, 1997........................................................... F-21
Condensed Statement of Cash Flows Period from February 5, 1997 to September
30, 1997..................................................................... F-22
Notes to Condensed Financial Statements....................................... F-23
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CONSUMERS U.S.
Report of Independent Public Accountants...................................... F-31
Consolidated Balance Sheet at June 30, 1997................................... F-32
Consolidated Statement of Operations Period from February 5, 1997 to June 30,
1997......................................................................... F-33
Consolidated Statement of Stockholder's Equity Period from February 5, 1997 to
June 30, 1997................................................................ F-34
Consolidated Statement of Cash Flows Period from February 5, 1997 to June 30,
1997......................................................................... F-35
Notes to Consolidated Financial Statements.................................... F-36
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CONSUMERS U.S.
Condensed Consolidated Balance Sheet September 30, 1997....................... F-48
Condensed Consolidated Statement of Operations Period from February 5, 1997 to
September 30, 1997........................................................... F-49
Condensed Consolidated Statement of Stockholder's Equity Period from February
5, 1997 to September 30, 1997................................................ F-50
Condensed Consolidated Statement of Cash Flows Period from February 5, 1997 to
September 30, 1997........................................................... F-51
Notes to Condensed Consolidated Financial Statements.......................... F-52
</TABLE>
F-1
<PAGE> 119
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Anchor Glass Container Corporation:
We have audited the accompanying balance sheet of Anchor Glass Container
Corporation (a Delaware corporation) as of June 30, 1997, and the related
statements of operations, stockholders' equity and cash flows for the period
from February 5, 1997 through June 30, 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 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 Anchor Glass Container
Corporation as of June 30, 1997, and the results of its operations and its cash
flows for the period from February 5, 1997 through June 30, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
October 31, 1997 (except with respect to the purchase price adjustment
matter discussed in Note 1, as to which the date is January 5, 1998)
F-2
<PAGE> 120
ANCHOR GLASS CONTAINER CORPORATION
BALANCE SHEET
JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 6,106
Accounts receivable, less allowance for doubtful accounts of $1,706............... 62,262
Inventories --
Raw materials and manufacturing supplies........................................ 24,616
Semi-finished and finished products............................................. 92,582
Other current assets.............................................................. 8,724
--------
Total current assets.................................................... 194,290
Property, plant and equipment:
Land............................................................................ 7,769
Buildings....................................................................... 74,075
Machinery, equipment and molds.................................................. 252,447
Less accumulated depreciation, net.............................................. (20,494)
--------
313,797
Other assets...................................................................... 24,163
Strategic alliance with customer.................................................. 22,650
Goodwill, net of accumulated amortization of $1,000............................... 45,557
--------
$600,457
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility......................................................... $ 963
Current maturities of long-term debt.............................................. 352
Accounts payable.................................................................. 33,504
Accrued expenses.................................................................. 55,219
Accrued interest.................................................................. 3,448
Accrued compensation and employee benefits........................................ 36,403
--------
Total current liabilities............................................... 129,889
Long-term debt.................................................................... 151,897
Long-term pension liabilities..................................................... 49,365
Long-term postretirement liabilities.............................................. 58,386
Other long-term liabilities....................................................... 67,382
--------
327,030
Commitments and contingencies (Note 13)
Redeemable preferred stock, Series A, $.01 par value; 2,239,320 shares authorized,
issued and outstanding; $25 liquidation and redemption value.................... 55,983
--------
Stockholders' equity:
Preferred stock, Series B, $.01 par value; authorized 5,000,000 shares; issued and
outstanding 3,360,000 shares, $25 liquidation and redemption value.............. 34
Issuable preferred stock, at $25 per share...................................... 2,688
Common stock, $.10 par value; authorized 50,000,000 shares;
Class A, issued and outstanding 490,898 shares.................................. 49
Class B, issued and outstanding 902,615 shares.................................. 90
Class C, none issued and outstanding............................................ --
Warrants, Class C Common stock, issued and outstanding 2,107,843 shares........... 10,518
Capital in excess of par value.................................................... 92,294
Accumulated deficit............................................................... (18,118)
--------
87,555
--------
$600,457
========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 121
ANCHOR GLASS CONTAINER CORPORATION
STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 5, 1997 TO JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<S> <C>
Net sales......................................................................... $ 261,141
Costs and expenses:
Costs of products sold.......................................................... 244,285
Selling and administrative expenses............................................. 11,176
---------
Income from operations............................................................ 5,680
Other income, net................................................................. 211
Interest expense.................................................................. (7,882)
---------
Loss before extraordinary item.................................................... (1,991)
Extraordinary item --
Write-off of deferred financing costs, net of nil tax........................... (11,200)
---------
Net loss.......................................................................... $ (13,191)
Preferred stock dividends......................................................... (4,927)
---------
Loss applicable to common stock................................................... $ (18,118)
=========
Loss per share applicable to common stock before extraordinary item............... $ (6.64)
=========
Net loss per share applicable to common stock..................................... $ (17.38)
=========
Weighted average number of common shares outstanding.............................. 1,042,206
=========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 122
ANCHOR GLASS CONTAINER CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 5, 1997 TO JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS CLASS
SERIES B A B ISSUABLE CAPITAL ACCUMU- TOTAL
PREFERRED COMMON COMMON PREFERRED IN-EXCESS LATED STOCKHOLDERS'
STOCK STOCK STOCK STOCK WARRANTS OF PAR DEFICIT EQUITY
--------- ------ ------ --------- -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 5, 1997..... $-- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of 3,360,000 shares
of Series B Preferred
Stock to Consumers
U.S. .................... 34 -- -- -- -- 83,966 -- 84,000
Issuance of 200,000 shares
of Class B Common Stock
to Consumers U.S. ....... -- -- 20 -- -- 2,480 -- 2,500
Issuance of 490,898 shares
of Class A Common Stock
to creditors of Old
Anchor................... -- 49 -- -- -- 2,405 -- 2,454
Issuance of 1,405,229
warrants to purchase
Class C Common Stock in
conjunction with the
financing of the Anchor
Loan Facility............ -- -- -- -- 7,012 -- -- 7,012
Issuance of 702,615 shares
of Class B Common Stock
to Consumers U.S. in
conjunction with the
financing of the Notes... -- -- 70 -- -- 3,443 -- 3,513
Issuance of 702,614 warrants
to purchase Class C
Common Stock in
conjunction with the
financing of the Notes... -- -- -- -- 3,506 -- -- 3,506
Pay-in-kind dividends
payable to Consumers U.S.
on Series B Preferred
Stock.................... -- -- -- 2,688 -- -- (2,688) --
Dividends accrued on Series
A Preferred Stock........ -- -- -- -- -- -- (2,239) (2,239)
Net loss.................... -- -- -- -- -- -- (13,191) (13,191)
--- --- --- ------ ------- ------- -------- --------
Balance, June 30, 1997........ $34 $ 49 $ 90 $ 2,688 $ 10,518 $92,294 $(18,118) $ 87,555
=== === === ====== ======= ======= ======== ========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 123
ANCHOR GLASS CONTAINER CORPORATION
STATEMENT OF CASH FLOWS
PERIOD FROM FEBRUARY 5, 1997 TO JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Loss before extraordinary item........................................................... $ (1,991)
Adjustments to reconcile loss before extraordinary item to net cash provided by operating
activities:
Depreciation and amortization.......................................................... 21,578
Other amortization..................................................................... 1,598
Other.................................................................................. 140
Decrease in cash resulting from changes in assets and liabilities........................ (17,344)
---------
3,981
Cash flows from investing activities:
Purchase of assets and assumption of liabilities of Old Anchor........................... (200,470)
Expenditures for property, plant and equipment........................................... (12,251)
Acquisition related contribution to defined benefit pension plans........................ (9,056)
Other.................................................................................... (871)
---------
(222,648)
Cash flows from financing activities:
Proceeds from issuance of long-term debt................................................. 280,000
Principal payments of long-term debt..................................................... (130,137)
Proceeds from issuance of preferred stock................................................ 84,000
Proceeds from issuance of common stock................................................... 1,000
Net draws on Revolving Credit Facility................................................... 963
Other, primarily financing fees.......................................................... (11,053)
---------
224,773
Cash and cash equivalents:
Increase in cash and cash equivalents.................................................... 6,106
Balance, beginning of period............................................................. --
---------
Balance, end of period................................................................... $ 6,106
=========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................................................. $ 3,546
=========
Income tax payments (refunds), net....................................................... $ --
=========
Increase (decrease) in cash resulting from changes in assets and liabilities:
Accounts receivable...................................................................... $ (13,477)
Inventories.............................................................................. 5,507
Other current assets..................................................................... 678
Accounts payable, accrued expenses and other current liabilities......................... (9,423)
Other, net............................................................................... (629)
---------
$ (17,344)
=========
</TABLE>
Supplemental noncash investing and financing activities:
In connection with the Anchor Acquisition, the Company issued $46,983 face
amount of Series A Preferred Stock and $2,454 of Class A Common Stock and
incurred $1,500 of fees. In connection with the Anchor Loan Facility, the
Company issued 1,405,229 warrants to the lenders valued at $7,012.
<TABLE>
<S> <C>
Anchor Acquisition:
Fair value of assets acquired............................................................ $ 525,000
Acquisition costs accrued................................................................ (50,000)
Goodwill................................................................................. 47,000
Purchase price........................................................................... (250,000)
---------
Liabilities assumed...................................................................... $ 272,000
==========
</TABLE>
In February 1997, the Company contributed $9,000 face amount of Series A
Preferred Stock to the Company's defined benefit pensions plans.
In connection with the issuance of the Notes, the Company issued 702,615
shares of Class B Common Stock to Consumers U.S. and 702,614 warrants valued at
$3,506 to the initial purchasers of the Notes. Also, with the issuance of the
Notes, the Company recorded an extraordinary loss for the write-off of deferred
financing fees of the Anchor Loan Facility.
The Company considers short-term investments with original maturities of
ninety days or less at the date of purchase to be classified as cash
equivalents.
See Notes to Financial Statements.
F-6
<PAGE> 124
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- PURCHASE OF ASSETS
Anchor Glass Acquisition Corporation (the "Company"), a Delaware
corporation and a majority-owned subsidiary of Consumers Packaging Inc.
("Consumers"), was formed in January 1997 to acquire certain assets and assume
certain liabilities of Anchor Glass Container Corporation ("Old Anchor"), now
Anchor Resolution Corp.
On February 5, 1997, pursuant to an Asset Purchase Agreement dated December
18, 1996, as amended (the "Asset Purchase Agreement"), among Consumers,
Owens-Brockway Glass Container Inc. ("Owens") and Old Anchor, the Company (the
rights and obligations of Consumers having been assigned to the Company) and
Owens acquired substantially all of the assets of, and assumed certain
liabilities, of Old Anchor.
The Company purchased eleven operating glass container manufacturing
facilities and other related assets (the "Anchor Acquisition"). Owens purchased
assets and assumed liabilities of Old Anchor's Antioch and Hayward, California
facilities and purchased certain other existing inventories. Owens also
purchased Old Anchor's investment in Rocky Mountain Bottle Company, a joint
venture with Coors Brewing Company ("Coors"), and assumed Old Anchor's agreement
to manufacture Coors' glass packaging products in the United States.
The total purchase price approximated $378,000, excluding fees of
approximately $1,500 which were paid by Consumers and recorded as capital in
excess of par by Anchor. The portion of the purchase price paid in cash by Owens
amounted to approximately $128,000. The remaining purchase price of
approximately $250,000 from the Company was comprised of approximately $200,500
in cash, $47,000 face amount (1,879,320 shares) of mandatorily redeemable 10%
cumulative convertible preferred stock ("Series A Preferred Stock") and $2,500
of common stock (490,898 shares with an estimated value of $5.00 per share) (the
"Class A Common Stock") of the Company.
The purchase price paid by the Company is subject to adjustment. On June
13, 1997, Old Anchor delivered to the Company the closing balance sheet which
indicated that Old Anchor believed that it was entitled to additional payments
from the Company and Owens totaling approximately $76,300. On July 28, 1997, the
Company delivered its notice of disagreement to Old Anchor, which requested a
reduction of the purchase price of approximately $96,800. Since that time, the
parties have been negotiating the amount of the adjustment, and in January 1998,
have reached a proposed settlement (the "Proposed Settlement"). The Proposed
Settlement requires the payment by the Company to Old Anchor of an additional
$1,000 in cash and the issuance of warrants for the purchase of additional
shares of common stock. In addition, the Company will issue warrants to purchase
additional shares of common stock to Consumers U.S. or an affiliate. The
Proposed Settlement is subject to final approval by the Company, Old Anchor and
the bankruptcy court.
The Company obtained the cash portion of the purchase price principally
from an $85,000 cash investment by Consumers consisting of $84,000 face amount
(3,360,000 shares) of redeemable 8% cumulative convertible preferred stock (the
"Series B Preferred Stock") and $1,000 of common stock (200,000 shares) (the
"Class B Common Stock") and a $130,000 bank loan.
Upon consummation of the purchase and effective February 6, 1997, the
Company changed its name to Anchor Glass Container Corporation.
The Anchor Acquisition is accounted for by using the purchase method, with
the purchase price being allocated to the assets acquired and preacquisition
liabilities assumed based on their estimated fair value at the date of
acquisition. These allocations are based on preliminary appraisals, evaluations,
estimations and other studies. Certain acquisition costs and fees, including the
costs of closing and consolidating certain facilities have also been recorded by
the Company at the date of acquisition. As of June 30, 1997, the Company has not
F-7
<PAGE> 125
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
yet finalized these allocations and certain contingent liabilities have not yet
been resolved, as well as the final purchase price. The excess of the purchase
price over the fair value of net assets purchased of approximately $47,000 is
classified as Goodwill on the accompanying balance sheet. In the fourth quarter
of 1997, the Company has completed its appraisals, evaluations and other studies
to finalize its allocation of purchase price to assets acquired and
preacquisition liabilities assumed based upon their fair value at the date of
acquisition. In the aggregate, the Company expects to increase goodwill by up to
approximately $16,000. This increase results from, among others, adjustments to
opening accruals and valuation reserves, additional accruals for previously
idled facilities and the final settlement of the Anchor Acquisition purchase
price.
The estimated values of assets acquired and liabilities assumed as of
February 5, 1997 after giving effect to the Anchor Acquisition and consideration
paid is as follows:
<TABLE>
<S> <C>
Accounts receivable.............................................. $ 48,000
Inventories...................................................... 123,000
Property, plant and equipment.................................... 322,000
Goodwill......................................................... 47,000
Other assets..................................................... 32,000
Current liabilities.............................................. (139,000)
Long-term debt................................................... (2,000)
Other long-term liabilities...................................... (181,000)
---------
$ 250,000
=========
</TABLE>
The following unaudited pro forma results of operations for the Company for
the six months ended June 30, 1997 assumes the Anchor Acquisition occurred on
January 1, 1997 (dollars in thousands except per share data):
<TABLE>
<S> <C>
Net sales......................................................... $315,218
Loss before extraordinary item.................................... (15,701)
Net loss.......................................................... (26,901)
Loss before extraordinary item applicable to common stock......... (21,809)
Loss applicable to common stock................................... (33,009)
Loss per share before extraordinary item applicable to common
stock........................................................... (15.65)
Loss per share applicable to common stock......................... (23.69)
</TABLE>
These pro forma amounts represent historical operating results with
appropriate adjustments of the Anchor Acquisition which give effect to interest
expense and the impact of purchase price adjustments to depreciation and
amortization expense. These pro forma amounts do not purport to be indicative of
the results that would have actually been obtained had the Anchor Acquisition
been completed as of January 1, 1997, or that may be obtained in the future.
On January 9, 1997, the Pension Benefit Guaranty Corporation ("PBGC")
notified Old Anchor that it intended to institute involuntary termination
proceedings with respect to the three defined benefit pension plans then
maintained by Old Anchor, and currently maintained by the Company. However, the
PBGC reached an agreement with Vitro, S.A., the parent of Old Anchor, in which
Vitro, S.A. agreed to provide a limited guaranty to the PBGC with respect to the
unfunded benefit liabilities of the Company's defined benefit plans, if the
plans, or any one of them, are terminated before August 1, 2006. Consequently,
the PBGC agreed not to terminate the plans as a result of the Asset Purchase
Agreement and the assumption of the plans by the Company. In conjunction with
the purchase, the Company assumed all liabilities of the plans and funded $9,056
of plan contributions, previously unfunded following Old Anchor's filing of
Chapter 11. Additionally, the Company issued to the plans $9,000 face amount
(360,000 shares) of Series A Preferred Stock.
F-8
<PAGE> 126
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2 -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business Segment
The Company is engaged in the manufacture and sale of a diverse line of
clear, amber, green and other color glass containers of various types, designs
and sizes to customers principally in the beer, food, iced tea, distilled
spirits and soft drink industries. The Company markets its products throughout
the United States. The Company's international and export sales are
insignificant. Sales to The Stroh Brewery Company represented approximately
12.5% of total net sales for the period ended June 30, 1997. Revenues are
recognized as legal title of product passes to the customer, usually as product
is shipped.
Inventories
Inventories are stated at the lower of cost or market. The cost of
substantially all inventories of raw materials and semi-finished and finished
products is determined on the first-in, first-out method. Manufacturing supplies
and certain other inventories are valued at weighted average costs.
Property, Plant and Equipment
Property, plant and equipment expenditures, including renewals, betterments
and furnace rebuilds which extend useful lives, and expenditures for glass
forming machine molds are capitalized and depreciated using the straight-line
method over the estimated useful lives of the assets for financial statement
purposes while accelerated depreciation methods are principally used for tax
purposes. Generally, annual depreciation rates range from 2.5% for buildings,
6.3% to 20% for machinery and equipment and 40% for molds. Furnace and machine
rebuilds, which are recurring in nature and which extend the lives of the
related assets, are capitalized and depreciated over the period of extension,
generally at rates of 20% to 25%, based on the type and extent of these
rebuilds. Depreciation of leased property recorded as capital assets is computed
on a straight-line basis over the estimated useful lives of the assets.
Maintenance and repairs are charged directly to expense as incurred.
Strategic Alliance with Customer
In conjunction with the Anchor Acquisition, the Company assumed a fifteen
year supply agreement with a significant customer. In respect of the supply
agreement, payments made or to be made to this customer in 1996, 1997 and 1998
totaling $23,000 are being amortized over the term of the contract based upon
shipments.
Goodwill
Goodwill represents the excess of the purchase price over the estimated
fair value of net assets acquired and is amortized on a straight-line basis over
a twenty year period. Amortization expense for the period ended June 30, 1997
was approximately $1,000. The Company has not yet finalized the allocations of
net assets and certain contingent liabilities have not yet been resolved, as
well as the final purchase price.
Income Taxes
The Company applied Statement of Financial Accounting Standards No.
109 -- Accounting for Income Taxes ("SFAS 109") which establishes financial
accounting and reporting standards for the effects of income taxes which result
from a company's activities during the current and preceding years.
F-9
<PAGE> 127
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Retirement Plans
The Company has retirement plans, principally non-contributory, covering
substantially all salaried and hourly employees. The Company's funding policy is
to pay at least the minimum amount required by the Employee Retirement Income
Security Act of 1974 and the Retirement Protection Act of 1994, which requires
the Company to make significant additional contributions into its underfunded
defined benefit plans.
Postretirement Benefits
Statement of Financial Accounting Standards No. 106 -- Employers'
Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106") requires
accrual of postretirement benefits (such as healthcare benefits) during the
period that an employee provides service. This accounting method has no effect
on the Company's cash outlays for these postretirement benefits.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 -- Disclosures about
Fair Value of Financial Instruments requires disclosure of the estimated fair
values of certain financial instruments. The estimated fair value amounts have
been determined using available market information or other appropriate
valuation methodologies that require considerable judgment in interpreting
market data and developing estimates. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts. As the long-term debt has not been registered or traded in an
established trading market, and the debt was issued during the current period,
the Company has estimated the fair value of the debt to be the carrying value.
The carrying amount of other financial instruments approximate their estimated
fair values.
The fair value information presented herein is based on information
available to management as of June 30, 1997. Although management is not aware of
any factors that would significantly affect the estimated value amounts, such
amounts have not been comprehensively revalued for purposes of these financial
statements since that date and, therefore, the current estimates of fair value
may differ significantly from the amounts presented herein.
Earnings Per Share
Earnings per share is calculated based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents are not included in any period that has a loss
applicable to common stock as they would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 -- Earnings Per Share ("SFAS 128").
SFAS 128 differs from current accounting guidance in that earnings per share is
classified as basic earnings per and dilutive earnings per share, compared to
primary earnings per share and fully diluted earnings per share under the
current standards. Basic earnings per share differs from primary earnings per
share in that it includes only the weighted average common shares outstanding
and does not include any dilutive securities in the calculation. Diluted
earnings per share under the new standard differs in certain calculations
compared to fully diluted earnings per share under the existing standards.
Adoption of SFAS 128 is required for interim and annual periods ending after
December 15, 1997. Had the Company applied the provisions of SFAS 128 in the
period from February 5, 1997 to June 30, 1997 to the earnings per share
calculations, there would have been no impact compared to that which is
reported.
F-10
<PAGE> 128
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimated.
NOTE 3 -- REVOLVING CREDIT FACILITY
In conjunction with the Anchor Acquisition, the Company entered into a
credit agreement dated as of February 5, 1997, with Bankers Trust Company
("BTCo") as issuing bank and BT Commercial Corporation, as agent, to provide a
$110,000 senior secured revolving credit facility (the "Revolving Credit
Facility"). The Revolving Credit Facility enables the Company to obtain
revolving credit loans for working capital purposes and the issuance of letters
of credit for its account in an aggregate amount not to exceed $110,000.
Advances outstanding at any one time cannot exceed an amount equal to the
borrowing base as defined in the Revolving Credit Facility.
Revolving credit loans bear interest at a rate based upon, at the Company's
option, (i) the higher of the prime rate of BTCo, 0.5% in excess of the
overnight federal funds rate and 0.5% in excess of the adjusted certificate of
deposit rate, as defined, each plus a defined margin, or (ii) the average of the
offering rates of banks in the New York interbank Eurodollar market, plus a
defined margin. Interest is payable monthly. A commitment fee of 0.5% on the
unused portion of the facility and letter of credit fees, as defined, is payable
quarterly. The Revolving Credit Facility expires February 5, 2002.
At June 30, 1997, advances outstanding under the Revolving Credit Facility
were $963 and the borrowing availability was $72,106. The total outstanding
letters of credit on this facility were $12,788. At June 30, 1997, the weighted
average interest rate on borrowings outstanding was 9.0%.
The Company's obligations under the Revolving Credit Facility are secured
by a first priority lien on substantially all of the Company's inventories and
accounts receivable and related collateral and a second priority pledge of all
of the Series B Preferred Stock and the Class B Common Stock. In addition, the
Company's obligations under the Revolving Credit Facility are guaranteed by
Consumers U.S., Inc., ("Consumers U.S.") the Company's parent and a wholly-owned
indirect subsidiary of Consumers and the holder of the outstanding Series B
Preferred Stock and Class B Common Stock.
The Revolving Credit Facility contains certain covenants that restrict the
Company from taking various actions, including, subject to specified exceptions,
the incurrence of additional indebtedness, the granting of additional liens, the
making of investments, the payment of dividends and other restricted payments,
mergers, acquisitions and other fundamental corporate changes, capital
expenditures, operating lease payments and transactions with affiliates. The
Revolving Credit Facility also contains certain financial covenants that require
the Company to meet and maintain certain financial tests and minimum ratios,
including a minimum working capital ratio, a minimum consolidated net worth test
and a minimum interest coverage ratio, all of which have been met at June 30,
1997.
F-11
<PAGE> 129
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4 -- LONG-TERM DEBT
Long-term debt at June 30, 1997 consists of the following:
<TABLE>
<S> <C>
$150,000 First Mortgage Notes, interest at 11.25% due 2005........ $150,000
Other............................................................. 2,249
--------
152,249
Less current maturities........................................... 352
--------
$151,897
========
</TABLE>
In connection with the Anchor Acquisition, the Company entered into a
Senior Credit Agreement, dated as of February 5, 1997, with BTCo., as agent, to
provide a $130,000 bank loan (the "Anchor Loan Facility"). The Anchor Loan
Facility was repaid in full from the net proceeds of the issuance of the
$150,000 11.25% First Mortgage Notes, due 2005, (the "Notes"). The Anchor Loan
Facility bore interest at a rate of 12.50%.
As additional consideration in providing the Anchor Loan Facility, the
Company issued to BT Securities Corporation and TD Securities, 1,405,229
warrants convertible to Class C Common Stock. The warrants are valued at
approximately $7,000. As a result of the refinancing of the Anchor Loan
Facility, deferred financing fees of $11,200 were written off as an
extraordinary loss in the second quarter of 1997.
Effective April 17, 1997, the Company completed an offering of the Notes,
issued under an indenture dated as of April 17, 1997 (the "Indenture"), among
the Company, Consumers U.S. and The Bank of New York, as Trustee. The Notes are
senior secured obligations of the Company, ranking senior in right of payment to
all existing and future subordinate indebtedness of the Company and pari passu
with all existing and future senior indebtedness of the Company. The Notes are
guaranteed by Consumers U.S. Proceeds from the issuance of the Notes, net of
fees, were approximately $144,000 and were used to repay $130,000 outstanding
under the Anchor Loan Facility and $8,800 of advances outstanding under the
Revolving Credit Facility, with the balance used for general corporate purposes.
Interest on the Notes accrues at 11.25% per annum and is payable
semiannually on each April 1 and October 1 to registered holders of the Notes at
the close of business on the March 15 and September 15 immediately preceding the
applicable interest payment date. The Notes are not redeemable prior to April 1,
2001; however, the Notes are redeemable at the Company's option in whole at any
time or in part from time to time at redemption prices defined in the Indenture.
The Indenture provides that upon the occurrence of a change in control, the
Company will be required to offer to repurchase all of the Notes at a purchase
price in cash equal to 101% of the principal amount plus interest accrued to the
date of purchase. Prior to the sale of the Notes, the Company entered into an
interest rate swap agreement to partially protect the Company from interest rate
fluctuations until such time as the fixed interest rate on the Notes was
established. The agreement was terminated concurrent with the interest rate of
the Notes being set. The realized gain on the agreement has been deferred and is
being amortized over the term of the Notes.
All of the obligations of the Company under the Notes and the Indenture are
secured by a first priority perfected security interest in substantially all of
the existing and future real property, personal property and other assets of the
Company and a first priority perfected security interest in collateral ranking
pari passu with the security interest in favor of the Revolving Credit Facility.
The Indenture, subject to certain exceptions, restricts the Company from
taking various actions, including, but not limited to, subject to specified
exceptions, the incurrence of additional indebtedness, the granting of
additional liens, the payment of dividends and other restricted payments,
mergers, acquisitions and transactions with affiliates.
F-12
<PAGE> 130
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
All of the Company's debt agreements contain cross-default provisions.
Principal payments required on long-term debt are $138 in the remainder of
1997, $286 in 1998, $291 in 1999, $297 in 2000 and $303 in 2001. Payments to be
made in 2002 and thereafter are $150,934.
In connection with the issuance of the Notes on April 17, 1997, the Company
issued 702,615 shares of Class B Common Stock to Consumers U.S. and 702,614
warrants, valued at $5.00 per share, to the initial purchasers.
NOTE 5 -- REDEEMABLE PREFERRED STOCK
The Company has designated 2,239,320 shares as Series A Preferred Stock and
5,000,000 shares as Series B Preferred Stock. The Series A Preferred Stock
ranks, as to dividends and redemption and upon liquidation, prior to all other
classes and series of capital stock of the Company. The holders of Series A
Preferred Stock are entitled to receive, when and as declared by the Board of
Directors of the Company, cumulative dividends, payable quarterly in cash, at an
annual rate of 10%. Holders of Series A Preferred Stock are not entitled to
vote, except as defined in its Certificate of Designation. No dividends have
been declared or paid as of June 30, 1997.
The Company is required to redeem all outstanding shares of the Series A
Preferred Stock on February 5, 2009, and, on or after February 5, 2000, may, at
its option, redeem outstanding shares of Series A Preferred Stock at a price of
$25.00 per share, if the trading price of the common stock equals or exceeds
$6.00 per share. Shares of Series A Preferred Stock are convertible into shares
of Class A Common Stock, at the option of the holder, at a ratio determined by
dividing the liquidation value of the Series A Preferred Stock by $6.00 and such
ratio is subject to adjustment from time to time.
Pursuant to the Asset Purchase Agreement, the Company is obligated to
register all of the shares of the Class A Common Stock and Series A Preferred
Stock under the Securities Exchange Act and to qualify the shares for listing on
a nationally recognized United States securities exchange or on The Nasdaq Stock
Market's National Market.
The Series B Preferred Stock ranks, as to dividends and redemption and upon
liquidation, junior to the Series A Preferred Stock but senior to all other
classes and series of capital stock of the Company. The holders of Series B
Preferred Stock are entitled to receive cumulative dividends, payable quarterly
at an annual rate of 8%. During the period from February 5, 1997 through and
including December 31, 1999, the dividend is payable in additional shares of
Series B Preferred Stock. Thereafter, the dividends will be payable in cash when
and as declared by the Board of Directors. Holders of Series B Preferred Stock
are not entitled to vote, except as defined in its Certificate of Designation.
Shares of Series B Preferred Stock are not subject to mandatory redemption.
On or after February 5, 2000, the Company may, at its option, redeem outstanding
shares of Series B Preferred Stock at a price of $25.00 per share, if the
trading price of the common stock equals or exceeds $5.50 per share. Shares of
Series B Preferred Stock are convertible into shares of Class B Common Stock, at
the option of the holder, at a ratio determined by dividing the liquidation
value of the Series A Preferred Stock by $5.50 and such ratio is subject to
adjustment from time to time.
NOTE 6 -- COMMON STOCK
For the period from February 5, 1997 to February 5, 2000, the common stock
is divided into three classes, Class A and Class B, which are voting, and Class
C, which is non-voting. During this period, the number of Directors of the
Company is fixed at nine, with the holders of the Class A shares having the
right to elect four Directors and the holders of the Class B shares having the
right to elect five Directors. In connection with the
F-13
<PAGE> 131
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
settlement of the issues surrounding the adjustment to the purchase price paid
by the Company, it is expected that the certificate of incorporation of the
Company will be amended to increase the number of directors to be elected by the
holders of Class B common stock. Holders of the Class C Shares do not
participate in the election of Directors. On February 5, 2000, the three classes
of common stock will automatically be consolidated into one single class of
common stock with identical rights. The Company currently has outstanding
warrants exercisable for 2,107,843 shares of Class C Common Stock at an exercise
price of $.10 per share, which has already been deemed paid.
NOTE 7 -- RELATED PARTY INFORMATION
G&G Investments, Inc.
The Company is party to a management agreement with G&G Investments, Inc.
("G&G"), (the majority owner of Consumers), in which G&G is to provide specified
managerial services for the Company. For these services, G&G is entitled to
receive an annual management fee of $3,000 and reimbursement of its
out-of-pocket costs. The terms of the Revolving Credit Facility and the
Indenture limit the management fee annual payment to $1,500 unless certain
financial maintenance tests are met. The Company has recorded an expense of
$1,233 for this agreement for the period ended June 30, 1997 and no payments
have been made.
Other affiliates
Related party transactions with Consumers and its affiliates for the period
from February 5, 1997 to June 30, 1997 are summarized as follows:
<TABLE>
<S> <C>
Purchases of inventory.............................................. $1,035
Payable for inventory............................................... 23
Sales of inventory and other........................................ 5,098
Receivable from sales of inventory and other........................ 3,814
</TABLE>
All transactions with Consumers and its affiliates are conducted on terms
which, in the opinion of management, are no less favorable than with third
parties.
NOTE 8 -- PENSION PLANS
As part of the Anchor Acquisition, the Company assumed the pension plans
previously maintained by Old Anchor. The Company has defined benefit retirement
plans for salaried and hourly-paid employees. Benefits are calculated on a
salary-based formula for salaried plans and on a service-based formula hourly
plans. Pension costs for the period from February 5, 1997 to June 30, 1997 are
summarized below:
<TABLE>
<S> <C>
Service cost-benefits earned during the year...................... $ 1,790
Interest cost on projected benefit obligation..................... 12,830
Return on plan assets............................................. (13,220)
--------
Total pension cost........................................... $ 1,400
========
</TABLE>
The Company has substantial unfunded obligations related to its employee
pension plans. The Retirement Protection Act of 1994 requires the Company to
make significant additional funding contributions into its underfunded defined
benefit retirement plans and will increase the premiums paid to the PBGC.
As an objection to the sale, the PBGC entered a determination to terminate
Old Anchor's qualified defined benefit pension plans. However, in conjunction
with the sale, the Company assumed all liabilities of the plans and funded
$9,056 of plan contributions, previously unfunded following Old Anchor's filing
of
F-14
<PAGE> 132
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Chapter 11. Additionally, the Company issued $9,000 face amount of Series A
Preferred Stock and Vitro, the parent of Old Anchor, has guaranteed to fund
certain qualified defined benefit plan obligations, should the Company default
on its obligations. Consequently, the PBGC agreed not to terminate the plans as
a result of the Agreement and the assumption of the plans by the Company.
The Company also sponsors two defined contribution plans covering
substantially all salaried and hourly employees. In 1994, the salaried
retirement and savings programs were changed, resulting in the freezing of
benefits under the defined benefit pension plans for salaried employees and
amending the defined contribution savings plan for salaried employees. Under the
amended savings plan, the Company matches employees' basic contributions to the
plan in an amount equal to 150% of the first 4% of an employee's compensation.
Expenses under the savings programs for the period from February 5, 1997 to June
30, 1997 were approximately $1,100.
The funded status of the Company's pension plans at June 30, 1997 is as
follows:
<TABLE>
<CAPTION>
ACCUMULATED ASSETS EXCEED
BENEFITS ACCUMULATED
EXCEED ASSETS BENEFITS
------------- -------------
<S> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested benefit obligation............................... $ 306,903 $ 111,701
======== ========
Accumulated benefit obligation.......................... $ 315,630 $ 111,701
======== ========
Projected benefit obligation............................ 315,630 111,701
Plan assets at fair value................................. 242,970 120,808
-------- --------
Projected benefit obligation in excess of (less than) plan
assets.................................................. $ 72,660 $ (9,107)
======== ========
Accrued (prepaid) pension cost............................ $ 72,660 $ (9,107)
======== ========
</TABLE>
Plan assets are held by an independent trustee and consist primarily of
investments in equities, fixed income and government securities. There is
currently no public market for the Series A Preferred Stock and no dividends
have been paid during the current year. The Company expects to receive a
valuation of the contributed Series A Preferred Stock in the fourth quarter of
1997. Should the valuation be less than the $9,000 contributed value, the
Company will be required to contribute the difference.
Significant assumptions used in determining net pension cost and related
pension obligations for the benefit plans for 1997 are as follows:
<TABLE>
<S> <C>
Discount rate......................................................... 7.50%
Expected long-term rate of return on plan assets...................... 9.0
</TABLE>
NOTE 9 -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides benefits to substantially all salaried, and certain
hourly employees under several plans. SFAS 106 requires accrual of
postretirement benefits (such as healthcare benefits) during the years an
employee provides services. Currently, the Company funds these healthcare
benefits on a pay-as-you-go basis. The Company also contributes to a
multi-employer trust, and under the requirements of SFAS 106, recognizes as
postretirement benefit cost the required annual contribution. The Company's cash
flows are not affected by implementation of SFAS 106.
F-15
<PAGE> 133
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The accumulated postretirement benefit obligation at June 30, 1997 is as
follows:
<TABLE>
<S> <C>
Retirees........................................................... $38,815
Eligible plan participants......................................... 8,507
Other active plan participants..................................... 13,764
-------
$61,086
=======
Accrued postretirement benefit costs............................... $61,086
=======
</TABLE>
Net postretirement benefit costs for the period from February 5, 1997 to
June 30 1997 consist of the following components:
<TABLE>
<S> <C>
Service cost - benefits earned during the year...................... $ 419
Interest cost on accumulated postretirement benefit obligation...... 1,653
------
$2,072
======
</TABLE>
The assumed healthcare cost trend used in measuring the accumulated
postretirement benefit obligation as of June 30, 1997 was 9.0% declining
gradually to 5.5% by the year 2003, after which it remains constant. A one
percentage point increase in the assumed healthcare cost trend rate for each
year would increase the accumulated postretirement benefit obligation as of June
30, 1997 by approximately 12% and the net postretirement healthcare cost for the
period ended June 30, 1997 by approximately 13%. The assumed discount rate used
in determining the accumulated postretirement benefit obligation was 7.50% for
1997.
The Company also contributes to a multi-employer trust which provides
certain other postretirement benefits to retired hourly employees. Expenses
under this program for the period from February 5, 1997 to June 30, 1997 were
$1,540.
NOTE 10 -- PLANT CLOSING COSTS
In an effort to reduce the Company's cost structure and improve
productivity, the Company closed its Houston, Texas plant effective February
1997 and its Dayville, Connecticut plant effective April 1997 and included the
liabilities assumed as part of the Anchor Acquisition cost. Closure of these
facilities will result in the consolidation of underutilized manufacturing
operations. Substantially all of the hourly and salaried employees at these
plants, approximately 600 in total, are being terminated. It is expected that
the majority of the closing activities will be completed within two years after
closure and the idled facilities will be retained for future use or held for
sale. Exit charges and the amounts charged against the liability as of June 30,
1997 are as follows:
<TABLE>
<CAPTION>
AMOUNT CHARGED
AGAINST
EXIT CHARGES LIABILITY
------------ --------------
<S> <C> <C>
Severance and employee benefit costs..................... $ 11,300 $6,700
Plant shutdown costs related to consolidation and
discontinuation of manufacturing activities............ 21,700 3,600
</TABLE>
NOTE 11 -- INCOME TAXES
The Company applies SFAS 109 under which the liability method is used in
accounting for 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,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Under SFAS 109, if on the basis of
available evidence, it is more likely than not that all or a portion of
F-16
<PAGE> 134
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
the deferred tax asset will not be realized, the asset must be reduced by a
valuation allowance. Since realization is not assured as of June 30, 1997,
management has deemed it appropriate to establish a realization reserve against
the tax asset created during the period.
The following significant components of the deferred tax assets and
liabilities are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Accruals and reserves............................................ $ 2,670
Property, plant and equipment.................................... 2,400
Pension and post retirement liabilities.......................... 800
Tax loss carry forwards.......................................... 130
-------
6,000
Valuation allowance................................................ (2,400)
-------
3,600
-------
Deferred tax liabilities:
Goodwill......................................................... 3,500
Other assets..................................................... 100
-------
3,600
-------
Net deferred tax assets............................................ $ --
=======
</TABLE>
The effective tax rate reconciliation at June 30, 1997 is as follows:
<TABLE>
<S> <C>
Statutory rate..................................................... 39%
Permanent differences.............................................. 21
---
18
Valuation allowance................................................ 18
---
Effective rate..................................................... --%
===
</TABLE>
NOTE 12 -- LEASES
The Company leases distribution and office facilities, machinery,
transportation, data processing and office equipment under non-cancelable leases
which expire at various dates through 2004. These leases generally provide for
fixed rental payments and include renewal and purchase options at amounts which
are generally based on fair market value at expiration of the lease. The Company
has no material capital leases.
Future minimum lease payments under non-cancelable operating leases are as
follows:
<TABLE>
<S> <C>
Remaining in 1997.................................................. $ 9,700
1998............................................................... 16,500
1999............................................................... 12,700
2000............................................................... 9,500
2001............................................................... 8,600
After 2001......................................................... 20,300
-------
$77,300
=======
</TABLE>
Rental expenses for all operating leases for the period from February 5,
1997 to June 30, 1997 were $8,845.
F-17
<PAGE> 135
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
In connection with the Anchor Acquisition, the Company assumed and amended
Old Anchor's lease of the headquarters facility located in Tampa, Florida and a
related option to purchase. The term of the amended lease expires January 2,
1998, unless the Company has exercised its purchase right, and the term then
expires February 1, 1998. The property is encumbered by a mortgage, which is
required to be repaid or refinanced by February 1, 1998. The Company is
obligated to pay this indebtedness if the Company does not exercise its purchase
option. If the property is subsequently sold, a portion of the net proceeds is
to be reimbursed to the Company. The Company expects to exercise the option to
purchase the headquarters facility and assign such option to a third party
purchaser of the facility. The Company expects to enter into a lease pursuant to
which the Company will lease a portion of the headquarters facility.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Company is a respondent in various environment-related cases. The
measurement of liabilities in these cases and other environmental concerns is
based on available facts of each situation and considers factors such as prior
experience in remediation efforts and presently enacted environmental laws and
regulations. In the opinion of management, based upon information presently
known, the Company has adequately provided for environmental liabilities. The
Company is not otherwise party to, and none of its assets are subject to any
other pending legal proceedings, other than ordinary routine litigation
incidental to its business and against which the Company is adequately insured
and indemnified or which is not material. The Company believes that the ultimate
outcome of these cases will not materially affect future operations.
NOTE 14 -- SUBSEQUENT EVENTS
Following the issuance of the Notes, the Company filed, with the Securities
and Exchange Commission, a Registration Statement on July 16, 1997, (File No.
333-31363) on Form S-4 under the Securities Act of 1933, with respect to an
issue of 11.25% First Mortgage Notes, due 2005, identical in all material
respects to the Notes, except that the new Notes would not bear legends
restricting the transfer thereof. Upon the effectiveness of the Registration
Statement, the Company will commence an offer to the holders of the Notes to
exchange their Notes for a like principal amount of new Notes. The Company
entered into a Registration Rights Agreement on April 17, 1997. Pursuant to this
agreement, additional interest in an amount of up to 1.5% per annum may accrue
on the Notes as a result of the Company's failure to have an exchange offer
registration statement declared effective on or prior to October 14, 1997 and
its failure to have exchanged all Notes tendered in accordance with the terms of
the Exchange Offer on or prior to November 28, 1997.
In connection with a plan to simplify the corporate ownership structure of
Consumers, the Company and their affiliates, Glenshaw Glass Company, Inc., a
wholly-owned subsidiary of G&G, may become a subsidiary of the Company or
Consumers U.S.
In September 1997, Hillsboro Glass Company ("Hillsboro"), a
glass-manufacturing plant owned by G&G, discontinued manufacturing. All of
Hillsboro's rights and obligations to fill orders under a supply contract
between Consumers and one of its major customers will be purchased by Consumers
and the Company. The Company estimates that the purchase price of the Company's
portion of this contract will approximate $12,000 and will be amortized over the
remaining term of the acquired contract, approximately 11 years, based upon
shipments.
F-18
<PAGE> 136
ANCHOR GLASS CONTAINER CORPORATION
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 804
Accounts receivable............................................................... 60,840
Inventories --
Raw materials and manufacturing supplies........................................ 24,421
Semi-finished and finished products............................................. 93,770
Other current assets.............................................................. 8,778
--------
Total current assets.................................................... 188,613
Property, plant and equipment, net................................................ 309,942
Other assets...................................................................... 45,100
Goodwill.......................................................................... 45,057
--------
$588,712
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility......................................................... $ 5,861
Current maturities of long-term debt.............................................. 353
Accounts payable.................................................................. 31,037
Accrued expenses.................................................................. 44,232
Accrued interest.................................................................. 7,197
Accrued compensation and employee benefits........................................ 36,471
--------
Total current liabilities............................................... 125,151
Long-term debt.................................................................... 151,954
Pension liabilities............................................................... 44,001
Other long-term liabilities....................................................... 124,600
--------
320,555
Commitments and contingencies (Note 7)
Redeemable preferred stock........................................................ 55,983
--------
Stockholders' equity:
Preferred stock................................................................. 34
Common stock.................................................................... 139
Issuable preferred stock........................................................ 4,382
Warrants........................................................................ 10,518
Capital in excess of par value.................................................. 92,294
Accumulated deficit............................................................. (20,344)
--------
87,023
--------
$588,712
========
</TABLE>
See Notes to Condensed Financial Statements.
F-19
<PAGE> 137
ANCHOR GLASS CONTAINER CORPORATION
CONDENSED STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 5, 1997 TO SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
(UNAUDITED)
<TABLE>
<S> <C>
Net sales........................................................................ $ 415,636
Costs and expenses:
Costs of products sold......................................................... 386,130
Selling and administrative expenses............................................ 18,127
--------
Income from operations........................................................... 11,379
Other income, net................................................................ 234
Interest expense................................................................. (12,725)
--------
Loss before extraordinary item................................................... (1,112)
Extraordinary item --
Write-off of deferred financing costs, net of nil tax.......................... (11,200)
--------
Net loss......................................................................... $ (12,312)
Preferred stock dividends........................................................ (8,032)
--------
Loss applicable to common stock.................................................. $ (20,344)
========
Loss per share applicable to common stock before extraordinary item.............. $ (7.72)
========
Net loss per share applicable to common stock.................................... $ (17.18)
========
Weighted average number of common shares outstanding............................. 1,183,909
========
</TABLE>
See Notes to Condensed Financial Statements.
F-20
<PAGE> 138
ANCHOR GLASS CONTAINER CORPORATION
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 5, 1997 TO SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS CLASS
SERIES B A B ISSUABLE CAPITAL ACCUMU- TOTAL
PREFERRED COMMON COMMON PREFERRED IN-EXCESS LATED STOCKHOLDERS'
STOCK STOCK STOCK STOCK WARRANTS OF PAR DEFICIT EQUITY
--------- ------ ------ --------- -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 5, 1997..... $-- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of 3,360,000 shares
of Series B Preferred
Stock to Consumers
U.S...................... 34 -- -- -- -- 83,966 -- 84,000
Issuance of 200,000 shares
of Class B Common Stock
to Consumers U.S......... -- -- 20 -- -- 2,480 -- 2,500
Issuance of 490,898 shares
of Class A Common Stock
to creditors of Old
Anchor................... -- 49 -- -- -- 2,405 -- 2,454
Issuance of 1,405,229
warrants to purchase
Class C Common Stock in
conjunction with the
financing of the Anchor
Loan Facility............ -- -- -- -- 7,012 -- -- 7,012
Issuance of 702,615 shares
of Class B Common Stock
to Consumers U.S. in
conjunction with the
financing of the Notes... -- -- 70 -- -- 3,443 -- 3,513
Issuance of 702,614 warrants
to purchase Class C
Common Stock in
conjunction with the
financing of the Notes... -- -- -- -- 3,506 -- -- 3,506
Pay-in-kind dividends
payable to Consumers U.S.
on Series B Preferred
Stock.................... -- -- -- 4,382 -- -- (4,382) --
Dividends accrued on Series
A Preferred Stock........ -- -- -- -- -- -- (3,650) (3,650)
Net loss.................... -- -- -- -- -- -- (12,312) (12,312)
------- --- --- ------ ------ ------ ------- -------
Balance, September 30, 1997... $34 $ 49 $ 90 $ 4,382 $ 10,518 $92,294 $(20,344) $87,023
======= === === ====== ====== ====== ======= =======
</TABLE>
See Notes to Condensed Financial Statements.
F-21
<PAGE> 139
ANCHOR GLASS CONTAINER CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
PERIOD FROM FEBRUARY 5, 1997 TO SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Loss before extraordinary item.................................................. $ (1,112)
Adjustments to reconcile loss before extraordinary item to net cash provided by
operating activities:
Depreciation and amortization................................................ 34,806
Other amortization........................................................... 3,616
Other........................................................................ 224
Decrease in cash resulting from changes in assets and liabilities............... (34,170)
--------
3,364
Cash flows from investing activities:
Purchase of assets and liabilities of Old Anchor................................ (200,470)
Expenditures for property, plant and equipment.................................. (21,034)
Acquisition related contribution to defined benefit pension plans............... (9,056)
Other........................................................................... (773)
--------
(231,333)
Cash flows from financing activities:
Proceeds from issuance of long-term debt........................................ 280,000
Principal payments on long-term debt............................................ (130,148)
Proceeds from issuance of preferred stock....................................... 84,000
Proceeds from issuance of common stock.......................................... 1,000
Net draws on Revolving Credit Facility.......................................... 5,861
Other, primarily financing fees................................................. (11,940)
--------
228,773
Cash and cash equivalents:
Increase (decrease) in cash and cash equivalents................................ 804
Balance, beginning of period.................................................... --
--------
Balance, end of period.......................................................... $ 804
========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest........................................................................ $ 4,103
========
Income tax payments (refunds), net.............................................. $ --
========
</TABLE>
Supplemental noncash investing and financing activities:
In connection with the Anchor Acquisition, the Company issued $46,983
face amount of Series A Preferred Stock and $2,454 of Class A Common Stock.
In connection with the Anchor Loan Facility, the Company issued 1,405,229
of warrants to the lenders valued at $7,012.
In February 1997, the Company contributed $9,000 face amount of Series
A Preferred Stock to the Company's defined benefit pensions plans.
In connection with the Notes, the Company issued 702,615 shares of
Class B Common Stock to Consumers U.S. and 702,614 warrants valued at
$3,506 to the initial purchasers of the Notes. Also, with the issuance of
the Notes, the Company recorded an extraordinary loss for the write-off of
deferred financing fees of the Anchor Loan Facility.
See Notes to Condensed Financial Statements.
F-22
<PAGE> 140
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1 -- PURCHASE OF ASSETS
Anchor Glass Acquisition Corporation (the "Company"), a Delaware
corporation and a majority-owned subsidiary of Consumers Packaging Inc.
("Consumers"), was formed in January 1997 to acquire certain assets and assume
certain liabilities of Anchor Glass Container Corporation ("Old Anchor"), now
Anchor Resolution Corp.
On February 5, 1997, pursuant to an Asset Purchase Agreement dated December
18, 1996, as amended (the "Asset Purchase Agreement"), between Consumers,
Owens-Brockway Glass Container Inc. ("Owens") and Old Anchor, the Company (the
rights and obligations of Consumers having been assigned to the Company) and
Owens acquired substantially all of the assets of, and assumed certain
liabilities, of Old Anchor.
The Company purchased eleven operating glass container manufacturing
facilities and other related assets (the "Anchor Acquisition"). Owens purchased
assets and assumed liabilities of Old Anchor's Antioch and Hayward, California
facilities and purchased certain other existing inventories. Owens also
purchased Old Anchor's investment in Rocky Mountain Bottle Company, a joint
venture with Coors Brewing Company ("Coors"), and assumed Old Anchor's agreement
to manufacture Coors' glass packaging products in the United States.
The total purchase price approximated $378,000, excluding fees of
approximately $1,500 which were paid by Consumers and recorded as capital in
excess of par by Anchor. The portion of the purchase price paid in cash by Owens
amounted to approximately $128,000. The remaining purchase price of
approximately $250,000 from the Company was comprised of approximately $200,500
in cash, $47,000 face amount (1,879,320 shares) of mandatorily redeemable 10%
cumulative convertible preferred stock ("Series A Preferred Stock") and $2,500
of common stock (490,898 shares with an estimated value of $5.00 per share) (the
"Class A Common Stock") of the Company.
The purchase price paid by the Company is subject to adjustment. On June
13, 1997, Old Anchor delivered to the Company the closing balance sheet which
indicated that Old Anchor believed that it was entitled to additional payments
from the Company and Owens totaling approximately $76,300. On July 28, 1997, the
Company delivered its notice of disagreement of Old Anchor, which requested a
reduction of the purchase price of approximately $96,800. Since that time, the
parties have been negotiating the amount of the adjustment, and in January 1998,
have reached a proposed settlement (the "Proposed Settlement"). The Proposed
Settlement requires the payment by the Company to Old Anchor of an additional
$1,000 in cash and the issuance of warrants for the purchase of additional
shares of common stock. In addition, the Company will issue warrants to purchase
additional shares of common stock to Consumers U.S. or an affiliate. The
Proposed Settlement is subject to final approval by the Company, Old Anchor and
the bankruptcy court.
The Company obtained the cash portion of the purchase price principally
from an $85,000 cash investment by Consumers consisting of $84,000 face amount
(3,360,000 shares) of redeemable 8% cumulative convertible preferred stock (the
"Series B Preferred Stock") and $1,000 of common stock (200,000 shares) (the
"Class B Common Stock"), and a $130,000 bank loan.
Upon consummation of the purchase and effective February 6, 1997, the
Company changed its name to Anchor Glass Container Corporation.
The Anchor Acquisition is accounted for by using the purchase method, with
the purchase price being allocated to the assets acquired and preacquisition
liabilities assumed based on their estimated fair value at the date of
acquisition. These allocations are based on preliminary appraisals, evaluations,
estimations and other studies. Certain acquisition costs and fees, including the
costs of closing and consolidating certain facilities have also been recorded by
the Company at the date of acquisition. As of June 30, 1997, the Company has not
F-23
<PAGE> 141
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
yet finalized these allocations and certain contingent liabilities have not yet
been resolved, as well as the final purchase price. The excess of the purchase
price over the fair value of net assets purchased of approximately $47,000 is
classified as Goodwill on the accompanying condensed balance sheet. In the
fourth quarter of 1997, the Company has completed its appraisals, evaluations
and other studies to finalize its allocation of purchase price to assets
acquired and preacquisition liabilities assumed based upon their fair value at
the date of acquisition. In the aggregate, the Company expects to increase
goodwill by up to approximately $16,000. This increase results from, among
others, adjustments to opening accruals and valuations reserves, additional
accruals for previously idled facilities and the final settlement of the Anchor
Acquisition purchase price.
The estimated values of assets acquired and liabilities assumed as of
February 5, 1997 after giving effect to the Anchor Acquisition and consideration
paid is as follows:
<TABLE>
<S> <C>
Accounts receivable.............................................. $ 48,000
Inventories...................................................... 123,000
Property, plant and equipment.................................... 322,000
Goodwill......................................................... 47,000
Other assets..................................................... 32,000
Current liabilities.............................................. (139,000)
Long-term debt................................................... (2,000)
Other long-term liabilities...................................... (181,000)
---------
$ 250,000
=========
</TABLE>
The following unaudited pro forma results of operations for the Company for
the nine months ended September 30, 1997 assumes the Anchor Acquisition occurred
on January 1, 1997 (dollars in thousands except per share data):
<TABLE>
<S> <C>
Net sales......................................................... $469,713
Loss before extraordinary item.................................... (15,242)
Net loss.......................................................... (26,442)
Loss before extraordinary item applicable to common stock......... (24,455)
Loss applicable to common stock................................... (35,655)
Loss per share before extraordinary item applicable to common
stock........................................................... (17.55)
Loss per share applicable to common stock......................... (25.59)
</TABLE>
These pro forma amounts represent historical operating results with
appropriate adjustments of the Anchor Acquisition which give effect to interest
expense and the impact of purchase price adjustments to depreciation and
amortization expense. These pro forma amounts do not purport to be indicative of
the results that would have actually been obtained had the Anchor Acquisition
been completed as of January 1, 1997, or that may be obtained in the future.
On January 9, 1997, the Pension Benefit Guaranty Corporation ("PBGC")
notified Old Anchor that it intended to institute involuntary termination
proceedings with respect to the three defined benefit pension plans then
maintained by Old Anchor, and currently maintained by the Company. However, the
PBGC reached an agreement with Vitro, S.A., the parent of Old Anchor, in which
Vitro, S.A. agreed to provide a limited guaranty to the PBGC with respect to the
unfunded benefit liabilities of the Company's defined benefit plans, if the
plans, or any one of them, are terminated before August 1, 2006. Consequently,
the PBGC agreed not to terminate the plans as a result of the Asset Purchase
Agreement and the assumption of the plans by the Company. In conjunction with
the purchase, the Company assumed all liabilities of the plans and funded
F-24
<PAGE> 142
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
$9,056 of plan contributions, previously unfunded following Old Anchor's filing
of Chapter 11. Additionally, the Company issued to the plans $9,000 face amount
(360,000 shares) of Series A Preferred Stock.
NOTE 2 -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Management's Responsibility
In the opinion of management, the accompanying condensed financial
statements contain all adjustments, consisting of only normal recurring
adjustments, and excluding any amounts resulting from purchase price adjustments
discussed above, necessary to present fairly the financial position as of
September 30, 1997 and the results of operations and cash flows for the period
from February 5, 1997 to September 30, 1997.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The results of operations for the interim period
may not be necessarily indicative of the results of the full fiscal year.
Business Segment
The Company is engaged in the manufacture and sale of a diverse line of
clear, amber, green and other color glass containers of various types, designs
and sizes to customers principally in the beer, food, iced tea, distilled
spirits and soft drink industries. The Company markets its products throughout
the United States. Revenues are recognized as legal title passes to the
customer, usually as product is shipped.
Inventories
Inventories are stated at the lower of cost or market. The cost of
substantially all inventories of raw materials and semi-finished and finished
products is determined on the first-in, first-out method. Manufacturing supplies
and certain other inventories are valued at weighted average costs.
Property, Plant and Equipment
Property, plant and equipment expenditures, including renewals, betterments
and furnace rebuilds which extend useful lives, and expenditures for glass
forming machine molds are capitalized and depreciated using the straight-line
method over the estimated useful lives of the assets for financial statement
purposes while accelerated depreciation methods are principally used for tax
purposes. Generally, annual depreciation rates range from 2.5% for buildings,
6.3% to 20% for machinery and equipment and 40% for molds. Furnace and machine
rebuilds, which are recurring in nature and which extend the lives of the
related assets, are capitalized and depreciated over the period of extension,
generally at rates of 20% to 25%, based on the type and extent of these
rebuilds. Depreciation of leased property recorded as capital assets is computed
on a straight-line basis over the estimated useful lives of the assets.
Maintenance and repairs are charged directly to expense as incurred.
Strategic Alliance with Customer
In conjunction with the Anchor Acquisition, the Company assumed a fifteen
year supply agreement with a significant customer. In respect of the supply
agreement, payments made or to be made to this customer in 1996, 1997 and 1998
totaling $23,000 are being amortized over the term of the contract based upon
shipments.
Goodwill
Goodwill represents the excess of the purchase price over the estimated
fair value of net assets acquired and is amortized on a straight line basis over
a twenty year period. Amortization expense for the period ended
F-25
<PAGE> 143
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
September 30, 1997 was approximately $1,500. The Company has not yet finalized
the allocations of net assets and certain contingent liabilities have not yet
been resolved, as well as the final purchase price.
Income Taxes
The Company applied Statement of Financial Accounting Standards No.
109 -- Accounting for Income Taxes ("SFAS 109") which establishes financial
accounting and reporting standards for the effects of income taxes which result
from a company's activities during the current and preceding years.
Retirement Plans
The Company has retirement plans, principally non-contributory, covering
substantially all salaried and hourly employees. The Company's funding policy is
to pay at least the minimum amount required by the Employee Retirement Income
Security Act of 1974 and the Retirement Protection Act of 1994, which requires
the Company to make significant additional contributions into its underfunded
defined benefit plans.
Postretirement Benefits
Statement of Financial Accounting Standards No. 106 -- Employers'
Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106") requires
accrual of postretirement benefits (such as healthcare benefits) during the
period that an employee provides service. This accounting method has no effect
on the Company's cash outlays for these retirement benefits.
Earnings per share
Earnings per share is calculated based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents are not included in any period that has a loss
applicable to common stock as they would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 -- Earnings Per Share ("SFAS 128").
SFAS 128 differs from current accounting guidance in that earnings per share is
classified as basic earnings per and dilutive earnings per share, compared to
primary earnings per share and fully diluted earnings per share under the
current standards. Basic earnings per share differs from primary earnings per
share in that it includes only the weighted average common shares outstanding
and does not include any dilutive securities in the calculation. Diluted
earnings per share under the new standard differs in certain calculations
compared to fully diluted earnings per share under the existing standards.
Adoption of SFAS 128 is required for interim and annual periods ending after
December 15, 1997. Had the Company applied the provisions of SFAS 128 in the
period from February 5, 1997 to September 30, 1997 to the earnings per share
calculations, there would have been no impact compared to that which is
reported.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimated.
F-26
<PAGE> 144
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 3 -- REVOLVING CREDIT FACILITY
In conjunction with the Anchor Acquisition, the Company entered into a
credit agreement dated as of February 5, 1997, with Bankers Trust Company
("BTCo") as issuing bank and BT Commercial Corporation, as agent, to provide a
$110,000 senior secured revolving credit facility (the "Revolving Credit
Facility"). The Revolving Credit Facility enables the Company to obtain
revolving credit loans for working capital purposes and the issuance of letters
of credit for its account in an aggregate amount not to exceed $110,000.
Advances outstanding at any one time can not exceed an amount equal to the
borrowing base as defined in the Revolving Credit Facility.
Revolving credit loans bear interest at a rate based upon, at the Company's
option, (i) the higher of the prime rate of BTCo, 0.5% in excess of the
overnight federal funds rate and 0.5% in excess of the adjusted certificate of
deposit rate, as defined, each plus a defined margin, or (ii) the average of the
offering rates of banks in the New York interbank Eurodollar market, plus a
defined margin. Interest is payable monthly. A commitment fee of 0.5% on the
unused portion of the facility and letter of credit fees, as defined, is payable
quarterly. The Revolving Credit Facility expires February 5, 2002.
At September 30, 1997, advances outstanding under the Revolving Credit
Facility were $5,861 and the total outstanding letters of credit on this
facility were $12,788.
The Company's obligations under the Revolving Credit Facility are secured
by a first priority lien on substantially all of the Company's inventories and
accounts receivable and related collateral and a second priority pledge of all
of the Series B preferred stock and the Class B common stock. In addition, the
Company's obligations under the Revolving Credit Facility are guaranteed by
Consumers U.S. Inc., the Company's parent and a wholly-owned indirect subsidiary
of Consumers and the holder of the outstanding Series B Preferred Stock and
Class B Common Stock.
The Revolving Credit Facility contains certain covenants that restrict the
Company from taking various actions, including, subject to specified exceptions,
the incurrence of additional indebtedness, the granting of additional liens, the
making of investments, the payment of dividends and other restricted payments,
mergers, acquisitions and other fundamental corporate changes, capital
expenditures, operating lease payments and transactions with affiliates. The
Revolving Credit Facility also contains certain financial covenants that require
the Company to meet and maintain certain financial tests and minimum ratios,
including a minimum working capital ratio, a minimum consolidated net worth test
and a minimum interest coverage ratio, all of which have been met at September
30, 1997.
NOTE 4 -- LONG-TERM DEBT
In connection with the Anchor Acquisition, the Company entered into a
Senior Credit Agreement, dated as of February 5, 1997, with Bankers Trust
Company, as agent, to provide a $130,000 bank loan (the "Anchor Loan Facility").
The Anchor Loan Facility was repaid in full from the net proceeds of the
issuance of the $150,000 11.25% First Mortgage Notes, due 2005, (the "Notes").
The Anchor Loan Facility bore interest at a rate of 12.50%.
As additional consideration in providing the Anchor Loan Facility, the
Company issued to BT Securities Corporation and TD Securities, 1,405,229
warrants convertible to Class C common stock. The warrants are valued at
approximately $7,000. As a result of the refinancing of the Anchor Loan
Facility, deferred financing fees of $11,200 were written off as an
extraordinary loss in the second quarter of 1997.
Effective April 17, 1997, the Company completed an offering of the Notes,
issued under an indenture dated as of April 17, 1997 (the "Indenture"), among
the Company, Consumers U.S. and The Bank of New
F-27
<PAGE> 145
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
York, as Trustee. The Notes are senior secured obligations of the Company,
ranking senior in right of payment to all existing and future subordinate
indebtedness of the Company and pari passu with all existing and future senior
indebtedness of the Company. The Notes are guaranteed by Consumers U.S. Proceeds
from the issuance of the Notes, net of fees, were approximately $144,000 and
were used to repay $130,000 outstanding under the Anchor Loan Facility and
$8,800 of advances outstanding under the Revolving Credit Facility, with the
balance used for general corporate purposes.
Interest on the Notes accrues at 11.25% per annum and is payable
semiannually on each April 1 and October 1 to registered holders of the Notes at
the close of business on the March 15 and September 15 immediately preceding the
applicable interest payment date. The Notes are not redeemable prior to April 1,
2001; however, the Notes are redeemable at the Company's option in whole at any
time or in part from time to time at redemption prices defined in the Indenture.
The Indenture provides that upon the occurrence of a change in control, the
Company will be required to offer to repurchase all of the Notes at a purchase
price in cash equal to 101% of the principal amount plus interest accrued to the
date of purchase.
All of the obligations of the Company under the Notes and the Indenture are
secured by a first priority perfected security interest in substantially all of
the existing and future real property, personal property and other assets of the
Company and a first priority perfected security interest in collateral ranking
pari passu with the security interest in favor of the Revolving Credit Facility.
The Indenture, subject to certain exceptions, restricts the Company from
taking various actions, including, but not limited to, subject to specified
exceptions, the incurrence of additional indebtedness, the granting of
additional liens, the payment of dividends and other restricted payments,
mergers, acquisitions and transactions with affiliates.
In connection with the refinancing of the Notes on April 17, 1997, the
Company issued 702,615 shares of Class B Common Stock to Consumers U.S. and
702,614 warrants, valued at $5.00 per share, to the initial purchasers.
NOTE 5 -- REDEEMABLE PREFERRED STOCK
The Company has designated 2,239,320 shares as Series A Preferred Stock and
5,000,000 shares as Series B Preferred Stock. The Series A Preferred Stock
ranks, as to dividends and redemption and upon liquidation, prior to all other
classes and series of capital stock of the Company. The holders of Series A
Preferred Stock are entitled to receive, when and as declared by the Board of
Directors of the Company, cumulative dividends, payable quarterly in cash, at an
annual rate of 10%. Holders of Series A Preferred Stock are not entitled to
vote, except as defined. No dividends have been declared or paid as of September
30, 1997.
The Company is required to redeem all outstanding shares of the Series A
Preferred Stock on February 5, 2009, and, on or after February 5, 2000, may, at
its option, redeem outstanding shares of Series A Preferred Stock at a price of
$25.00 per share, if the trading price of the common stock equals or exceeds
$6.00 per share. Shares of Series A Preferred Stock are convertible into shares
of Class A Common Stock, at the option of the holder, at a ratio determined by
dividing the liquidation value of the Series A Preferred Stock by $6.00 and such
ratio is subject to adjustment from time to time.
Pursuant to the Asset Purchase Agreement, the Company is obligated to
register all of the shares of the Class A Common Stock and Series A Preferred
Stock under the Securities Exchange Act and to qualify the shares for listing on
a nationally recognized United States securities exchange or on The Nasdaq Stock
Market's National Market.
F-28
<PAGE> 146
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
The Series B Preferred Stock ranks, as to dividends and redemption and upon
liquidation, junior to the Series A Preferred Stock but senior to all other
classes and series of capital stock of the Company. The holders of Series B
Preferred Stock are entitled to receive cumulative dividends, payable quarterly
at an annual rate of 8%. During the period from February 5, 1997 through and
including December 31, 1999, the dividend is payable in additional shares of
Series B Preferred Stock. Thereafter, the dividends will be payable in cash when
and as declared by the Board of Directors. Holders of Series B Preferred Stock
are not entitled to vote, except as defined.
Shares of Series B Preferred Stock are not subject to mandatory redemption.
On or after February 5, 2000, the Company may, at its option, redeem outstanding
shares of Series B Preferred Stock at a price of $25.00 per share, if the
trading price of the common stock equals or exceeds $5.50 per share. Shares of
Series B Preferred Stock are convertible into shares of Class B Common Stock, at
the option of the holder, at a ratio determined by dividing the liquidation
value of the Series A Preferred Stock by $5.50 and such ratio is subject to
adjustment from time to time.
NOTE 6 -- COMMON STOCK
For the period from February 5, 1997 to February 5, 2000, the common stock
is divided into three classes, Class A and Class B, which are voting, and Class
C, which is non-voting. During this period, the number of Directors of the
Company is fixed at nine, with the holders of the Class A shares having the
right to elect four Directors and the holders of the Class B shares having the
right to elect Directors. In connection with the settlement of the issues
surrounding the adjustment to the purchase price paid by the Company, it is
expected that the certificate of incorporation of the Company will be amended to
increase the number of directors to be elected by the holders of Class B common
stock. Holders of the Class C shares do not participate in the election of
Directors. On February 5, 2000, the three classes of common stock will
automatically be consolidated into one single class of common stock with
identical rights. The Company currently has outstanding warrants exercisable for
2,107,843 shares of Class C Common Stock at an exercise price of $.10 per share,
which has already been deemed paid.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
The Company is a respondent in various environment-related cases. The
Company is not otherwise party to, and none of its assets are subject to any
other pending legal proceedings, other than ordinary routine litigation
incidental to its business and against which the Company is adequately insured
and indemnified or which is not material. The Company believes that the ultimate
outcome of these cases will not materially affect future operations.
NOTE 8 -- SUBSEQUENT EVENTS
Following the issuance of the Notes, the Company filed, with the Securities
and Exchange Commission, a Registration Statement on July 16, 1997, (File No.
333-31363) on Form S-4 under the Securities Act of 1933, with respect to an
issue of 11.25% First Mortgage Notes, due 2005, identical in all material
respects to the Notes, except that the new Notes would not bear legends
restricting the transfer thereof. Upon the effectiveness of the Registration
Statement, the Company will commence an offer to the holders of the Notes to
exchange their Notes for a like principal amount of new Notes. The Company
entered into a Registration Rights Agreement on April 17, 1997. Pursuant to this
agreement, additional interest in an amount of up to 1.5% per annum may accrue
on the Notes as a result of the Company's failure to have an exchange offer
registration statement declared effective on or prior to October 14, 1997 and
its failure to have exchanged all Notes tendered in accordance with the terms of
the exchange offer on or prior to November 28, 1997.
F-29
<PAGE> 147
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
In connection with a plan to simplify the corporate ownership structure of
Consumers, the Company and their affiliates, Glenshaw Glass Company, Inc., a
wholly-owned subsidiary of G&G, may become a subsidiary of the Company or
Consumers U.S.
In September 1997, Hillsboro Glass Company ("Hillsboro"), a
glass-manufacturing plant owned by G&G, discontinued manufacturing. All of
Hillsboro's rights and obligations to fill orders under a supply contract
between Consumers and one of its major customers will be purchased by Consumers
and the Company. The Company estimates that the purchase price of the Company's
portion of this contract will approximate $12,000 and will be amortized over the
remaining term of the acquired contract, approximately 11 years, based on
shipments.
F-30
<PAGE> 148
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Consumers U.S., Inc.:
We have audited the accompanying consolidated balance sheet of Consumers U.S.,
Inc. (a Delaware corporation) as of June 30, 1997, and the related consolidated
statements of operations, stockholder's equity and cash flows for the period
from February 5, 1997 through June 30, 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 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 consolidated financial position of Consumers U. S.,
Inc. as of June 30, 1997, and the results of its operations and its cash flows
for the period from February 5, 1997 through June 30, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
October 31, 1997 (except with respect to the purchase price adjustment
matter discussed in Note 2, as to which the date is January 5, 1998)
F-31
<PAGE> 149
CONSUMERS U.S., INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 6,106
Accounts receivable, less allowance for doubtful accounts of $1,706............... 62,262
Inventories --
Raw materials and manufacturing supplies........................................ 24,616
Semi-finished and finished products............................................. 92,582
Other current assets.............................................................. 8,724
--------
Total current assets.................................................... 194,290
Property, plant and equipment:
Land............................................................................ 7,769
Buildings....................................................................... 74,075
Machinery, equipment and molds.................................................. 252,447
Less accumulated depreciation, net.............................................. (20,494)
--------
313,797
Other assets...................................................................... 24,163
Strategic alliance with customer.................................................. 22,650
Goodwill, net of accumulated amortization of $1,000............................... 43,162
--------
$598,062
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Revolving credit facility......................................................... $ 963
Current maturities of long term-debt.............................................. 352
Accounts payable.................................................................. 33,504
Accrued expenses.................................................................. 55,219
Accrued interest.................................................................. 3,448
Accrued compensation and employee benefits........................................ 36,403
--------
Total current liabilities............................................... 129,889
Long-term debt.................................................................... 151,897
Long-term pension liabilities..................................................... 49,365
Long-term postretirement liabilities.............................................. 58,386
Other long-term liabilities....................................................... 67,382
--------
327,030
Commitments and contingencies (Note 12)
Redeemable preferred stock of subsidiary, Series A, $.01 par value; 2,239,320
shares authorized, issued and outstanding; $25 liquidation and redemption
value........................................................................... 55,983
--------
Minority interest................................................................. 2,638
--------
Stockholder's equity:
Common stock, $.01 par value; authorized 20,000,000 shares;
issued and outstanding 17,000,100 shares........................................ 170
Capital in excess of par value.................................................... 86,330
Accumulated deficit............................................................... (3,978)
--------
82,522
--------
$598,062
========
</TABLE>
See Notes to Consolidated Financial Statements.
F-32
<PAGE> 150
CONSUMERS U.S., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 5, 1997 TO JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Net sales....................................................................... $ 261,141
Costs and expenses:
Costs of products sold........................................................ 244,285
Selling and administrative expenses........................................... 11,176
-----------
Income from operations.......................................................... 5,680
Other income, net............................................................... 211
Interest expense................................................................ (7,882)
-----------
Loss before extraordinary item.................................................. (1,991)
Extraordinary item --
Write-off of deferred financing costs, net of nil tax......................... (11,200)
-----------
Loss before minority interest................................................... (13,191)
Minority interest............................................................... 11,452
-----------
Net loss........................................................................ $ (1,739)
===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-33
<PAGE> 151
CONSUMERS U.S., INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
PERIOD FROM FEBRUARY 5, 1997 TO JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL TOTAL
COMMON IN-EXCESS ACCUMULATED STOCKHOLDER'S
STOCK OF PAR DEFICIT EQUITY
------ --------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, February 5, 1997...................... $ -- $ -- $ -- $ --
Issuance of 17,000,100 shares of Common Stock
to Consumers International................ 170 86,330 -- 86,500
Dividends accrued on Series A Preferred Stock
of subsidiary............................. -- -- (2,239) (2,239)
Net loss..................................... -- -- (1,739) (1,739)
------ ------- ------- -------
Balance, June 30, 1997......................... $170 $86,330 $(3,978) $82,522
====== ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-34
<PAGE> 152
CONSUMERS U.S., INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM FEBRUARY 5, 1997 TO JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Loss before extraordinary item........................................................ $ (1,991)
Adjustments to reconcile loss before extraordinary item to net cash provided by
operating activities:
Depreciation and amortization....................................................... 21,578
Other amortization.................................................................. 1,598
Other............................................................................... 140
Decrease in cash resulting from changes in assets and liabilities..................... (17,344)
---------
3,981
Cash flows from investing activities:
Purchase of assets and assumption of liabilities of Old Anchor........................ (200,470)
Expenditures for property, plant and equipment........................................ (12,251)
Acquisition related contribution to defined benefit pension plans..................... (9,056)
Other................................................................................. (871)
---------
(222,648)
Cash flows from financing activities:
Proceeds from issuance of long-term debt.............................................. 280,000
Principal payments of long-term debt.................................................. (130,137)
Proceeds from issuance of common stock................................................ 85,000
Net draws on revolving credit facility................................................ 963
Other, primarily financing fees....................................................... (11,053)
---------
224,773
Cash and cash equivalents:
Increase in cash and cash equivalents................................................. 6,106
Balance, beginning of period.......................................................... --
---------
Balance, end of period................................................................ $ 6,106
=========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.............................................................................. $ 3,546
=========
Income tax payments (refunds), net.................................................... $ --
=========
Increase (decrease) in cash resulting from changes in assets and liabilities:
Accounts receivable................................................................... $ (13,477)
Inventories........................................................................... 5,507
Other current assets.................................................................. 678
Accounts payable, accrued expenses and other current liabilities...................... (9,423)
Other, net............................................................................ (629)
---------
$ (17,344)
=========
</TABLE>
Supplemental noncash investing and financing activities:
In connection with the Anchor Acquisition, Anchor issued $46,983 face amount
of Series A Preferred Stock and $2,454 of Class A Common Stock and incurred
$1,500 of fees. In connection with the Anchor Loan Facility, Anchor issued
1,405,229 warrants to the lenders valued at $7,012.
<TABLE>
<S> <C>
Anchor Acquisition:
Fair value of assets acquired......................................................... $ 525,000
Acquisition costs accrued............................................................. (50,000)
Goodwill.............................................................................. 47,000
Purchase price........................................................................ (250,000)
---------
Liabilities assumed................................................................... $ 272,000
==========
</TABLE>
In February 1997, Anchor contributed $9,000 face amount of Series A
Preferred Stock to Anchor's defined benefit pensions plans.
In connection with the issuance of the Notes, Anchor issued 702,615 shares
of Class B Common Stock to Consumers U.S. and 702,614 warrants valued at $3,506
to the initial purchasers of the Notes. Also, with the issuance of the Notes,
Anchor recorded an extraordinary loss for the write-off of deferred financing
fees of the Anchor Loan Facility.
The Company considers short-term investments with original maturities of
ninety days or less at the date of purchase to be classified as cash
equivalents.
See Notes to Consolidated Financial Statements.
F-35
<PAGE> 153
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization of the Company
Consumers U.S., Inc. ("Consumers U.S."), a Delaware corporation and a
wholly-owned subsidiary of Consumers International Inc. ("Consumers
International"), a Canadian corporation and a wholly-owned subsidiary of
Consumers Packaging Inc. ("Consumers"), was formed in January 1997 to hold an
investment in Anchor Glass Acquisition Corp. ("Anchor") which acquired certain
assets and assumed certain liabilities of Anchor Glass Container Corporation
("Old Anchor"), now Anchor Resolution Corp.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Consumers U.S. and its partially-owned subsidiary, Anchor (together the
"Company"). All material intercompany accounts and transactions have been
eliminated in consolidation. The Company holds 63.4% of the total voting common
shares of Anchor and holds the majority of the Anchor Board of Director
positions, and accordingly the results of Anchor's operations have been
consolidated in these financial statements. Minority interest represents the
minority shareholders' proportionate share of the equity and the income or loss
of Anchor. The minority shareholders' 74.2% proportionate share of income or
loss of Anchor is based upon all outstanding common shares and warrants of
Anchor. Consumers U.S. has no independent activities.
Business Segment
The Company is engaged in the manufacture and sale of a diverse line of
clear, amber, green and other color glass containers of various types, designs
and sizes to customers principally in the beer, food, iced tea, distilled
spirits and soft drink industries. The Company markets its products throughout
the United States. The Company's international and export sales are
insignificant. Sales to The Stroh Brewery Company represented approximately
12.5% of total net sales for the period ended June 30, 1997. Revenues are
recognized as legal title of product passes to the customer, usually as product
is shipped.
Inventories
Inventories are stated at the lower of cost or market. The cost of
substantially all inventories of raw materials and semi-finished and finished
products is determined on the first-in, first-out method. Manufacturing supplies
and certain other inventories are valued at weighted average costs.
Property, Plant and Equipment
Property, plant and equipment expenditures, including renewals, betterments
and furnace rebuilds which extend useful lives, and expenditures for glass
forming machine molds are capitalized and depreciated using the straight-line
method over the estimated useful lives of the assets for financial statement
purposes while accelerated depreciation methods are principally used for tax
purposes. Generally, annual depreciation rates range from 2.5% for buildings,
6.3% to 20% for machinery and equipment and 40% for molds. Furnace and machine
rebuilds, which are recurring in nature and which extend the lives of the
related assets, are capitalized and depreciated over the period of extension,
generally at rates of 20% to 25%, based on the type and extent of these
rebuilds. Depreciation of leased property recorded as capital assets is computed
on a straight-line basis over the estimated useful lives of the assets.
Maintenance and repairs are charged directly to expense as incurred.
F-36
<PAGE> 154
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Strategic Alliance with Customer
In conjunction with the Anchor Acquisition, the Company assumed a fifteen
year supply agreement with a significant customer. In respect of the supply
agreement, payments made or to be made to this customer in 1996, 1997 and 1998
totaling $23,000 are being amortized over the term of the contract based upon
shipments.
Goodwill
Goodwill represents the excess of the purchase price over the estimated
fair value of net assets acquired and is amortized on a straight line basis over
a twenty year period. Amortization expense for the period ended June 30, 1997
was approximately $1,000. The Company has not yet finalized the allocations of
net assets and certain contingent liabilities have not yet been resolved, as
well as the final purchase price.
Income Taxes
The Company applied Statement of Financial Accounting Standards No.
109 -- Accounting for Income Taxes ("SFAS 109") which establishes financial
accounting and reporting standards for the effects of income taxes which result
from a company's activities during the current and preceding years.
Retirement Plans
Anchor has retirement plans, principally non-contributory, covering
substantially all salaried and hourly employees. The Company's funding policy is
to pay at least the minimum amount required by the Employee Retirement Income
Security Act of 1974 and the Retirement Protection Act of 1994, which requires
the Company to make significant additional contributions into its underfunded
defined benefit plans.
Postretirement Benefits
Statement of Financial Accounting Standards No. 106 -- Employers'
Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106") requires
accrual of postretirement benefits (such as healthcare benefits) during the
period that an employee provides service. This accounting method has no effect
on the Company's cash outlays for these postretirement benefits.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 -- Disclosures about
Fair Value of Financial Instruments requires disclosure of the estimated fair
values of certain financial instruments. The estimated fair value amounts have
been determined using available market information or other appropriate
valuation methodologies that require considerable judgment in interpreting
market data and developing estimates. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts. As the long-term debt has not been registered or traded in an
established trading market, and the debt was issued during the current period,
the company has estimated the fair value of the debt to be the carrying value.
The carrying amount of other financial instruments approximate their estimated
fair values.
The fair value information presented herein is based on information
available to management as of June 30, 1997. Although management is not aware of
any factors that would significantly affect the estimated value amounts, such
amounts have not been comprehensively revalued for purposes of these financial
statements since that date and, therefore, the current estimates of fair value
may differ significantly from the amounts presented herein.
F-37
<PAGE> 155
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimated.
NOTE 2 -- PURCHASE OF ASSETS
On February 5, 1997, pursuant to an Asset Purchase Agreement dated December
18, 1996, as amended (the "Asset Purchase Agreement"), between Consumers,
Owens-Brockway Glass Container Inc. ("Owens") and Old Anchor, the Company (the
rights and obligations of Consumers having been assigned to Anchor) and Owens
acquired substantially all of the assets of, and assumed certain liabilities, of
Old Anchor.
The Company purchased eleven operating glass container manufacturing
facilities and other related assets (the "Anchor Acquisition"). Owens purchased
assets and assumed liabilities of Old Anchor's Antioch and Hayward, California
facilities and purchased certain other existing inventories. Owens also
purchased Old Anchor's investment in Rocky Mountain Bottle Company, a joint
venture with Coors Brewing Company ("Coors"), and assumed Old Anchor's agreement
to manufacture Coors' glass packaging products in the United States.
The total purchase price approximated $378,000, excluding fees of
approximately $1,500 which were paid by Consumers and recorded as capital in
excess of par by Anchor. The portion of the purchase price paid in cash by Owens
amounted to approximately $128,000. The remaining purchase price of
approximately $250,000 from the Company was comprised of: approximately $200,500
in cash, $47,000 face amount (1,879,320 shares) of mandatorily redeemable 10%
cumulative convertible preferred stock of Anchor ("Series A Preferred Stock")
and $2,500 of common stock of Anchor (490,898 shares with an estimated value of
$5.00 per share) (the "Class A Common Stock").
The purchase price paid by the Company is subject to adjustment. On June
13, 1997, Old Anchor delivered to the Company the closing balance sheet which
indicated that Old Anchor believed that it was entitled to additional payments
from the Company and Owens totaling approximately $76,300. On July 28, 1997, the
Company delivered its notice of disagreement to Old Anchor, which requested a
reduction of the purchase price of approximately $96,800. Since that time, the
parties have been negotiating the amount of the adjustment, and in January 1998,
have reached a proposed settlement (the "Proposed Settlement"). The Proposed
Settlement requires the payment by the Company to Old Anchor of an additional
$1,000 in cash and the issuance of warrants for the purchase of additional
shares of common stock. In addition, the Company will issue warrants to purchase
additional shares of common stock to Consumers U.S. or an affiliate. The
Proposed Settlement is subject to final approval by the Company, Old Anchor and
bankruptcy court.
The Company obtained the cash portion of the purchase price principally
from an $85,000 cash investment by Consumers International in common stock of
Consumers U.S. and a $130,000 bank loan.
For the period from February 5, 1997 to February 5, 2000, the common stock
of Anchor is divided into three classes, Class A and Class B, which are voting,
and Class C, which is non-voting. During this period, the number of Directors of
Anchor is fixed at nine, with the holders of the Class A shares having the right
to elect four Directors and the holders of the Class B shares having the right
to elect five Directors. In connection with the Proposed Settlement, it is
expected that the certificate of incorporation of company will be amended to
increase the number of directors to be elected by the holders of Class B Common
Stock. Holders of the Class C shares do not participate in the election of
Directors. On February 5, 2000, the three classes of common stock will
automatically be consolidated into one single class of common stock with
identical rights.
F-38
<PAGE> 156
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Anchor currently has outstanding warrants exercisable for 2,107,843 shares of
Class C common stock for an exercise price of $.10 per share, which has already
been deemed paid.
Upon consummation of the purchase and effective February 6, 1997, Anchor
changed its name to Anchor Glass Container Corporation.
The Anchor Acquisition is accounted for by using the purchase method, with
the purchase price being allocated to the assets acquired and preacquisition
liabilities assumed based on their estimated fair value at the date of
acquisition. These allocations are based on preliminary appraisals, evaluations,
estimations and other studies. Certain acquisition costs and fees, including the
costs of closing and consolidating certain facilities have also been recorded by
the Company at the date of acquisition. As of June 30, 1997, the Company has not
yet finalized these allocations and certain contingent liabilities have not yet
been resolved, as well as the final purchase price. The excess of the purchase
price over the fair value of net assets purchased of approximately $47,000 is
classified as Goodwill on the accompanying consolidated balance sheet. In the
fourth quarter of 1997, the Company has completed its appraisals, evaluations
and other studies to finalize its allocation of purchase price to assets
acquired and preacquisition liabilities assumed based upon their fair value at
the date of acquisition. In the aggregate, the Company expects to increase
goodwill by up to approximately $16,000. This increase results from, among
others, adjustments to opening accruals and valuations reserves, additional
accruals for previously idled facilities and the final settlement of the Anchor
Acquisition purchase price.
The estimated values of assets acquired and liabilities assumed as of
February 5, 1997 after giving effect to the Anchor Acquisition and consideration
paid is as follows:
<TABLE>
<S> <C>
Accounts receivable.............................................. $ 48,000
Inventories...................................................... 123,000
Property, plant and equipment.................................... 322,000
Goodwill......................................................... 47,000
Other assets..................................................... 32,000
Current liabilities.............................................. (139,000)
Long-term debt................................................... (2,000)
Other long-term liabilities...................................... (181,000)
---------
$ 250,000
=========
</TABLE>
The following unaudited pro forma results of operations for the Company for
the six months ended June 30, 1997 assumes the Anchor Acquisition occurred on
January 1, 1997 (dollars in thousands except per share data):
<TABLE>
<S> <C>
Net sales......................................................... $315,218
Loss before extraordinary item.................................... (15,701)
Net loss.......................................................... (24,263)
</TABLE>
These pro forma amounts represent historical operating results with
appropriate adjustments of the Anchor Acquisition which give effect to interest
expense and the impact of purchase price adjustments to depreciation and
amortization expense. These pro forma amounts do not purport to be indicative of
the results that would have actually been obtained had the Anchor Acquisition
been completed as of January 1, 1997, or that may be obtained in the future.
On January 9, 1997, the Pension Benefit Guaranty Corporation ("PBGC")
notified Old Anchor that it intended to institute involuntary termination
proceedings with respect to the three defined benefit pension plans then
maintained by Old Anchor, and currently maintained by Anchor. However, the PBGC
reached an agreement with Vitro, S.A., the parent of Old Anchor, in which Vitro,
S.A. agreed to provide a limited
F-39
<PAGE> 157
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
guaranty to the PBGC with respect to the unfunded benefit liabilities of
Anchor's defined benefit plans, if the plans, or any one of them, are terminated
before August 1, 2006. Consequently, the PBGC agreed not to terminate the plans
as a result of the Asset Purchase Agreement and the assumption of the plans by
Anchor. In conjunction with the purchase, Anchor assumed all liabilities of the
plans and funded $9,056 of plan contributions, previously unfunded following Old
Anchor's filing of Chapter 11. Additionally, Anchor issued to the plans $9,000
face amount (360,000 shares) of Series A Preferred Stock.
NOTE 3 -- REVOLVING CREDIT FACILITY
In conjunction with the Anchor Acquisition, Anchor entered into a credit
agreement dated as of February 5, 1997, with Bankers Trust Company ("BTCo") as
issuing bank and BT Commercial Corporation, as agent, to provide a $110,000
senior secured revolving credit facility (the "Revolving Credit Facility"). The
Revolving Credit Facility enables Anchor to obtain revolving credit loans for
working capital purposes and the issuance of letters of credit for its account
in an aggregate amount not to exceed $110,000. Advances outstanding at any one
time cannot exceed an amount equal to the borrowing base as defined in the
Revolving Credit Facility.
Revolving credit loans bear interest at a rate based upon, at Anchor's
option, (i) the higher of the prime rate of BTCo, 0.5% in excess of the
overnight federal funds rate and 0.5% in excess of the adjusted certificate of
deposit rate, as defined, each plus a defined margin, or (ii) the average of the
offering rates of banks in the New York interbank Eurodollar market, plus a
defined margin. Interest is payable monthly. A commitment fee of 0.5% per annum
on the unused portion of the facility and letter of credit fees, as defined, is
payable quarterly. The Revolving Credit Facility expires February 5, 2002.
At June 30, 1997, advances outstanding under the Revolving Credit Facility
were $963 and the borrowing availability was $72,106. The total outstanding
letters of credit on this facility were $12,788. At June 30, 1997, the weighted
average interest rate on borrowings outstanding was 9.0%.
Anchor's obligations under the Revolving Credit Facility are secured by a
first priority lien on substantially all of Anchor's inventories and accounts
receivable and related collateral and a second priority pledge of all of
Anchor's Series B preferred shares and Class B common shares. In addition,
Anchor's obligations under the Revolving Credit Facility are guaranteed by
Consumers U.S., the holder of Anchor's outstanding Series B preferred shares and
Class B common shares.
The Revolving Credit Facility contains certain covenants that restrict
Anchor from taking various actions, including, subject to specified exceptions,
the incurrence of additional indebtedness, the granting of additional liens, the
making of investments, the payment of dividends and other restricted payments,
mergers, acquisitions and other fundamental corporate changes, capital
expenditures, operating lease payments and transactions with affiliates. The
Revolving Credit Facility also contains certain financial covenants that require
Anchor to meet and maintain certain financial tests and minimum ratios,
including a minimum working capital ratio, a minimum consolidated net worth test
and a minimum interest coverage ratio, all of which have been met at June 30,
1997.
NOTE 4 -- LONG-TERM DEBT
Long-term debt at June 30, 1997 consists of the following:
<TABLE>
<S> <C>
$150,000 First Mortgage Notes, interest at 11.25% due 2005........ $150,000
Other............................................................. 2,249
--------
152,249
Less current maturities........................................... 352
--------
$151,897
========
</TABLE>
F-40
<PAGE> 158
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
In connection with the Anchor Acquisition, Anchor entered into a Senior
Credit Agreement, dated as of February 5, 1997, with Bankers Trust Company, as
agent, to provide a $130,000 bank loan (the "Anchor Loan Facility"). The Anchor
Loan Facility was repaid in full from the net proceeds of the issuance of the
$150,000 11.25% First Mortgage Notes, due 2005, (the "Notes"). The Anchor Loan
Facility bore interest at a rate of 12.50%.
As additional consideration in providing the Anchor Loan Facility, Anchor
issued to BT Securities Corporation and TD Securities, 1,405,229 warrants
convertible to Class C common stock. The warrants are valued at approximately
$7,000. As a result of the refinancing of the Anchor Loan Facility, deferred
financing fees of $11,200 were written off as an extraordinary loss in the
second quarter of 1997.
Effective April 17, 1997, Anchor completed an offering of the Notes, issued
under an indenture dated as of April 17, 1997 (the "Indenture"), among Anchor,
Consumers U.S. and The Bank of New York, as Trustee. The Notes are senior
secured obligations of Anchor, ranking senior in right of payment to all
existing and future subordinate indebtedness of Anchor and pari passu with all
existing and future senior indebtedness of Anchor. The Notes are guaranteed by
Consumers U.S. Proceeds from the issuance of the Notes, net of fees, were
approximately $144,000 and were used to repay $130,000 outstanding under the
Anchor Loan Facility and $8,800 of advances outstanding under the Revolving
Credit Facility, with the balance used for general corporate purposes.
Interest on the Notes accrues at 11.25% per annum and is payable
semiannually on each April 1 and October 1 to registered holders of the Notes at
the close of business on the March 15 and September 15 immediately preceding the
applicable interest payment date. The Notes are not redeemable prior to April 1,
2001; however, the Notes are redeemable at Anchor's option in whole at any time
or in part from time to time at redemption prices defined in the Indenture. The
Indenture provides that upon the occurrence of a change in control, Anchor will
be required to offer to repurchase all of the Notes at a purchase price in cash
equal to 101% of the principal amount plus interest accrued to the date of
purchase. Prior to the sale of the Notes, the Company entered into an interest
rate swap agreement to partially protect the Company from interest rate
fluctuations until such time as the fixed interest rate on the Notes was
established. The agreement was terminated concurrent with the interest rate of
the Notes being set. The realized gain on the agreement has been deferred and is
being amortized over the term of the Notes.
All of the obligations of Anchor under the Notes and the Indenture are
secured by a first priority perfected security interest in substantially all of
the existing and future real property, personal property and other assets of
Anchor and a first priority perfected security interest in collateral ranking
pari passu with the security interest in favor of the Revolving Credit Facility.
The Indenture, subject to certain exceptions, restricts the Company from
taking various actions, including, but not limited to, subject to specified
exceptions, the incurrence of additional indebtedness, the granting of
additional liens, the payment of dividends and other restricted payments,
mergers, acquisitions and transactions with affiliates.
All of the Company's debt agreements contain cross-default provisions.
Principal payments required on long-term debt are $138 in the remainder of
1997, $286 in 1998, $291 in 1999, $297 in 2000 and $303 in 2001. Payments to be
made in 2002 and thereafter are $150,934.
In connection with the issuance of the Notes on April 17, 1997, Anchor
issued 702,615 Class B common shares to Consumers U.S. and 702,614 warrants,
valued at $5.00 per share, to the initial purchasers.
F-41
<PAGE> 159
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5 -- REDEEMABLE PREFERRED STOCK
Anchor has designated 2,239,320 shares as Series A Preferred Stock. The
Series A Preferred Stock ranks, as to dividends and redemption and upon
liquidation, prior to all other classes and series of capital stock of Anchor.
The holders of Series A Preferred Stock are entitled to receive, when and as
declared by the Board of Directors of Anchor, cumulative dividends, payable
quarterly in cash, at an annual rate of 10%. Holders of Series A Preferred Stock
are not entitled to vote, except as defined. No dividends have been declared or
paid as of June 30, 1997.
Anchor is required to redeem all outstanding shares of the Series A
Preferred Stock on February 5, 2009, and, on or after February 5, 2000, may, at
its option, redeem outstanding shares of Series A Preferred Stock at a price of
$25.00 per share, if the trading price of the common stock equals or exceeds
$6.00 per share. Shares of Series A Preferred Stock are convertible into shares
of Class A Common Stock, at the option of the holder, at a ratio determined by
dividing the liquidation value of the Series A Preferred Stock by $6.00 and such
ratio is subject to adjustment from time to time.
Pursuant to the Asset Purchase Agreement, Anchor is obligated to register
all of the shares of the Class A Common Stock and Series A Preferred Stock under
the Securities Exchange Act and to qualify the shares for listing on a
nationally recognized United States securities exchange or on The Nasdaq Stock
Market's National Market.
NOTE 6 -- RELATED PARTY INFORMATION
G&G Investments, Inc.
Anchor is party to a management agreement with G&G Investments, Inc.
("G&G"), (the majority owner of Consumers), in which G&G is to provide specified
managerial services for Anchor. For these services, G&G is entitled to receive
an annual management fee of $3,000 and reimbursement of its out-of-pocket costs.
The terms of Revolving Credit Facility and the Indenture limit the management
fee annual payment to $1,500 unless certain financial maintenance tests are met.
The Company has recorded an expense of $1,233 for this agreement for the period
ended June 30, 1997 and no payments have been made.
Other affiliates
Related party transactions with Consumers and its affiliates for the period
from February 5, 1997 to June 30, 1997 are summarized as follows:
<TABLE>
<S> <C>
Purchases of inventory............................................ $1,035
Payable for inventory............................................. 23
Sales of inventory and other...................................... 5,098
Receivable from sales of inventory and other...................... 3,814
</TABLE>
All transactions with Consumers and its affiliates are conducted on terms
which, in the opinion of management, are no less favorable than with third
parties.
F-42
<PAGE> 160
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7 -- PENSION PLANS
As part of the Anchor Acquisition, Anchor assumed the pension plans
previously maintained by Old Anchor. Anchor has defined benefit retirement plans
for salaried and hourly-paid employees. Benefits are calculated on a
salary-based formula for salaried plans and on a service-based formula for
hourly plans. Pension costs for the period from February 5, 1997 to June 30,
1997 are summarized below:
<TABLE>
<S> <C>
Service cost-benefits earned during the year...................... $ 1,790
Interest cost on projected benefit obligation..................... 12,830
Return on plan assets............................................. (13,220)
------
Total pension cost.............................................. $ 1,400
======
</TABLE>
Anchor has substantial unfunded obligations related to its employee pension
plans. The Retirement Protection Act of 1994 requires Anchor to make significant
additional funding contributions into its underfunded defined benefit retirement
plans and will increase the premiums paid to the PBGC.
As an objection to the sale, the PBGC entered a determination to terminate
Old Anchor's qualified defined benefit pension plans. However, in conjunction
with the sale, Anchor assumed all liabilities of the plans and funded $9,056 of
plan contributions, previously unfunded following Old Anchor's filing of Chapter
11. Additionally, Anchor issued $9,000 face amount of Series A Preferred Stock
and Vitro, the parent of Old Anchor, has guaranteed to fund certain qualified
defined benefit plan obligations, should Anchor default on its obligations.
Consequently, the PBGC agreed not to terminate the plans as a result of the
Agreement and the assumption of the plans by Anchor.
Anchor also sponsors two defined contribution plans covering substantially
all salaried and hourly employees. In 1994, the salaried retirement and savings
programs were changed, resulting in the freezing of benefits under the defined
benefit pension plans for salaried employees and amending the defined
contribution savings plan for salaried employees. Under the amended savings
plan, Anchor matches employees' basic contributions to the plan in an amount
equal to 150% of the first 4% of an employee's compensation. Expenses under the
savings programs for the period from February 5, 1997 to June 30, 1997 were
approximately $1,100.
The funded status of Anchor's pension plans at June 30, 1997 is as follows:
<TABLE>
<CAPTION>
ACCUMULATED ASSETS EXCEED
BENEFITS ACCUMULATED
EXCEED ASSETS BENEFITS
------------- -------------
<S> <C> <C>
Actuarial present value of accumulated plan
benefits:
Vested benefit obligation......................... $ 306,803 $ 111,701
======= =======
Accumulated benefit obligation.................... $ 315,630 $ 111,701
======= =======
Projected benefit obligation...................... 315,630 111,701
Plan assets at fair value........................... 242,970 120,808
------- -------
Projected benefit obligation in excess of (less
than) plan assets................................. $ 72,660 $ (9,107)
======= =======
Accrued (prepaid) pension cost...................... $ 72,660 $ (9,107)
======= =======
</TABLE>
Plan assets are held by an independent trustee and consist primarily of
investments in equities, fixed income and government securities. There is
currently no public market for the Series A Preferred Stock and no dividends
have been paid during the current year. The Company expects to receive a
valuation of the contributed Series A Preferred Stock in the fourth quarter of
1997. Should the valuation be less than the $9,000 contributed value, the
Company will be required to contribute the difference.
F-43
<PAGE> 161
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Significant assumptions used in determining net pension cost and related
pension obligations for the benefit plans for 1997 are as follows:
<TABLE>
<S> <C>
Discount rate......................................................... 7.50%
Expected long-term rate of return on plan assets...................... 9.0
</TABLE>
NOTE 8 -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides benefits to substantially all salaried, and certain
hourly employees under several plans. SFAS 106 requires accrual of
postretirement benefits (such as healthcare benefits) during the years an
employee provides services. Currently, the Company funds these healthcare
benefits on a pay-as-you-go basis. The Company also contributes to a
multi-employer trust, and under the requirements of SFAS 106, recognizes as
postretirement benefit cost the required annual contribution. The Company's cash
flows are not affected by implementation of SFAS 106.
The accumulated postretirement benefit obligation at June 30, 1997 is as
follows:
<TABLE>
<S> <C>
Retirees........................................................... $38,815
Eligible plan participants......................................... 8,507
Other active plan participants..................................... 13,764
-------
$61,086
=======
Accrued postretirement benefit costs............................... $61,086
=======
</TABLE>
Net postretirement benefit costs for the period from February 5, 1997 to
June 30, 1997 consist of the following components:
<TABLE>
<S> <C>
Service cost -- benefits earned during the year..................... $ 419
Interest cost on accumulated postretirement benefit obligation...... 1,653
------
$2,072
======
</TABLE>
The assumed healthcare cost trend used in measuring the accumulated
postretirement benefit obligation as of June 30, 1997 was 9.0% declining
gradually to 5.5% by the year 2003, after which it remains constant. A one
percentage point increase in the assumed healthcare cost trend rate for each
year would increase the accumulated postretirement benefit obligation as of June
30, 1997 by approximately 12% and the net postretirement healthcare cost for the
period ended June 30, 1997 by approximately 13%. The assumed discount rate used
in determining the accumulated postretirement benefit obligation was 7.50% for
1997.
The Company also contributes to a multi-employer trust which provides
certain other postretirement benefits to retired hourly employees. Expenses
under this program for the period from February 5, 1997 to June 30, 1997 were
$1,540.
NOTE 9 -- PLANT CLOSING COSTS
In an effort to reduce the Company's cost structure and improve
productivity, the Company closed its Houston, Texas plant effective February
1997 and its Dayville, Connecticut plant effective April 1997 and included the
liabilities assumed as part of the Anchor Acquisition cost. Closure of these
facilities will result in the consolidation of underutilized manufacturing
operations. Substantially all of the hourly and salaried employees at these
plants, approximately 600 in total, are being terminated. It is expected that
the majority of the closing activities will be completed within two years after
closure and the idled facilities will be retained for
F-44
<PAGE> 162
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
future use or held for sale. Exit charges and the amounts charged against the
liability as of June 30, 1997 are as follows:
<TABLE>
<CAPTION>
AMOUNT CHARGED
AGAINST
EXIT CHARGES LIABILITY
------------ --------------
<S> <C> <C>
Severance and employee benefit costs..................... $ 11,300 $6,700
Plant shutdown costs related to consolidation and
discontinuation of manufacturing activities............ 21,700 3,600
</TABLE>
NOTE 10 -- INCOME TAXES
The Company applies SFAS 109 under which the liability method is used in
accounting for 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,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Under SFAS 109, if on the basis of
available evidence, it is more likely than not that all or a portion of the
deferred tax asset will not be realized, the asset must be reduced by a
valuation allowance. Since realization is not assured as of June 30, 1997,
management has deemed it appropriate to establish a realization reserve against
the tax asset created during the period.
The following significant components of the deferred tax assets and
liabilities are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Accruals and reserves............................................ $ 2,670
Property, plant and equipment.................................... 2,400
Pensions and postretirement liabilities.......................... 800
Tax loss carryforwards........................................... 130
-------
6,000
Valuation allowance................................................ (2,400)
-------
3,600
-------
Deferred tax liabilities:
Goodwill......................................................... 3,500
Other assets..................................................... 100
-------
3,600
-------
Net deferred tax assets............................................ $ --
=======
</TABLE>
The effective tax rate reconciliation at June 30, 1997 is as follows:
<TABLE>
<S> <C>
Statutory rate......................................................... 39%
Permanent differences.................................................. 21
----
18
Valuation allowance.................................................... 18
----
Effective rate......................................................... --%
====
</TABLE>
NOTE 11 -- LEASES
The Company leases distribution and office facilities, machinery,
transportation, data processing and office equipment under non-cancelable leases
which expire at various dates through 2004. These leases
F-45
<PAGE> 163
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
generally provide for fixed rental payments and include renewal and purchase
options at amounts which are generally based on fair market value at expiration
of the lease. The Company has no material capital leases.
Future minimum lease payments under non-cancelable operating leases are as
follows:
<TABLE>
<S> <C>
Remaining in 1997.................................................. $ 9,700
1998............................................................... 16,500
1999............................................................... 12,700
2000............................................................... 9,500
2001............................................................... 8,600
After 2001......................................................... 20,300
-------
$77,300
=======
</TABLE>
Rental expense for all operating leases for the period from February 5,
1997 to June 30, 1997 was $8,845.
In connection with the Anchor Acquisition, Anchor assumed and amended Old
Anchor's lease of the headquarters facility located in Tampa, Florida and a
related option to purchase. The term of the amended lease expires January 2,
1998, unless Anchor has exercised its purchase right, and the term then expires
February 1, 1998. The property is encumbered by a mortgage, which is required to
be repaid or refinanced by February 1, 1998. Anchor is obligated to pay this
indebtedness if Anchor does not exercise its purchase option. If the property is
subsequently sold, a portion of the net proceeds is to be reimbursed to Anchor.
Anchor expects to exercise the option to purchase the headquarters facility and
assign such option to a third party purchaser of the facility. Anchor expects to
enter into a lease pursuant to which Anchor will lease a portion of the
headquarters facility.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
Anchor is a respondent in various environment-related cases. The
measurement of liabilities in these cases and other environmental concerns is
based on available facts of each situation and considers factors such as prior
experience in remediation efforts and presently enacted environmental laws and
regulations. In the opinion of management, based upon information presently
known, the Company has adequately provided for environmental liabilities. The
Company is not otherwise party to, and none of its assets are subject to any
other pending legal proceedings, other than ordinary routine litigation
incidental to its business and against which the Company is adequately insured
and indemnified or which is not material. The Company believes that the ultimate
outcome of these cases will not materially affect future operations.
NOTE 13 -- SUBSEQUENT EVENTS
Following the issuance of the Notes, the Company filed, with the Securities
and Exchange Commission, a Registration Statement on July 16, 1997, (File No.
33331363) on Form S-4 under the Securities Act of 1933 (currently under review),
with respect to an issue of 11.25% First Mortgage Notes, due 2005, identical in
all material respects to the Notes, except that the new Notes would not bear
legends restricting the transfer thereof. Upon the effectiveness of the
Registration Statement, the Company will commence an offer to the holders of the
Notes to exchange their Notes for a like principal amount of new Notes. The
Company entered into a Registration Rights Agreement on April 17, 1997. Pursuant
to this agreement, additional interest in an amount of up to 1.5% per annum may
accrue on the Notes as a result of the Company's failure to have an exchange
offer registration statement or declared effective on or prior to October 14,
1997 and its failure to have exchanged all Notes tendered in accordance with the
terms of the exchange offer on or prior to November 28, 1997.
F-46
<PAGE> 164
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
In connection with a plan to simplify the corporate ownership structure of
Consumers, Anchor and their affiliates, Glenshaw Glass Company, Inc., a
wholly-owned subsidiary of G&G, may become a subsidiary of the Company.
In September 1997, Hillsboro Glass Company ("Hillsboro"), a
glass-manufacturing plant owned by G&G, discontinued manufacturing. All of
Hillsboro's rights and obligations to fill orders under a supply contract
between Consumers and one of its major customers will be purchased by Consumers
and Anchor. The Company estimates that the purchase price of the Company's
portion of this contract will approximate $12,000 and will be amortized over the
remaining term of the acquired contract, approximately 11 years, based on
shipments.
F-47
<PAGE> 165
CONSUMERS U.S., INC.
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 804
Accounts receivable............................................................... 60,840
Inventories --
Raw materials and manufacturing supplies........................................ 24,421
Semi-finished and finished products............................................. 93,770
Other current assets.............................................................. 8,778
--------
Total current assets.................................................... 188,613
Property, plant and equipment, net................................................ 309,942
Other assets...................................................................... 45,100
Goodwill.......................................................................... 42,662
--------
$586,317
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Revolving credit facility......................................................... $ 5,861
Current maturities of long-term debt.............................................. 353
Accounts payable.................................................................. 31,037
Accrued expenses.................................................................. 44,232
Accrued interest.................................................................. 7,197
Accrued compensation and employee benefits........................................ 36,471
--------
Total current liabilities............................................... 125,151
Long-term debt.................................................................... 151,954
Pension liabilities............................................................... 44,001
Other long-term liabilities....................................................... 124,600
--------
320,555
Commitments and contingencies (Note 6)
Redeemable preferred stock of subsidiary.......................................... 55,983
--------
Minority interest................................................................. 2,243
--------
Stockholder's equity:
Common stock.................................................................... 170
Capital in excess of par value.................................................. 86,330
Accumulated deficit............................................................. (4,115)
--------
82,385
--------
$586,317
========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-48
<PAGE> 166
CONSUMERS U.S., INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 5, 1997 TO SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
Net sales....................................................................... $ 415,636
Costs and expenses:
Costs of products sold........................................................ 386,130
Selling and administrative expenses........................................... 18,127
-----------
Income from operations.......................................................... 11,379
Other income, net............................................................... 234
Interest expense................................................................ (12,725)
-----------
Loss before extraordinary item.................................................. (1,112)
Extraordinary item --
Write-off of deferred financing costs, net of nil tax......................... (11,200)
-----------
Loss before minority interest................................................... (12,312)
Minority interest............................................................... 11,847
-----------
Net loss........................................................................ $ (465)
===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-49
<PAGE> 167
CONSUMERS U.S., INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
PERIOD FROM FEBRUARY 5, 1997 TO SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL ACCUMU- TOTAL
COMMON IN-EXCESS LATED STOCKHOLDER'S
STOCK OF PAR DEFICIT EQUITY
------ --------- ------- -------------
<S> <C> <C> <C> <C>
Balance, February 5, 1997.............................. $ -- $ -- $ -- $ --
Issuance of 17,000,100 shares of Common Stock to
Consumers International........................... 170 86,330 -- 86,500
Dividends accrued on Series A Preferred Stock of
subsidiary........................................ -- -- (3,650) (3,650)
Net loss............................................. -- -- (465) (465)
------ ------- ------- -------
Balance, September 30, 1997............................ $170 $86,330 $(4,115) $82,385
====== ======= ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-50
<PAGE> 168
CONSUMERS U.S., INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM FEBRUARY 5, 1997 TO SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Loss before extraordinary item................................................. $ (1,112)
Adjustments to reconcile loss before extraordinary item
to net cash provided by operating activities:
Depreciation and amortization............................................... 34,806
Other amortization.......................................................... 3,616
Other....................................................................... 224
Decrease in cash resulting from changes in assets and liabilities.............. (34,170)
--------
3,364
Cash flows from investing activities:
Purchase of assets and liabilities of Old Anchor............................... (200,470)
Expenditures for property, plant and equipment................................. (21,034)
Acquisition related contribution to defined benefit pension plans.............. (9,056)
Other.......................................................................... (773)
--------
(231,333)
Cash flows from financing activities:
Proceeds from issuance of long-term debt....................................... 280,000
Principal payments on long-term debt........................................... (130,148)
Proceeds from issuance of preferred stock...................................... 84,000
Proceeds from issuance of common stock......................................... 1,000
Net draws on Revolving Credit Facility......................................... 5,861
Other, primarily financing fees................................................ (11,940)
--------
228,773
Cash and cash equivalents:
Increase in cash and cash equivalents.......................................... 804
Balance, beginning of period................................................... --
--------
Balance, end of period......................................................... $ 804
========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest....................................................................... $ 4,103
========
Income tax payments (refunds), net............................................. $ --
========
</TABLE>
Supplemental noncash investing and financing activities:
In connection with the Anchor Acquisition, Anchor issued $46,983 face
amount of Series A Preferred Stock and $2,454 of Class A Common Stock. In
connection with the Anchor Loan Facility, Anchor issued 1,405,229 of
warrants to the lenders valued at $7,012.
In February 1997, Anchor contributed $9,000 face amount of Series A
Preferred Stock to Anchor's defined benefit pensions plans.
In connection with the issuance of the Notes, Anchor issued 702,615
shares of Class B Common Stock to Consumers U.S. and 702,614 warrants
valued at $3,506 to the initial purchasers of the Notes. Also, with the
issuance of the Notes, the Company recorded an extraordinary loss for the
write-off of deferred financing fees of the Anchor Loan Facility.
See Notes to Condensed Consolidated Financial Statements.
F-51
<PAGE> 169
CONSUMERS U.S., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization of the Company
Consumers U.S., Inc., ("Consumers U.S.") a Delaware corporation and a
wholly-owned subsidiary of Consumers International Inc. ("Consumers
International"), a Canadian corporation and a wholly-owned subsidiary of
Consumers Packaging Inc. ("Consumers"), was formed in January 1997 to hold an
investment in Anchor Glass Acquisition Corp. ("Anchor") which acquired certain
assets and assumed certain liabilities of Anchor Glass Container Corporation
("Old Anchor"), now Anchor Resolution Corp.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Consumers U.S. and its partially-owned subsidiary, Anchor (together the
"Company"). All material intercompany accounts and transactions have been
eliminated in consolidation. The Company holds 63.4% of the total voting common
shares of Anchor and holds the majority of the Anchor Board of Director
positions, and accordingly the results of Anchor's operations have been
consolidated in these financial statements. Minority interest represents the
minority shareholders' proportionate share of the equity and the income or loss
of Anchor. The minority shareholders' 74.2% proportionate share of income or
loss of Anchor is based upon all outstanding common shares and warrants of
Anchor. Consumers U.S. has no independent activities.
Management's Responsibility
In the opinion of management, the accompanying condensed consolidated
financial statements contain all adjustments, consisting of only normal
recurring adjustments, and excluding any amounts resulting from purchase price
adjustments discussed above, necessary to present fairly the financial position
as of September 30, 1997 and the results of operations and cash flows for the
period from February 5, 1997 to September 30, 1997.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The results of operations for the interim period
may not be necessarily indicative of the results of the full fiscal year.
Business Segment
The Company is engaged in the manufacture and sale of a diverse line of
clear, amber, green and other color glass containers of various types, designs
and sizes to customers principally in the beer, food, iced tea, distilled
spirits and soft drink industries. The Company markets its products throughout
the United States. Revenues are recognized as legal title of product passes to
the customer, usually as product is shipped.
Inventories
Inventories are stated at the lower of cost or market. The cost of
substantially all inventories of raw materials and semi-finished and finished
products is determined on the first-in, first-out method. Manufacturing supplies
and certain other inventories are valued at weighted average costs.
Property, Plant and Equipment
Property, plant and equipment expenditures, including renewals, betterments
and furnace rebuilds which extend useful lives, and expenditures for glass
forming machine molds are capitalized and depreciated using the straight-line
method over the estimated useful lives of the assets for financial statement
purposes while
F-52
<PAGE> 170
CONSUMERS U.S., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
accelerated depreciation methods are principally used for tax purposes.
Generally, annual depreciation rates range from 2.5% for buildings, 6.3% to 20%
for machinery and equipment and 40% for molds. Furnace and machine rebuilds,
which are recurring in nature and which extend the lives of the related assets,
are capitalized and depreciated over the period of extension, generally at rates
of 20% to 25%, based on the type and extent of these rebuilds. Depreciation of
leased property recorded as capital assets is computed on a straight-line basis
over the estimated useful lives of the assets. Maintenance and repairs are
charged directly to expense as incurred.
Strategic Alliance with Customer
In conjunction with the Anchor Acquisition, the Company assumed a fifteen
year supply agreement with a significant customer. In respect of the supply
agreement, payments made or to be made to this customer in 1996, 1997 and 1998
totaling $23,000 are being amortized over the term of the contract based upon
shipments.
Goodwill
Goodwill represents the excess of the purchase price over the estimated
fair value of net assets acquired and is amortized on a straight line basis over
a twenty year period. Amortization expense for the period ended September 30,
1997 was approximately $1,500. The Company has not yet finalized the allocations
of net assets and certain contingent liabilities have not yet been resolved, as
well as the final purchase price.
Income Taxes
The Company applied Statement of Financial Accounting Standards No.
109 -- Accounting for Income Taxes ("SFAS 109") which establishes financial
accounting and reporting standards for the effects of income taxes which result
from a company's activities during the current and preceding years.
Retirement Plans
Anchor has retirement plans, principally non-contributory, covering
substantially all salaried and hourly employees. The Company's funding policy is
to pay at least the minimum amount required by the Employee Retirement Income
Security Act of 1974 and the Retirement Protection Act of 1994, which requires
the Company to make significant additional contributions into its underfunded
defined benefit plans.
Postretirement Benefits
Statement of Financial Accounting Standards No. 106 -- Employers'
Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106") requires
accrual of postretirement benefits (such as healthcare benefits) during the
period that an employee provides service. This accounting method has no effect
on the Company's cash outlays for these retirement benefits.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimated.
F-53
<PAGE> 171
CONSUMERS U.S., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 2 -- PURCHASE OF ASSETS
On February 5, 1997, pursuant to an Asset Purchase Agreement dated December
18, 1996, as amended (the "Asset Purchase Agreement"), between Consumers,
Owens-Brockway Glass Container Inc. ("Owens") and Old Anchor, the Company (the
rights and obligations of Consumers having been assigned to Anchor) and Owens
acquired substantially all of the assets of, and assumed certain liabilities, of
Old Anchor.
The Company purchased eleven operating glass container manufacturing
facilities and other related assets (the "Anchor Acquisition"). Owens purchased
assets and assumed liabilities of Old Anchor's Antioch and Hayward, California
facilities and purchased certain other existing inventories. Owens also
purchased Old Anchor's investment in Rocky Mountain Bottle Company, a joint
venture with Coors Brewing Company ("Coors"), and assumed Old Anchor's agreement
to manufacture Coors' glass packaging products in the United States.
The total purchase price approximated $378,000, excluding fees of
approximately $1,500 which were paid by Consumers and recorded as capital in
excess of par by Anchor. The portion of the purchase price paid in cash by Owens
amounted to approximately $128,000. The remaining purchase price of
approximately $250,000 from the Company was comprised of: approximately $200,500
in cash, $47,000 face amount (1,879,320 shares) of mandatorily redeemable 10%
cumulative convertible preferred stock of Anchor ("Series A Preferred Stock")
and $2,500 of common stock of Anchor (490,898 shares with an estimated value of
$5.00 per share) (the "Class A Common Stock").
The purchase price paid by the Company is subject to adjustment. On June
13, 1997, Old Anchor delivered to the Company the closing balance sheet which
indicated that Old Anchor believed that it was entitled to additional payments
from the Company and Owens totaling approximately $76,300. On July 28, 1997, the
Company delivered its notice of disagreement to Old Anchor, which requested a
reduction of the purchase price of approximately $96,800. Since that time, the
parties have been negotiating the amount of the adjustment, and in January 1998,
have reached a proposed settlement (the "Proposed Settlement"). The Proposed
Settlement requires the payment by the Company to Old Anchor of an additional
$1,000 in cash and the issuance of warrants for the purchase of additional
shares of common stock. In addition, the Company will issue warrants to purchase
additional shares of common stock to Consumers U.S. or an affiliate. The
Proposed Settlement is subject to final approval by the Company, Old Anchor and
the bankruptcy court.
The Company obtained the cash portion of the purchase price principally
from an $85,000 cash investment by Consumers International in common stock of
Consumers U.S. and a $130,000 bank loan.
For the period from February 5, 1997 to February 5, 2000, the common stock
of Anchor is divided into three classes, Class A and Class B, which are voting,
and Class C, which is non-voting. During this period, the number of Directors of
Anchor is fixed at nine, with the holders of the Class A shares having the right
to elect four Directors and the holders of the Class B shares having the right
to elect five Directors. In connection with the settlement of the issues
surrounding the adjustment to the purchase price paid by the Company, it is
expected that the Certificate of incorporation of the Company will be amended to
increase the number of directors to be elected by the holders of Class B common
stock. Holders of the Class C shares do not participate in the election of
Directors. On February 5, 2000, the three classes of common stock will
automatically be consolidated into one single class of common stock with
identical rights. Anchor currently has outstanding warrants exercisable for
2,107,843 shares of Class C common stock for an exercise price of $.10 per
share, which has already been deemed paid.
Upon consummation of the purchase and effective February 6, 1997, Anchor
changed its name to Anchor Glass Container Corporation.
The Anchor Acquisition is accounted for by using the purchase method, with
the purchase price being allocated to the assets acquired and preacquisition
liabilities assumed based on their estimated fair value at the
F-54
<PAGE> 172
CONSUMERS U.S., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
date of acquisition. These allocations are based on preliminary appraisals,
evaluations, estimations and other studies. Certain acquisition costs and fees,
including the costs of closing and consolidating certain facilities have also
been recorded by the Company at the date of acquisition. As of June 30, 1997 the
Company has not yet finalized these allocations and certain contingent
liabilities have not yet been resolved, as well as the final purchase price. The
excess of the purchase price over the fair value of net assets purchased of
approximately $47,000 is classified as Goodwill on the accompanying condensed
consolidated balance sheet. In the fourth quarter of 1997, the Company has
completed its appraisals, evaluations and other studies to finalize its
allocation of purchase price to assets acquired and preacquisition liabilities
assumed based upon their fair value at the date of acquisition. In the
aggregate, the Company expects to increase goodwill by up to approximately
$16,000. This increase results from, among others, adjustments to opening
accruals and valuations reserves, additional accruals for previously idled
facilities and the final settlement of the Anchor Acquisition purchase price.
The estimated values of assets acquired and liabilities assumed as of
February 5, 1997 after giving effect to the Anchor Acquisition and consideration
paid is as follows:
<TABLE>
<S> <C>
Accounts receivable.............................................. $ 48,000
Inventories...................................................... 123,000
Property, plant and equipment.................................... 322,000
Goodwill......................................................... 47,000
Other assets..................................................... 32,000
Current liabilities.............................................. (139,000)
Long-term debt................................................... (2,000)
Other long-term liabilities...................................... (181,000)
---------
$ 250,000
=========
</TABLE>
The following unaudited pro forma results of operations for the Company for
the nine months ended September 30, 1997 assumes the Anchor Acquisition occurred
on January 1, 1997 (dollars in thousands except per share data):
<TABLE>
<S> <C>
Net sales......................................................... $469,713
Loss before extraordinary item.................................... (15,242)
Net loss.......................................................... (24,199)
</TABLE>
These pro forma amounts represent historical operating results with
appropriate adjustments of the Anchor Acquisition which give effect to interest
expense and the impact of purchase price adjustments to depreciation and
amortization expense. These pro forma amounts do not purport to be indicative of
the results that would have actually been obtained had the Anchor Acquisition
been completed as of January 1, 1997, or that may be obtained in the future.
On January 9, 1997, the Pension Benefit Guaranty Corporation ("PBGC")
notified Old Anchor that it intended to institute involuntary termination
proceedings with respect to the three defined benefit pension plans then
maintained by Old Anchor, and currently maintained by Anchor. However, the PBGC
reached an agreement with Vitro, S.A., the parent of Old Anchor, in which Vitro,
S.A. agreed to provide a limited guaranty to the PBGC with respect to the
unfunded benefit liabilities of Anchor's defined benefit plans, if the plans, or
any one of them, are terminated before August 1, 2006. Consequently, the PBGC
agreed not to terminate the plans as a result of the Asset Purchase Agreement
and the assumption of the plans by Anchor. In conjunction with the purchase,
Anchor assumed all liabilities of the plans and funded $9,056 of plan
contributions, previously unfunded following Old Anchor's filing of Chapter 11.
Additionally, Anchor issued to the plans $9,000 face amount (360,000 shares) of
Series A Preferred Stock.
F-55
<PAGE> 173
CONSUMERS U.S., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 3 -- REVOLVING CREDIT FACILITY
In conjunction with the Anchor Acquisition, Anchor entered into a credit
agreement dated as of February 5, 1997, with Bankers Trust Company ("BTCo") as
issuing bank and BT Commercial Corporation, as agent, to provide a $110,000
senior secured revolving credit facility (the "Revolving Credit Facility"). The
Revolving Credit Facility enables Anchor to obtain revolving credit loans for
working capital purposes and the issuance of letters of credit for its account
in an aggregate amount not to exceed $110,000. Advances outstanding at any one
time can not exceed an amount equal to the borrowing base as defined in the
Revolving Credit Facility.
Revolving credit loans bear interest at a rate based upon, at Anchor's
option, (i) the higher of the prime rate of BTCo, 0.5% in excess of the
overnight federal funds rate and 0.5% in excess of the adjusted certificate of
deposit rate, as defined, each plus a defined margin, or (ii) the average of the
offering rates of banks in the New York interbank Eurodollar market, plus a
defined margin. Interest is payable monthly. A commitment fee of 0.5% on the
unused portion of the facility and letter of credit fees, as defined, is payable
quarterly. The Revolving Credit Facility expires February 5, 2002.
At September 30, 1997, advances outstanding under the Revolving Credit
Facility were $5,861 and the total outstanding letters of credit on this
facility were $12,788.
Anchor's obligations under the Revolving Credit Facility are secured by a
first priority lien on substantially all of Anchor's inventories and accounts
receivable and related collateral and a second priority pledge of all of the
Series B preferred stock and the Class B common stock. In addition, Anchor's
obligations under the Revolving Credit Facility are guaranteed by Consumers
U.S., the holder of the outstanding Series B preferred stock and Class B common
stock.
The Revolving Credit Facility contains certain covenants that restrict
Anchor from taking various actions, including, subject to specified exceptions,
the incurrence of additional indebtedness, the granting of additional liens, the
making of investments, the payment of dividends and other restricted payments,
mergers, acquisitions and other fundamental corporate changes, capital
expenditures, operating lease payments and transactions with affiliates. The
Revolving Credit Facility also contains certain financial covenants that require
Anchor to meet and maintain certain financial tests and minimum ratios,
including a minimum working capital ratio, a minimum consolidated net worth test
and a minimum interest coverage ratio, all of which have been met at September
30, 1997.
NOTE 4 -- LONG-TERM DEBT
In connection with the Anchor Acquisition, Anchor entered into a Senior
Credit Agreement, dated as of February 5, 1997, with Bankers Trust Company, as
agent, to provide a $130,000 bank loan (the "Anchor Loan Facility"). The Anchor
Loan Facility was repaid in full from the net proceeds of the issuance of the
$150,000 11.25% First Mortgage Notes, due 2005, (the "Notes"). The Anchor Loan
Facility bore interest at a rate of 12.50%.
As additional consideration in providing the Anchor Loan Facility, Anchor
issued to BT Securities Corporation and TD Securities, 1,405,229 warrants
convertible to Class C common stock. The warrants are valued at approximately
$7,000. As a result of the refinancing of the Anchor Loan Facility, deferred
financing fees of $11,200 were written off as an extraordinary loss in the
second quarter of 1997.
Effective April 17, 1997, Anchor completed an offering of the Notes, issued
under an indenture dated as of April 17, 1997 (the "Indenture"), among Anchor,
Consumers U.S. and The Bank of New York, as Trustee. The Notes are senior
secured obligations of Anchor, ranking senior in right of payment to all
existing and future subordinate indebtedness of Anchor and pari passu with all
existing and future senior indebtedness of
F-56
<PAGE> 174
CONSUMERS U.S., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Anchor. The Notes are guaranteed by Consumers U.S. Proceeds from the issuance of
the Notes, net of fees, were approximately $144,000 and were used to repay
$130,000 outstanding under the Anchor Loan Facility and $8,800 of advances
outstanding under the Revolving Credit Facility, with the balance used for
general corporate purposes.
Interest on the Notes accrues at 11.25% per annum and is payable
semiannually on each April 1 and October 1 to registered holders of the Notes at
the close of business on the March 15 and September 15 immediately preceding the
applicable interest payment date. The Notes are not redeemable prior to April 1,
2001; however, the Notes are redeemable at Anchor's option in whole at any time
or in part from time to time at redemption prices defined in the Indenture. The
Indenture provides that upon the occurrence of a change in control, Anchor will
be required to offer to repurchase all of the Notes at a purchase price in cash
equal to 101% of the principal amount plus interest accrued to the date of
purchase.
All of the obligations of Anchor under the Notes and the Indenture are
secured by a first priority perfected security interest in substantially all of
the existing and future real property, personal property and other assets of
Anchor and a first priority perfected security interest in collateral ranking
pari passu with the security interest in favor of the Revolving Credit Facility.
The Indenture, subject to certain exceptions, restricts Anchor from taking
various actions, including, but not limited to, subject to specified exceptions,
the incurrence of additional indebtedness, the granting of additional liens, the
payment of dividends and other restricted payments, mergers, acquisitions and
transactions with affiliates.
In connection with the refinancing of the Notes on April 17, 1997, Anchor
issued 702,615 shares of Class B common stock to Consumers U.S. and 702,614
warrants, valued at $5.00 per share, to the initial purchasers.
NOTE 5 -- REDEEMABLE PREFERRED STOCK
Anchor has designated 2,239,320 shares as Series A Preferred Stock. The
Series A Preferred Stock ranks, as to dividends and redemption and upon
liquidation, prior to all other classes and series of capital stock of Anchor.
The holders of Series A Preferred Stock are entitled to receive, when and as
declared by the Board of Directors of Anchor, cumulative dividends, payable
quarterly in cash, at an annual rate of 10%. Holders of Series A Preferred Stock
are not entitled to vote, except as defined. No dividends have been declared or
paid as of September 30, 1997.
Anchor is required to redeem all outstanding shares of the Series A
Preferred Stock on February 5, 2009, and, on or after February 5, 2000, may, at
its option, redeem outstanding shares of Series A Preferred Stock at a price of
$25.00 per share, if the trading price of the common stock equals or exceeds
$6.00 per share. Shares of Series A Preferred Stock are convertible into shares
of Class A Common Stock, at the option of the holder, at a ratio determined by
dividing the liquidation value of the Series A Preferred Stock by $6.00 and such
ratio is subject to adjustment from time to time.
Pursuant to the Asset Purchase Agreement, Anchor is obligated to register
all of the shares of the Class A Common Stock and Series A Preferred Stock under
the Securities Exchange Act and to qualify the shares for listing on a
nationally recognized United States securities exchange or on The Nasdaq Stock
Market's National Market.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Anchor is a respondent in various environment-related cases. The Company is
not otherwise party to, and none of its assets are subject to any other pending
legal proceedings, other than ordinary routine litigation
F-57
<PAGE> 175
CONSUMERS U.S., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
incidental to its business and against which the Company is adequately insured
and indemnified or which is not material. The Company believes that the ultimate
outcome of these cases will not materially affect future operations.
NOTE 7 -- SUBSEQUENT EVENTS
Following the issuance of the Notes, the Company filed, with the Securities
and Exchange Commission, a Registration Statement on July 16, 1997, (File
No.333-31363) on Form S-4 under the Securities Act of 1933 (currently under
review), with respect to an issue of 11.25% First Mortgage Notes, due 2005,
identical in all material respects to the Notes, except that the new Notes would
not bear legends restricting the transfer thereof. Upon the effectiveness of the
Registration Statement, the Company will commence an offer to the holders of the
Notes to exchange their Notes for a like principal amount of new Notes. The
Company entered into a Registration Rights Agreement on April 17, 1997. Pursuant
to this agreement, additional interest in an amount of up to 1.5% per annum may
accrue on the Notes as a result of the Company's failure to have an exchange
offer registration statement declared effective on or prior to October 14, 1997
and its failure to have exchanged all Notes tendered in accordance with the
terms of the exchange offer on or prior to November 28, 1997.
In connection with a plan to simplify the corporate ownership structure of
Consumers, Anchor and their affiliates. Glenshaw Glass Company, Inc., a
wholly-owned subsidiary of G&G, may become a subsidiary of the Company.
In September 1997, Hillsboro Glass Company ("Hillsboro"), a
glass-manufacturing plant owned by G&G, discontinued manufacturing. All of
Hillsboro's rights and obligations to fill orders under a supply contract
between Consumers and one of its major customers will be purchased by Consumers
and Anchor. The Company estimates that the purchase price of the Company's
portion of this contract will approximate $12,000 and will be amortized over the
remaining term of the acquired contract, approximately 11 years, based on
shipments.
F-58
<PAGE> 176
INDEX TO FINANCIAL INFORMATION FOR OLD ANCHOR
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants........................................... H-2
Consolidated Balance Sheets
December 31, 1995 and 1996...................................................... H-3
Consolidated Statements of Operations
Years Ended December 31, 1994, 1995 and 1996.................................... H-4
Consolidated Statements of Stockholder's Equity (Deficiency in Assets)
Years Ended December 31, 1994, 1995 and 1996.................................... H-5
Consolidated Statements of Cash Flows
Years Ended December 31, 1994, 1995 and 1996.................................... H-6
Notes to Consolidated Financial Statements......................................... H-7
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet September 30, 1996............................ H-21
Condensed Consolidated Statement of Operations Nine Months Ended September 30,
1996............................................................................ H-22
Condensed Consolidated Statement of Cash Flows Nine Months Ended September 30,
1996............................................................................ H-23
Notes to Condensed Consolidated Financial Statements............................... H-24
Condensed Consolidated Balance Sheet February 4, 1997.............................. H-27
Condensed Consolidated Statement of Operations Period from January 1, 1997 to
February 4, 1997................................................................ H-28
Condensed Consolidated Statement of Cash Flows Period from January 1, 1997 to
February 4, 1997................................................................ H-29
Notes to Condensed Consolidated Financial Statements............................... H-30
SELECTED CONSOLIDATED FINANCIAL DATA................................................. H-33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS......................................................................... H-36
</TABLE>
H-1
<PAGE> 177
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Anchor Glass Container Corporation:
We have audited the accompanying consolidated balance sheets of Anchor
Resolution Corp. (Debtor-in-Possession) (the Company) as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholder's
equity (deficiency in assets) and cash flows for the three years ended December
31, 1996, 1995 and 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to report 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 report.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Anchor
Resolution Corp. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the three years ended December 31, 1996, 1995
and 1994 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
experienced significant losses in the last three fiscal years, and has a net
deficiency in assets of $236,307,000 at December 31, 1996. As described in Notes
2 and 3 to the accompanying consolidated financial statements, in September
1996, the Company filed a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code. Furthermore, as discussed in Note 2, on February
5, 1997, the Company sold substantially all of its assets and certain
liabilities. The Company's bankruptcy petition and remaining deficiency in
assets after this sale raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
October 31, 1997 (except with respect to the purchase price adjustment
matter discussed in Note 2, as to which the date is January 5, 1998)
H-2
<PAGE> 178
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
--------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 4,898 $ 18,315
Accounts receivable, less allowance for doubtful accounts of $1,503 and $1,826........... 55,851 40,965
Inventories
Raw materials and manufacturing supplies............................................... 28,528 39,036
Semi-finished and finished products.................................................... 115,891 141,538
Other current assets..................................................................... 18,593 14,982
--------- ----------
Total current assets............................................................ 223,761 254,836
Property, plant and equipment:
Land and land improvements............................................................. 10,405 22,822
Buildings.............................................................................. 120,377 147,981
Machinery, equipment and molds......................................................... 524,643 551,709
Less accumulated depreciation, net..................................................... (344,655) (323,665)
--------- ----------
310,770 398,847
Other assets............................................................................. 52,072 38,742
Intangible pension asset................................................................. 17,140 21,773
Deferred income taxes.................................................................... -- 2,367
Investment in joint venture.............................................................. 39,725 20,631
Excess of cost over fair value of net assets acquired (Goodwill), net of accumulated
amortization of $83,630 in 1995........................................................ -- 471,152
--------- ----------
$ 643,468 $1,208,348
========= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
Liabilities not subject to compromise:
Current liabilities:
Debtor-in-Possession Facility............................................................ $ 90,455 $ --
Revolving credit facility................................................................ -- 3,000
Senior Secured Notes..................................................................... 158,025 --
Current maturities of long term debt..................................................... -- 1,770
Accounts payable......................................................................... 25,727 74,120
Accrued expenses......................................................................... 32,740 32,105
Accrued interest......................................................................... 1,510 11,246
Accrued compensation and employee benefits............................................... 60,423 55,869
Deferred income taxes.................................................................... -- 543
--------- ----------
Total current liabilities....................................................... 368,880 178,653
Long-term debt........................................................................... -- 552,680
Pension liabilities...................................................................... 44,179 68,260
Other long-term liabilities.............................................................. 119,722 119,152
--------- ----------
163,901 740,092
Liabilities subject to compromise........................................................ 379,994 --
--------- ----------
Total liabilities............................................................... 912,775 918,745
Commitments and contingencies (Note 15)
Stockholder's equity (deficiency in assets):
Common stock $.10 par value; authorized 1,000 shares, issued and outstanding, 1 share.... -- --
Capital in excess of par value........................................................... 576,300 483,816
Accumulated deficit...................................................................... (823,213) (167,373)
Amount related to minimum pension liability.............................................. (22,394) (26,840)
--------- ----------
(269,307) 289,603
--------- ----------
$ 643,468 $1,208,348
========= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
H-3
<PAGE> 179
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
--------- -------- ----------
<S> <C> <C> <C>
Net sales................................................ $ 814,370 $956,639 $1,089,317
Costs and expenses:
Cost of products sold.................................. 831,612 906,393 996,780
Selling and administrative expenses.................... 39,570 48,998 52,371
Restructuring and other charges........................ 49,973 10,267 79,481
Impairment of long-lived assets........................ 490,232 -- --
Write-up of assets held for sale....................... (8,967) -- --
--------- -------- --------
Loss from operations..................................... (588,050) (9,019) (39,315)
Other income (expense), net.............................. (10,020) 171 (2,385)
Interest expense (1996 contractual interest of
$57,768)............................................... (48,601) (56,871) (56,070)
--------- -------- --------
Loss before reorganization items, income taxes and
extraordinary item..................................... (646,671) (65,719) (97,770)
Reorganization items..................................... (5,008) -- --
--------- -------- --------
Loss before income taxes and extraordinary item.......... (651,679) (65,719) (97,770)
Income tax provision..................................... 1,825 250 250
--------- -------- --------
Loss before extraordinary item........................... (653,504) (65,969) (98,020)
Extraordinary item --
Write-off of deferred financing fees, net of nil tax... (2,336) -- --
--------- -------- --------
Net loss................................................. $(655,840) $(65,969) $ (98,020)
========= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
H-4
<PAGE> 180
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL
IN TOTAL
EXCESS STOCKHOLDER'S
COMMON OF RETAINED MINIMUM EQUITY
STOCK PAR EARNINGS PENSION (DEFICIENCY
(A) VALUE (DEFICIT) LIABILITY IN ASSETS)
------ -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994.......... $ -- $433,816 $ (3,384) $(17,680) $ 412,752
Amount related to minimum pension
liability....................... -- -- -- 9,822 9,822
Net loss.......................... -- -- (98,020) -- (98,020)
----- -------- --------- -------- ---------
Balance, December 31, 1994........ -- 433,816 (101,404) (7,858) 324,554
Capital contribution from Vitro,
S.A............................. -- 50,000 -- -- 50,000
Amount related to minimum pension
liability....................... -- -- -- (18,982) (18,982)
Net loss.......................... -- -- (65,969) -- (65,969)
----- -------- --------- -------- ---------
Balance, December 31, 1995........ -- 483,816 (167,373) (26,840) 289,603
Capital contribution from Vitro,
S.A............................. -- 92,484 -- -- 92,484
Amount related to minimum pension
liability....................... -- -- -- 4,446 4,446
Net loss.......................... -- -- (655,840) -- (655,840)
----- -------- --------- -------- ---------
Balance, December 31, 1996........ $ -- $576,300 $(823,213) $(22,394) $(269,307)
===== ======== ========= ======== =========
</TABLE>
- ---------------
(A) One share, $.10 par value outstanding
See Notes to Consolidated Financial Statements.
H-5
<PAGE> 181
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss before extraordinary item................................... $(653,504) $ (65,969) $(98,020)
Adjustments to reconcile loss before extraordinary item to net
cash provided by (used in) operating activities:
Impairment of long-lived assets................................ 490,232 -- --
Write-up of assets held for sale............................... (8,967) -- --
Restructuring and other charges................................ 49,973 10,267 79,481
Depreciation................................................... 72,537 76,994 79,037
Amortization................................................... 29,119 22,921 21,439
Other.......................................................... 3,131 462 354
Decrease in cash resulting from changes in assets and
liabilities...................................................... (19,697) (44,245) (54,377)
Increase in cash resulting from changes in prepetition
liabilities...................................................... 8,765 -- --
--------- --------- --------
(28,411) 430 27,914
Cash flows from investing activities:
Expenditures for property, plant and equipment................... (46,254) (70,368) (93,833)
Proceeds from sales of property, plant and equipment............. 14,022 49,490 953
Investment in joint venture...................................... (18,552) (20,631) --
Other............................................................ (13,108) (6,991) (3,775)
--------- --------- --------
(63,892) (48,500) (96,655)
Cash flows from financing activities:
Proceeds from issuance of long-term debt......................... 80,000 -- --
Principal payments on long-term debt............................. (92,191) (365) (702)
Capital contribution from Vitro S.A.............................. 92,484 50,000 --
Sale of accounts receivable...................................... -- 30,000 --
Net draws on Debtor-In-Possession facility....................... 90,455 -- --
Draws on Prepetition Credit Agreement............................ -- 87,000 75,000
Repayments on Prepetition Credit Agreement....................... (83,000) (114,000) (45,000)
Other, primarily financing fees.................................. (8,862) (437) (831)
--------- --------- --------
78,886 52,198 28,467
Cash and cash equivalents:
Increase (decrease) in cash and cash equivalents................. (13,417) 4,128 (40,274)
Balance, beginning of year....................................... 18,315 14,187 54,461
--------- --------- --------
Balance, end of year............................................. $ 4,898 $ 18,315 $ 14,187
========= ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by (used in) operating activities reflects net
cash payments for interest and taxes as follows:
Interest........................................................... $ 51,412 $ 52,003 $ 60,573
========= ========= ========
Income taxes (refunds), net........................................ $ (209) $ (328) $ (149)
========= ========= ========
In addition, the Company had the following non-cash activities:
Extraordinary item--write off of deferred financing fees......... $ 2,336 $ -- $ --
========= ========= ========
Increase (decrease) in cash resulting from changes in assets and
liabilities:
Accounts receivable.............................................. $ (15,351) $ (6,881) $ (8,600)
Inventories...................................................... 36,154 (5,606) (3,564)
Other current assets............................................. (1,623) (4,050) (1,773)
Accounts payable, accrued expenses and other current
liabilities.................................................... (26,246) (22,462) (34,564)
Other, net....................................................... (12,631) (5,246) (5,876)
--------- --------- --------
$ (19,697) $ (44,245) $(54,377)
========= ========= ========
</TABLE>
The Company considers short-term investments with original maturities of
ninety days or less at the date of purchase to be classified as cash
equivalents.
See Notes to Consolidated Financial Statements.
H-6
<PAGE> 182
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements are prepared on the
historical cost basis of accounting and reflect adjustments for the impairment
of goodwill and other long-lived assets. As discussed in Note 3, Anchor
Resolution Corp. (formerly known as Anchor Glass Container Corporation) (the
"Company") is operating as a debtor-in-possession under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11"). The accompanying consolidated financial
statements do not purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, such consolidated financial statements do
not purport to show (a) as to assets, the remaining assets, their realizable
value on a liquidated basis or their availability to satisfy liabilities; (b) as
to prepetition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to stockholder's
accounts, the effect of any changes that may be made in the capitalization of
the Company; or (d) as to operations, the effect of any changes that may be made
in the Company's remaining business.
Organization of the Company
At December 31, 1996, the Company is a wholly-owned subsidiary of Container
Holdings Corp. ("Container") which is a direct wholly-owned subsidiary of Vitro,
Sociedad Anonima ("Vitro"), a limited liability corporation incorporated under
the laws of the United Mexican States. On September 13, 1996, the Company filed
a voluntary petition for reorganization under Chapter 11 (See Note 3). On
February 5, 1997, Consumers Packaging Inc. ("CPI") and Owens-Brockway Glass
Container Inc. ("OI") acquired substantially all of the assets and business of
the Company in accordance with the terms of the Agreement (See Note 2).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
Business Segment
The Company is engaged in the manufacture and sale of a diverse line of
clear, amber, green and other color glass containers of various types, designs
and sizes to customers principally in the beer, food, iced tea, distilled
spirits, wine and soft drink industries. The Company markets its products
throughout the United States. The Company's international operations and export
sales are insignificant. Sales to Anheuser-Busch represented 11%, 24% and 25% of
total net sales for 1996, 1995 and 1994, respectively. As a result of the
current highly competitive environment, the Company had been informed by
Anheuser-Busch that the Company's 1996 and future volume allocations would be
reduced. Additionally, sales to The Strohs Brewery Company represented 10.8% of
total net sales for 1996.
Inventories
Inventories are stated at the lower of cost or market. The cost of
substantially all inventories of raw materials and semi-finished and finished
products is determined on the last-in, first-out ("LIFO") method. At December
31, 1996 and 1995, the estimated current cost of these inventories exceeds their
stated value determined on the LIFO basis by approximately $16,740 and $13,599,
respectively. Manufacturing supplies
H-7
<PAGE> 183
and certain other inventories are valued at weighted average actual or standard
costs that approximate actual costs.
Property, Plant and Equipment
Property, plant and equipment expenditures, including renewals, betterments
and furnace rebuilds, which extend useful lives, and expenditures for glass
forming machine molds are capitalized and depreciated using the straight-line
method over the estimated useful lives of the assets for financial statement
purposes while accelerated depreciation methods are principally used for tax
purposes. Generally, annual depreciation rates range from 2.5% for buildings,
6.3% to 20% for machinery and equipment and 40% for molds. Furnace and machine
rebuilds, which are recurring in nature and which extend the lives of the
related assets, are recorded as a charge to accumulated depreciation. Annual
depreciation rates for such expenditures range from 20% to 25%, based on the
type and extent of these rebuilds. Depreciation of leased property recorded as
capital assets is computed on a straight-line basis over the estimated useful
lives of the assets. Maintenance and repairs are charged directly to expense as
incurred.
Excess of Cost Over Fair Value of Net Assets Acquired (Goodwill)
As a result of the declining profitability, diminishing cash flows and the
Company's bankruptcy as discussed in Note 3, the recoverable value of the
carrying amount of long-lived assets and intangibles was reviewed for
impairment.
Prior to the sale of substantially all of its assets, the Company used
projected undiscounted earnings before interest, income taxes, depreciation and
amortization but after maintenance capital expenditures as compared to the
unamortized balance of goodwill and other long-lived assets, to measure any
impairment, and as of December 31, 1995, no impairment was calculated. As a
result of the sale of the Company's assets, in late 1996, the Company used
projected proceeds from the sale as a measure of impairment of goodwill.
Based upon this review, the amount of remaining excess of purchase price
over fair value of net assets acquired at December 31, 1996, of $457,232 and
other long-lived assets of $33,000 were written off.
The excess of cost over fair value of net assets acquired had been
amortized on a straight line basis over a 40 year period. Amortization expense,
included as a component of cost of products sold, for the years ended December
31, 1996, 1995 and 1994 was $13,920, $13,925 and $13,920, respectively.
Income Taxes
Statement of Financial Accounting Standards No. 109 -- Accounting for
Income Taxes ("SFAS 109") establishes financial accounting and reporting
standards for the effects of income taxes that result from a company's
activities during the current and preceding years. In general, SFAS 109 requires
that each company within a consolidated group recognize tax expense based on its
own income. The Company and its subsidiaries file a consolidated tax return with
Container and its subsidiaries. To the extent that current operating loss
benefits of the consolidated group or post acquisition loss carryforwards are
allocated to the Company as a reduction of current income taxes payable, such
benefits are reflected as a contribution of capital. The Company's tax benefits
arising prior to acquisition (preacquisition losses) are reflected as a
reduction in goodwill when the losses are utilized. Post acquisition losses of
the Company are used to offset current or future income tax provisions.
Retirement Plans
The Company has retirement plans, principally non-contributory, covering
substantially all salaried and hourly employees. The Company's funding policy is
to pay at least the minimum amount required by the Employee Retirement Income
Security Act of 1974. As a result of the Bankruptcy Proceedings (See Note 3),
certain plan contributions were not made as of December 31, 1996 (See Note 12).
At December 31, 1996 and 1995, the Company has recorded an additional minimum
pension liability for underfunded plans representing the excess of the
underfunded liability over previously recorded accrued pension costs.
H-8
<PAGE> 184
Postretirement Benefits
Statement of Financial Accounting Standards No. 106 -- Employers'
Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106") requires
accrual of postretirement benefits (such as healthcare benefits) during the
period that an employee provides service. The transition obligation from the
adoption of SFAS 106 approximated $3,400 and is being amortized on a
straight-line basis over a period of twenty years. This accounting method has no
effect on the Company's cash outlays for these retirement benefits.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 -- Disclosures about
Fair Value of Financial Instruments requires disclosure of the estimated fair
values of certain financial instruments. The estimated fair value amounts have
been determined using available market information or other appropriate
valuation methodologies that require considerable judgment in interpreting
market data and developing estimates. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts. Based on the uncertainty of the ultimate outcome of the
Bankruptcy Proceedings, discussed in Note 3, the Company is unable to estimate
the fair value of long-term debt at December 31, 1996. The carrying amount of
other financial instruments approximate their estimated fair values.
The fair value information presented herein is based on information
available to management as of December 31, 1996. Such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date and, therefore, the current estimates of fair value may differ
significantly from the amounts presented herein. As a result of the Bankruptcy
Proceedings discussed in Note 3, the ultimate value of these financial
instruments is dependent upon the payment under the Company's future plan of
reorganization.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimated.
NOTE 2 -- SALE OF ASSETS
On February 5, 1997, OI and Anchor Glass Acquisition Corporation ("New
Anchor"), a majority-owned subsidiary of CPI, acquired substantially all of the
assets and business of the Company, pursuant to the Asset Purchase Agreement
dated December 18, 1996, as amended (the "Agreement").
New Anchor purchased eleven operating glass container manufacturing
facilities, five idled glass container manufacturing facilities and other
related assets. OI purchased assets and assumed liabilities of the Company's
Antioch, California and Hayward, California facilities and purchased certain
other existing inventories. OI also purchased the Company's investment in Rocky
Mountain Bottle Company, a joint venture with Coors Brewing Company ("Coors"),
and assumed the Company's agreement to manufacture Coors' glass packaging
products in the United States.
The total purchase price approximated $378,000, excluding fees of
approximately $1,500. The purchase price received from OI amounted to
approximately $128,000 and was received in cash. The remaining purchase price of
approximately $250,000 from New Anchor was comprised of: approximately $200,500
in cash, $47,000 face amount (1,879,320 shares) of mandatorily redeemable 10%
cumulative convertible preferred stock and $2,500 of common stock (490,898
shares with an estimated value of $5.00 per share) of New Anchor.
H-9
<PAGE> 185
The purchase price paid by the Company is subject to adjustment. On June
13, 1997, Old Anchor delivered to the Company the closing balance sheet which
indicated that Old Anchor believed that it was entitled to additional payments
from the Company and Owens totaling approximately $76,300. On July 28, 1997, the
Company delivered its notice of disagreement to Old Anchor, which requested a
reduction of the purchase price of approximately $96,800. Since that time, the
parties have been negotiating the amount of the adjustment, and in January 1998,
have reached a proposed settlement (the "Proposed Settlement"). The Proposed
Settlement requires the payment by the Company to Old Anchor of an additional
$1,000 in cash and the issuance of warrants for the purchase of additional
shares of common stock. In addition, the Company will issue warrants to purchase
additional shares of common stock to Consumers U.S. or an affiliate. The
Proposed Settlement is subject to final approval by the Company, Old Anchor and
the bankruptcy court.
Proceeds from the sale were used to repay the outstanding balance of the
DIP Facility and accrued interest thereon, of approximately $109,000 (principal
balance of $90,455 at December 31, 1996). The remainder of the proceeds will be
used against prepetition liabilities, as ultimately determined under the
Company's Plan of Reorganization (see Note 3).
Upon consummation of the purchase and effective February 6, 1997, New
Anchor changed its name to Anchor Glass Container Corporation and the Company
changed its name to Anchor Resolution Corp.
As an objection to the sale, the Pension Benefit Guaranty Corporation
("PBGC") entered a determination to terminate the Company's qualified defined
benefit pension plans. However, in conjunction with the sale, New Anchor assumed
all liabilities of the plans and funded approximately $9,100 of plan
contributions, previously unfunded following the Company's filing of Chapter 11
(see Note 3). Additionally, New Anchor issued to the plans $9,000 face amount
(360,000 shares) of mandatorily redeemable 10% cumulative preferred stock and
Vitro agreed to provide a limited guaranty to the PBGC with respect to the
unfunded benefit liabilities of the Company's defined benefit plans.
Consequently, the PBGC agreed not to terminate the plans as a result of the
Agreement and the assumption of the plans by New Anchor.
On October 4, 1996, the Company entered into an asset purchase agreement
with Ball-Foster Glass Container Co. L.L.C., ("Ball-Foster"). Pursuant to that
agreement, Ball-Foster was to acquire substantially all of the assets of the
Company for $365.0 million in cash at closing, subject to adjustment, as set
forth in that agreement. In addition, Ball-Foster was to assume specified
liabilities of the Company. Payment of the purchase price was guaranteed by
Saint-Gobain Corporation, parent company of Ball-Foster.
Also on October 4, 1996, the Company filed a motion with the Bankruptcy
Court seeking an order (i) authorizing the sale to Ball-Foster, subject to
higher and better bids, of substantially all of the Company's assets free and
clear of certain liens, claims and encumbrances and (ii) authorizing assumption
and assignment of certain unexpired leases and executory contracts. The Court
had entered several amended scheduling orders which established a timetable for
the sale process. The amended deadline for submissions of higher and better bids
was December 12, 1996. At that time, the Company received a higher and better
offer from CPI and OI. Ball-Foster received a termination fee of $3,000 from the
proceeds of the transaction.
H-10
<PAGE> 186
The following unaudited pro forma condensed balance sheet gives effect to
the sale of assets and business and payoff of the DIP Facility (as defined)
described above as if such transactions occurred on December 31, 1996:
<TABLE>
<S> <C>
Cash..................................................................... $ 237,000
Other current assets..................................................... 7,500
Investment in Common Stock of Anchor Glass Container Corporation......... 2,500
Investment in Preferred Stock of Anchor Glass Container Corporation...... 47,000
Property, plant and equipment............................................ 7,000
Other assets............................................................. 10,000
---------
Total assets................................................... $ 311,000
---------
Liabilities not subject to compromise:
Current liabilities.................................................... $ 165,000
Other long-term liabilities............................................ 16,000
Liabilities subject to compromise........................................ 376,000
---------
Total liabilities.............................................. 557,000
---------
Deficiency in assets........................................... $(246,000)
=========
</TABLE>
The Company's remaining deficiency in assets after this sale raises
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include adjustments that might result
from the outcome of this uncertainty.
NOTE 3 -- BANKRUPTCY PROCEEDINGS
As a result of the continued decline in the Company's results of operations
from the effects of the highly competitive glass container market and the
Company's high debt level, on September 13, 1996 (the "Petition Date"), the
Company filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). On September 30, 1996, Anchor
Recycling Corporation, a wholly-owned subsidiary of the Company, also filed a
voluntary petition to reorganize under Chapter 11 in the same court. The Chapter
11 proceedings are being jointly administered, with the Company managing the
business in the ordinary course as a debtor-in-possession under the supervision
of the Bankruptcy Court. Vitro and the Company concluded that the Chapter 11
filing was necessary in order to preserve the value of its assets and to ensure
that the business has sufficient cash resources to continue operations while it
completed the sale of the business discussed in Note 2.
Under Chapter 11 proceedings, litigation and actions by creditors to
collect certain claims existing at the Petition Date are stayed, without
specific Bankruptcy Court authorization to pay such claims. The Company had
received authorization, pursuant to first day orders, to pay certain claims
related to wages, salaries, vacation, sick pay and other claims. As a
debtor-in-possession, the Company has the right, subject to Bankruptcy Court
approval, and certain other limitations, to assume or reject certain executory
contracts, including unexpired leases. Any claim for damages resulting from the
rejection of an executory contract or an unexpired lease is treated as a general
unsecured claim in the Chapter 11 proceedings.
On September 26, 1996 the United States Trustee appointed a single
unsecured creditors' committee (the "Creditors Committee"). The Creditors
Committee has the right to review and object to certain business transactions
and has participated in the negotiation of the Company's plan of reorganization.
The Creditors Committee has retained the firm of Wachtell, Lipton, Rosen & Katz
as its counsel and Smith Barney Inc. as its financial advisors.
The Company obtained debtor-in-possession ("DIP") financing from Foothill
Capital Corporation, as agent, and Congress Financial Corporation, as co-agent,
(the "Lender Group") which provided for a $130,000 DIP Credit Facility (the "DIP
Facility"), and was approved by the Bankruptcy Court on November 15, 1996. The
DIP Facility, which would have expired September 12, 1997, provided up to
$130,000 under a borrowing
H-11
<PAGE> 187
base formula, less prepetition advances under the Company's then existing New
Senior Credit Facility (the "Prepetition Credit Facility") with the Lender
Group, on terms substantially the same as the Prepetition Credit Facility. On
February 5, 1997, the DIP Facility was repaid in full with proceeds from the
sale as discussed in Note 2.
The DIP Facility and prepetition secured claims are collateralized by
substantially all of the assets of the Company including accounts receivable,
inventories and property, plant and equipment. The Company has continued to
accrue interest on its prepetition secured debt obligations. Because of the
Chapter 11 filing, there has been no accrual of interest on prepetition
unsecured debt subsequent to the Petition Date.
Of the cash proceeds received from the sale of substantially all the assets
and business of the Company (see Note 2), approximately $109,000 was used to
repay in full the DIP Facility and approximately $11,000 was applied to the
prepayment of real estate taxes, certain costs related to the Company's
partnership with Coors (see Note 8) and the termination fee payable to
Ball-Foster (see Note 2). The balance of the net proceeds of the sale remaining
after application to the costs of the winddown and to other administrative and
priority claims will be distributed to the creditors of the Company, including
the holders of approximately $158,000 principal amount of the Company's Senior
Secured Notes and holders of other secured and unsecured claims, pursuant to a
Plan of Reorganization which is being developed by the Company in conjunction
with the Creditors Committee.
The Company has separately reported, as reorganization items on the
consolidated statement of operations, professional fees and similar types of
expenditures relating directly to the Chapter 11 filing. The Company's policy is
to expense all such expenditures as incurred. These expenses are primarily for
legal, claims and accounting services.
NOTE 4 -- PREPETITION LIABILITIES
Prepetition liabilities subject to compromise at December 31, 1996 include
the following:
<TABLE>
<S> <C>
$100,000 10.25% Senior Notes...................................... $100,000
$200,000 9.875% Senior Subordinated Debentures.................... 200,000
Other debt........................................................ 4,368
Trade payables.................................................... 68,701
Accrued interest.................................................. 6,925
--------
$379,994
========
</TABLE>
Because of the Chapter 11 proceedings, there has been no accrual of
interest on the $100,000 10.25% Senior Notes or the $200,000 9.875% Senior
Subordinated Debentures since September 12, 1996. If accrued, interest expense
would have increased $9,167 during the year ended December 31, 1996.
Additionally, the amounts reflected as prepetition liabilities do not include
amounts related to potential claims, which are substantially in excess of the
recorded liabilities at December 31, 1996.
NOTE 5 -- LONG-TERM DEBT
At December 31, 1996, all debt which, by its terms was previously
classified as long-term at the Petition Date, is classified as prepetition
liabilities in the accompanying balance sheet.
As a result of the Bankruptcy Proceedings (See Note 3), the Company is in
default of various covenants relating to its outstanding prepetition debt.
However, under Chapter 11 proceedings, litigation or actions by creditors
related to these defaults are stayed. In addition, the DIP Facility required
that the Company's collateral value and availability, as defined, could not be
less than a specified amount and the outstanding credit facility balance could
not be more than a specified amount as measured on a rolling four-week period
throughout the term of the DIP Facility. Prior to the repayment of the DIP
Facility, the Company was in full compliance with these covenants.
H-12
<PAGE> 188
Long-term debt at December 31, 1995, giving affect to the Noteholder
Restructuring Agreement discussed below, consisted of the following:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Floating Rate Series A Senior Secured Notes, variable interest rate,
payable monthly......................................................... $ 38,000
Series B Senior Secured Notes, interest at 9.91%, payable monthly......... 202,000
Floating Rate Series C Senior Secured Notes, variable interest rate,
payable monthly......................................................... 10,000
$100,000 Senior Notes, Series A, interest at 10.25%, payable
semi-annually........................................................... 100,000
$200,000 Senior Subordinated Debentures, interest at 9.875%, payable
semi-annually........................................................... 200,000
Other..................................................................... 4,450
--------
554,450
Less current maturities................................................... 1,770
--------
$552,680
========
</TABLE>
Effective January 12, 1996, the Company and the holders of the Senior
Secured Notes entered into a Noteholder Restructuring Agreement which provides
for, among other things, consent by the holders to the replacement of the then
current Credit Agreement with a new $130,000 credit facility (subsequently
replaced by the DIP Facility) and waiver by the holders of identified defaults
or events of default existing on the effective date or which may occur during
the waiver period which was to expire not later than January 31, 1998. The
restructuring period was defined as the period between the effective date and
the termination date, which would have occurred no later than June 30, 1998 (the
"Restructuring Period"). The following events occurred in connection with the
effectiveness of the Noteholder Restructuring Agreement:
- execution of the $130,000 Prepetition Credit Facility
- mandatory prepayment on January 12, 1996 of the aggregate principal
amount of the Senior Secured Notes as follows:
-- Series A $12,160; Series B $64,640 and Series C $3,200;
- payment of a restructuring fee of approximately $4,100, or 1.75% of the
principal amount of the consenting noteholders' Senior Secured Notes
outstanding prior to giving effect to the prepayments above, and
- $40,000 capital contribution from Vitro and a commitment from Vitro to
contribute an additional $25,000 on or before January 31, 1997. Capital
contributions in 1996 amounted to $92,484.
Compliance with the financial maintenance tests as defined in the
amendments to the Note Purchase Agreement, including fixed charge coverage, net
worth, current ratio and debt to equity were waived through the period ending
January 31, 1998. However, the Company was required to maintain capital
expenditures and net worth in amounts not less than those defined in the
Noteholder Restructuring Agreement.
During the Restructuring Period, the Series A Notes and Series C Notes bore
a floating rate of interest at the one-month LIBOR rate, as defined, plus 2.0%.
The interest rate was adjusted monthly. Interest on the Series B Notes is fixed
at 9.91% per annum. Interest during the Restructuring Period is payable on the
15th of each month.
Effective January 12, 1996, and concurrent with the Noteholder
Restructuring Agreement, the Company entered into a Loan Agreement with Foothill
Capital Corporation, as agent, and Congress Financial Corporation, as co-agent,
to provide for the $130,000 Prepetition Credit Facility. $80,000 of proceeds
from the Prepetition Credit Facility were used to prepay at closing a
significant portion of certain payments of the Senior Secured Notes originally
scheduled to be made in July 1996 and July 1997 and the remaining $50,000 was
used to finance working capital and other general corporate purposes. Advances
outstanding at any one
H-13
<PAGE> 189
time are not to exceed an amount equal to the Borrowing Base as defined in the
Prepetition Credit Facility. Interest, at prime plus 1.125%, as defined, is
payable monthly. A commitment fee of .5% of the unused portion of the
Prepetition Credit Facility is payable monthly. The Prepetition Credit Facility
(which was subsequently replaced with the DIP Facility) was repaid February 5,
1997 with proceeds from the sale discussed in Note 2.
Through February 5, 1997 the Company had borrowings outstanding under the
DIP Facility. At December 31, 1996, advances outstanding under the DIP Facility
were $90,455. At December 31, 1996, the weighted average interest rate on
borrowings outstanding was 9.375%.
In March 1994, Vitro provided a one year, $20,000 letter of credit facility
on behalf of the Company, thereby effectively increasing the Company's letter of
credit availability by $20,000. Outstanding letters of credit under this
facility at December 31, 1996 were $15,000. In February 1997, the Company
received an additional capital contribution of $8,400 in satisfaction of
obligations outstanding under the letter of credit facility, which was
terminated at that time.
The Senior Secured Notes are collateralized by the property, plant and
equipment of the Company with a secondary interest in inventories and accounts
receivable. The DIP Facility is collateralized by inventories and accounts
receivable with a secondary interest in the property, plant and equipment of the
Company. Both the Note Purchase Agreement and the DIP Facility provide for
various covenants that restrict the Company's ability to incur additional
indebtedness, sell or transfer assets, make investments, enter into transactions
with or make distributions to affiliates and pay dividends or make other
distributions in respect of its capital stock, as well as require it to meet
various financial maintenance tests. Effective with the Noteholder Restructuring
Agreement, the holders of the Senior Secured Notes waived compliance with the
financial maintenance covenants through January 31, 1998. However, the Company
must maintain capital expenditures and net worth in amounts not less than those
defined in the Noteholder Restructuring Agreement.
Effective June 18, 1992, the Company issued $100,000 aggregate principal
amount of 10.25% Senior Notes due June 30, 2002 (the "Exchange Notes"). The
Company then completed an exchange offer with the exchange of all Exchange Notes
for a like principal amount of 10.25% Senior Notes due 2002, Series A (the
"Senior Notes"), issued under an Indenture dated as of October 15, 1992 between
the Company and Continental Bank, National Association, as Trustee. The Senior
Notes are unsecured obligations of the Company ranking senior in right of
payment to the Debentures (described below) and pari passu with all other
existing and future senior indebtedness of the Company. Interest is payable
semi-annually in arrears on each June 30 and December 31. Interest has not been
paid or accrued following the Petition Date.
Effective December 2, 1993, the Company completed a public offering of
$200,000 aggregate principal amount of 9.875% Senior Subordinated Debentures due
December 15, 2008 (the "Debentures") under an Indenture dated December 1, 1993
between the Company and Chemical Bank, as Trustee. The Debentures are unsecured
obligations, subordinate in right of payment to all existing and future senior
debt, as defined, of the Company. Interest on the Debentures is payable
semi-annually on June 15 and December 15. Interest has not been paid or accrued
following the Petition Date.
All of the Company's debt agreements contain cross-default provisions.
NOTE 6 -- RESTRUCTURING AND OTHER CHARGES
In January 1996, formal plans were approved to further restructure certain
of the Company's operations to respond to the continued decline in the industry
sales volume combined with the loss of a significant portion of the business of
the Company's largest customer. The Company closed its Cliffwood, New Jersey
plant effective January 1996, and substantially all hourly and salaried
employees of that plant, approximately 350, were terminated. A restructuring
charge of approximately $50,000 was recorded in 1996. Of this amount,
approximately $24,900 related to the writedown to net realizable value of
certain manufacturing assets.
During 1994, formal plans were approved to significantly reduce the
Company's cost structure and to improve productivity. This restructuring program
relates primarily to consolidation of underutilized manufacturing operations and
provided for the closure of three of the Company's 17 manufacturing plants then
operating. The Company closed its Waukegan, Illinois and Los Angeles, California
plants in the second
H-14
<PAGE> 190
quarter of 1995 and its Keyser, West Virginia plant in the third quarter of
1995. In the 1994 fourth quarter, the Company recorded a restructuring charge of
$79,599 and in the 1995 first quarter, an additional $10,300 charge was recorded
to reflect the benefit arrangements for employees affected by this plan. In
total, substantially all hourly and salaried employees of these plants,
approximately 725 in total were terminated. Of the total $89,800 charge,
approximately $50,600 related to the writedown to net realizable value of
certain manufacturing assets.
The Keyser and Cliffwood plants have been recorded at net realizable value
and are held for sale. The Waukegan plant was sold in 1996 and the Los Angeles
plant will be retained by the Company as part of the acquisition discussed in
Note 2 to the consolidated financial statements.
The following represents information regarding exit charges and the amount
charged against the restructuring liability for the Company's restructuring
plans:
<TABLE>
<CAPTION>
AMOUNT CHARGED
RESTRUCTURING AGAINST
CHARGES LIABILITY
------------- --------------
<S> <C> <C>
1996 RESTRUCTURING PLAN
Severance and employee benefit costs............................... $10,800 $ 10,800
Plan shutdown costs related to consolidation and discontinuation of
manufacturing activities......................................... 14,300 12,300
1994/1995 RESTRUCTURING PLAN
Severance and employee benefit costs............................... $18,300 $ 18,300
Plan shutdown costs related to consolidation and discontinuation of
manufacturing activities......................................... 20,900 18,400
</TABLE>
NOTE 7 -- CAPITAL CONTRIBUTION
As a condition of closing to the Noteholder Restructuring Agreement, as
discussed in Note 5, in January 1996, the Company received a $40,000 cash
capital contribution from Vitro and received a commitment from Vitro to
contribute an additional $25,000 on or before January 31, 1997. During 1996,
Vitro provided capital contributions of $92,484.
NOTE 8 -- INVESTMENT IN JOINT VENTURE
In March 1995, the Company and Coors entered into a long-term partnership
(the "Partnership") to produce glass bottles at the Coors glass manufacturing
facility in Wheat Ridge, Colorado. The Partnership employed the Company's
technology, along with capital contributions from both companies, to increase
the efficiency, capacity and volume of the Coors facility. Coors has
contributed, as its capital contribution, the facility's machinery, equipment
and certain personal property. The Company's required capital contribution was
approximately $54,000 in cash for capital spending needs over the first three
years of the partnership, of which approximately $36,015 has been contributed
through capital expenditures through December 31, 1996. The Company's investment
in the joint venture is accounted for on the equity method. Capital
contributions are recorded as the investment is funded. The Partnership has an
initial term of ten years, which can be extended for additional terms of two
years each, and the partners will share the cost benefit of achieved operational
efficiencies. In addition, Coors has entered into a separate long-term preferred
supplier agreement with the Company. The preferred supplier agreement has an
initial term of ten years, which can be extended for additional terms of two
years each. This agreement allowed the Company to supply 100% of Coors' glass
container requirements (exceeding the Partnership's production) beginning
January 1, 1996.
As discussed in Note 2, effective February 5, 1997, OI purchased the
Company's investment in the joint venture (including the assumption of related
obligations) and the preferred supplier agreement.
NOTE 9 -- SALE AND LEASEBACK
In July and August 1995, the Company entered into sale and leaseback
transactions of certain manufacturing equipment located at four of the Company's
manufacturing facilities. Under the sale
H-15
<PAGE> 191
agreements, the Company sold the equipment at an aggregate net selling price of
approximately $48,300. In addition, the Company entered into agreements to lease
back the equipment for a nine year term at an average annual rental of
approximately $7,600. The deferred gain of approximately $14,200, representing
the excess of the selling price over the net book value of the equipment, is
being amortized at approximately $1,600 annually over the nine year operating
lease term.
NOTE 10 -- RELATED PARTY INFORMATION
Container
There have been no material transactions between the Company and Container
or its subsidiaries for the two years ended December 31, 1996. During 1996, the
Company sold a previously closed manufacturing facility to Container for
proceeds of approximately $750 of cash and a note receivable of $2,800.
Vitro
Related party transactions with Vitro and its consolidated subsidiaries are
summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Purchases of equipment................................. $ 7,183 $ 6,662 $7,170
Payable for equipment.................................. 2,078 22 38
Purchases of inventory................................. 6,978 2,115 1,298
Payable for inventory.................................. 1,582 9 25
Sales of inventory..................................... 23,376 14,534 4,699
Receivable from sales of inventory..................... 3,100 2,211 3,201
Other income........................................... -- -- 573
Other receivables...................................... -- 221 668
Equipment deposits..................................... 2,187 2,187 2,900
</TABLE>
Sale of Accounts Receivable
In December 1995, approximately $30,700 of eligible trade receivables was
sold to Factoraje Serfin, S.A. de C.V., a wholly-owned subsidiary of Grupo
Financiero Serfin, S.A. de C.V., an associated company in which Vitro owns a
minority interest. This transaction resulted in net proceeds to the Company of
$30,000. These receivables were sold without recourse and the proceeds were used
to fund working capital needs.
NOTE 11 -- INCOME TAXES
The consolidated group of companies, of which the Company is a member,
applies SFAS 109 under which the liability method is used in accounting for
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, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Under SFAS 109, if on the basis of
available evidence, it is more likely than not that all or a portion of the
deferred tax asset will not be realized, the asset must be reduced by a
valuation allowance.
The Company had previously recognized approximately $1,825 as a deferred
tax asset, net of the valuation allowance. As a result of continuing losses,
management has determined it is no longer more likely than not that the value of
the remaining deferred tax asset would be realized. As a result, the Company
recorded an additional valuation allowance of $1,825, which is reflected as a
provision for income taxes in the Consolidated Statement of Operations for the
year ended December 31, 1996. The company recorded a current state income tax
provision of $250 in 1995 and 1994.
H-16
<PAGE> 192
The significant components of the deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1996 1995
--------- --------
<S> <C> <C>
Deferred tax assets:
Acquired tax benefits....................................... $ 27,700 $ 28,300
Post acquisition loss carryforwards......................... 106,000 50,700
Pension and postretirement liabilities...................... 55,300 62,100
Accruals and reserves....................................... 50,300 55,900
--------- --------
239,300 197,000
Valuation allowance......................................... (152,400) (84,900)
--------- --------
86,900 112,100
--------- --------
Deferred tax liabilities:
Property, plant and equipment............................... 55,000 68,900
Inventories................................................. 22,300 24,300
Receivables and other assets................................ 9,600 17,100
--------- --------
86,900 110,300
--------- --------
Net deferred tax asset........................................ $ -- $ 1,800
========= ========
</TABLE>
At December 31, 1996, the Company had unused net operating losses and
investment tax credit carryforwards of approximately $325,000 and $5,200,
respectively, expiring at various dates through 2011. Of these amounts, $260,000
and $0, respectively, are not restricted as to use and expire at various dates
through 2011. The balance of the carryforwards amounting to $65,000 and $5,200,
respectively, expire at various dates through 2004, and are restricted to
offsetting future taxable income of the respective companies which generated the
carryforwards.
NOTE 12 -- PENSION PLANS
The Company has defined benefit retirement plans for salaried and
hourly-paid employees. Benefits are calculated on a salary-based formula for
salaried plans and on a service-based formula for hourly plans. Effective
December 31, 1994, the Company changed its defined benefit plans for salaried
employees resulting in the freezing of benefits, as discussed below. Pension
costs for 1996, 1995 and 1994 are summarized below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the year............... $ 5,266 $ 6,731 $ 9,507
Interest cost on projected benefit obligation.............. 28,646 29,429 28,302
Return on plan assets...................................... (28,270) (22,550) (23,108)
Net amortization and deferral.............................. 2,442 2,757 3,995
Curtailment (gain) loss.................................... 964 -- (3,588)
-------- -------- --------
Total pension cost............................... $ 9,048 $ 16,367 $ 15,108
======== ======== ========
</TABLE>
The Company has substantial unfunded obligations related to its employee
pension plans. The Retirement Protection Act of 1994 requires the Company to
make significant additional funding contributions into its underfunded defined
benefit retirement plans and will increase the premiums paid to the PBGC.
Subsequent to the Petition Date, the Company did not make scheduled
contribution payments to its employee pension plans. Scheduled plan contribution
payments not made as of December 31, 1996, amounted to $16,330. Of the scheduled
January 15, 1997 contribution, $3,599 was not paid.
As an objection to the sale, the PBGC entered a determination to terminate
the Company's qualified defined benefit pension plans. However, in conjunction
with the sale, New Anchor assumed all liabilities of the
H-17
<PAGE> 193
plans and funded approximately $9,100 of plan contributions, previously unfunded
following the Company's filing of Chapter 11 (see Note 3). Additionally, New
Anchor issued $9,000 face amount of mandatorily redeemable 10% cumulative
convertible preferred stock and Vitro has guaranteed to fund qualified defined
benefit plan obligations up to $70,000, should New Anchor default on its
obligations. Consequently, the PBGC agreed not to terminate the plans as a
result of the Agreement and the assumption of the plans by New Anchor.
Effective December 31, 1994, the Company changed its salaried retirement
and savings programs, resulting in the freezing of benefits under its three
defined benefit pension plans for salaried employees and amending its defined
contribution savings plan for salaried employees. The freezing of benefits under
the defined benefit pension plans for salaried employees resulted in a
curtailment gain of $3,588. Effective December 31, 1996, the Company merged the
Latchford Glass Company Salaried Employees' Pension Plan into the Anchor Glass
Container Corporation Retirement Plan for Salaried Employees. Also effective
December 31, 1994, the Company merged the Diamond Bathurst Salaried Employees
Retirement Plan into the Anchor Glass Container Corporation Retirement Plan for
Salaried Employees. Under the amended savings plan, the Company will match,
beginning in 1995, employees' basic contributions to the plan in an amount equal
to 150% of the first 4% of an employee's compensation.
The funded status of the Company's pension plans at December 31, 1996 and
1995 follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------- -------------------------------
ACCUMULATED ASSETS EXCEED ACCUMULATED ASSETS EXCEED
BENEFITS ACCUMULATED BENEFITS ACCUMULATED
EXCEED ASSETS BENEFITS EXCEED ASSETS BENEFITS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated
plan benefits:
Vested benefit obligation............ $ 290,589 $ 107,015 $ 280,370 $ 105,605
======== ======== ======== ========
Accumulated benefit obligation....... $ 301,349 $ 107,015 $ 298,533 $ 105,605
======== ======== ======== ========
Projected benefit obligation........... $ 301,349 $ 107,015 $ 299,304 $ 105,605
Plan assets at fair value.............. 218,013 116,139 201,061 111,297
-------- -------- -------- --------
Projected benefit obligation in excess
of (less than) plan assets........... 83,336 (9,124) 98,243 (5,692)
Amounts not recognized --
Subsequent losses...................... (22,394) (3,817) (27,612) (3,907)
Prior service cost..................... (17,140) -- (21,773) --
Additional minimum liability........... 39,534 -- 48,613 --
-------- -------- -------- --------
Accrued (prepaid) pension cost......... $ 83,336 $ (12,941) $ 97,471 $ (9,599)
======== ======== ======== ========
</TABLE>
Significant assumptions (weighted average rates) used in determining net
pension cost and related pension obligations for the benefit plans for 1996,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate.................................................. 7.50% 7.50% 8.50%
Expected long-term rate of return on plan assets............... 9.0 9.0 9.0
Rate of increase on compensation level......................... 5.0 5.0 5.0
</TABLE>
The Company recognized an additional minimum liability that is equal to the
difference between the accumulated benefit obligation over plan assets in excess
of accrued (prepaid) pension cost. A corresponding amount is recognized as
either an intangible asset or a reduction of equity. Pursuant to this
requirement, the Company recorded, as of December 31, 1996 and 1995, an
additional liability of $39,534 and $48,613, respectively, an intangible pension
asset of $17,140 and $21,773, respectively, and an equity reduction of $22,394
and $26,840, respectively. Plan assets are held by independent trustees and
consist principally of investments in equities, fixed income and government
securities.
H-18
<PAGE> 194
The Company also sponsors two defined contribution plans covering
substantially all salaried and hourly employees. Expenses under these programs
for the years ended December 31, 1996, 1995 and 1994 were approximately $2,817,
$3,045 and $1,743, respectively.
NOTE 13 -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides benefits to substantially all salaried, and certain
hourly employees, under several plans. SFAS 106 requires accrual of
postretirement benefits (such as healthcare benefits) during the years an
employee provides services. Currently, the Company funds these healthcare
benefits on a pay-as-you-go basis. The Company also contributes to a
multi-employer trust, and under the requirements of SFAS 106, recognizes as
postretirement benefit cost the required annual contribution.
SFAS 106 allows recognition of the cumulative effect of this liability in
the year of adoption or the amortization of the net initial transition
obligation over a period of up to twenty years. The Company elected to recognize
the net initial transition obligation of approximately $3,400 on a straight-line
basis over a period of twenty years. The Company's cash flows are not affected
by implementation of SFAS 106.
The accumulated postretirement benefit obligation at December 31, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Retirees................................................. $38,403 $38,161
Eligible plan participants............................... 8,743 10,636
Other active plan participants........................... 14,273 18,672
------- -------
61,419 67,469
Unrecognized gain or (loss).............................. 4,698 (4,082)
Unrecognized transition obligation....................... (2,695) (2,863)
------- -------
Accrued postretirement benefit costs..................... $63,422 $60,524
======= =======
</TABLE>
Net postretirement benefit costs for the years ended December 31, 1996,
1995 and 1994 consist of the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost -- benefits earned during the year.......... $1,052 $1,191 $1,805
Interest cost on accumulated postretirement benefit
obligation............................................. 4,200 4,641 4,980
Net amortization and deferral............................ 168 168 859
------ ------ ------
$5,420 $6,000 $7,644
====== ====== ======
</TABLE>
The assumed healthcare cost trend used in measuring the accumulated
postretirement benefit obligation as of December 31, 1996 was 9.0% declining
gradually to 5.5% by the year 2003, after which it remains constant. A one
percentage point increase in the assumed healthcare cost trend rate for each
year would increase the accumulated post-retirement benefit obligation as of
December 31, 1996 by approximately 12% and the net postretirement healthcare
cost for the year ended December 31, 1996 by approximately 13%. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation was 7.25% for 1996 and 1995.
The Company also contributes to a multi-employer trust which provides
certain other postretirement benefits to retired hourly employees. Expenses
under this program for the years ended December 31, 1996, 1995 and 1994, were
$4,990, $5,033 and $4,882, respectively.
H-19
<PAGE> 195
NOTE 14 -- LEASES
The Company leases distribution and office facilities, machinery,
transportation, data processing and office equipment under non-cancelable leases
which expire at various dates through 2004. These leases generally provide for
fixed rental payments and include renewal and purchase options at amounts which
are generally based on fair market value at expiration of the lease. The Company
has no material capital leases.
Future minimum lease payments under non-cancelable operating leases are as
follows:
<TABLE>
<S> <C>
1997............................................................... $22,100
1998............................................................... 17,600
1999............................................................... 13,300
2000............................................................... 9,700
2001............................................................... 8,600
After 2001......................................................... 20,300
-------
$91,600
=======
</TABLE>
Rental expense for all operating leases for the years ended December 31,
1996, 1995 and 1994 was $19,770, $21,670 and $17,302, respectively.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
The Company is a respondent in various environment-related cases. The
measurement of liabilities in these cases and other environmental concerns is
based on available facts of each situation and considers factors such as prior
experience in remediation efforts and presently enacted environmental laws and
regulations. In the opinion of management, based upon information presently
known, the Company has adequately provided for environmental liabilities. The
Company is not otherwise party to, and none of its assets are subject to any
other pending legal proceedings, other than ordinary routine litigation
incidental to its business and against which the Company is adequately insured
and indemnified or which is not material. The Company believes that the ultimate
outcome of these cases will not materially affect future operations.
H-20
<PAGE> 196
ANCHOR RESOLUTION CORP.
(DEBTOR IN POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and equivalents......................................................... $ 4,343
Accounts receivable, net..................................................... 85,130
Inventories:
Raw materials and manufacturing supplies.................................. 35,523
Semi-finished and finished products....................................... 131,004
Other current assets......................................................... 18,179
----------
Total current assets................................................. 274,179
Property, plant and equipment, net........................................... 343,084
Other assets................................................................. 55,604
Intangible pension asset..................................................... 21,773
Deferred taxes............................................................... --
Investment in joint venture.................................................. 40,249
Excess of cost over fair value of net assets acquired........................ 460,712
----------
$1,195,601
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
DIP Facility/Credit Facility advances........................................ $ 113,312
Current maturities of long-term debt......................................... --
Accounts payable............................................................. 12,721
Accrued expenses............................................................. 19,608
Accrued interest............................................................. 979
Accrued compensation and employee benefits................................... 27,204
----------
Total current liabilities............................................ 173,824
Long-term debt................................................................. --
Pension liabilities............................................................ --
Other long-term liabilities.................................................... 35,459
Prepetition liabilities not subject to compromise.............................. 158,683
Prepetition liabilities subject to compromise.................................. 574,401
----------
Total liabilities.................................................... 942,367
Commitments and contingencies.................................................. --
Stockholder's equity:
Common stock -- $.10 par value............................................... --
Capital in excess of par value............................................... 576,300
Accumulated deficit.......................................................... (296,226)
Amount related to minimum pension liability.................................. (26,840)
----------
253,234
----------
Total stockholder's equity........................................... $1,195,601
==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
H-21
<PAGE> 197
ANCHOR RESOLUTION CORP.
(DEBTOR IN POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Net sales...................................................................... $ 640,049
Costs and expenses:
Cost of products sold........................................................ 636,917
Selling and administrative expenses.......................................... 30,736
Restructuring charges........................................................ 49,973
--------
Loss from operations........................................................... (77,577)
Reorganization expenses........................................................ (1,576)
Other expense, net............................................................. (3,379)
Interest expense............................................................... (42,160)
--------
Loss before income taxes and extraordinary item................................ (124,692)
Income taxes................................................................... 1,825
--------
Loss before extraordinary item................................................. (126,517)
Extraordinary item -- write-off of deferred financing fees..................... (2,336)
--------
Net loss....................................................................... $ (128,853)
========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
H-22
<PAGE> 198
ANCHOR RESOLUTION CORP.
(DEBTOR IN POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Loss before extraordinary item................................................. $ (126,517)
Adjustments to reconcile loss before extraordinary item to net cash used in
operating activities:
Deferred taxes............................................................ 1,825
Restructuring charges..................................................... 49,973
Depreciation and amortization............................................. 75,239
Other..................................................................... 882
Decrease in cash resulting from changes in assets and liabilities......... (60,148)
-------
(58,746)
Cash flows from investing activities:
Expenditures for property, plant and equipment............................... (36,144)
Investment in joint venture.................................................. (22,210)
Proceeds from sales of property, plant and equipment......................... 11,776
Other........................................................................ (10,438)
-------
(57,016)
Cash flows from financing activities:
Capital contributions from Vitro, S.A........................................ 92,484
Net draws (repayments) on DIP/Credit Facility................................ 30,313
Principal payments on long-term debt......................................... (92,126)
Proceeds from issuance of long-term debt..................................... 80,000
Other........................................................................ (8,881)
-------
101,790
Cash and equivalents:
Increase (decrease) in net cash position..................................... (13,972)
Balance, beginning of year................................................... 18,315
-------
Balance, end of period....................................................... $ 4,343
-------
Supplemental disclosure of cash flow information:
Interest payments, net....................................................... $ 44,860
-------
Income tax payments (refunds), net........................................... $ (170)
=======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
H-23
<PAGE> 199
ANCHOR RESOLUTION CORP.
(DEBTOR IN POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN THOUSANDS)
NOTE 1 -- MANAGEMENT'S RESPONSIBILITY
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. Under the reorganization and anticipated sale of assets discussed in
Notes 2 and 3 below, the Company will sell or otherwise realize assets, and
liquidate or settle liabilities, for amounts substantially less than those
reflected in the condensed consolidated financial statements. Due to the
pervasive nature of the uncertainties regarding the ultimate outcome of the
reorganization, which may include the sale of substantially all of the Company's
assets as discussed in Notes 2 and 3, the Company cannot reasonably estimate the
related impairment to the reported assets and the amount of liabilities as of
November 21, 1996. Therefore, the amounts reported in the condensed consolidated
financial statements do not give effect to the adjustments to the carrying value
of assets or amounts and classifications of liabilities that will be necessary
pursuant to a plan of reorganization and sale of substantially all of the
Company's assets.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The results of operations for the interim
periods are not necessarily indicative of the results of the full fiscal year.
NOTE 2 -- BANKRUPTCY PROCEEDINGS
The Company incurred a loss of $128,853 for the nine months ending
September 30, 1996 and has an accumulated deficit of $296,226 at September 30,
1996. As a result of the continued decline in the Company's results of
operations from the effect of the highly competitive glass container market and
the Company's high debt level, on September 13, 1996 (the "Petition Date"), the
Company filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11") in the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"). On September 30,
1996, Anchor Recycling Corporation, a wholly-owned subsidiary of the Company,
also filed a voluntary petition to reorganize under Chapter 11 in the same
court. The Chapter 11 proceedings are being jointly administered, with the
Company managing the business in the ordinary course as a debtor-in-possession
under the supervision of the Bankruptcy Court. The Company concluded that the
Chapter 11 filing was necessary in order to preserve the value of its assets and
to ensure that the business has sufficient cash resources to continue operations
while it completed the sale of the business discussed in Note 3.
Under Chapter 11 proceedings, litigation and actions by creditors to
collect certain claims existing at the Petition Date are stayed, without
specific Bankruptcy Court authorization to pay such claims. The Company has
received authorization, pursuant to first day orders, to pay certain claims
related to wages, salaries, vacation, sick pay and other claims. As a
debtor-in-possession, the Company has the right, subject to Bankruptcy Court
approval, and certain other limitations, to assume or reject certain executory
contracts, including unexpired leases. Any claim for damages resulting from the
rejection of an executory contract or an unexpired lease is treated as a general
unsecured claim in the Chapter 11 proceedings.
On September 26, 1996 the United States Trustee appointed a single
unsecured creditors' committee (the "Creditors Committee"). The Creditors
Committee has the right to review and object to certain business transactions
and is expected to participate in the negotiation of the Company's plan of
reorganization. The Creditors' Committee has retained the firm of Wachtell,
Lipton, Rosen & Katz as its counsel and Smith Barney Inc. as financial advisors.
The Company has obtained debtor-in-possession ("DIP") financing from
Foothill Capital Corporation, as agent and Congress Financial Corporation, as
co-agent, (the "Lender Group") which provides for a
H-24
<PAGE> 200
$130,000 DIP Credit Facility (the "DIP Facility"), which was approved by the
Bankruptcy Court on November 15, 1996. The DIP Facility, which expires September
30, 1997, provides up to $130,000 under a borrowing base formula, less
prepetition advances under the Company's then existing New Senior Credit
Facility (the "Prepetition Credit Facility") with the Lender Group, on terms
substantially the same as the Prepetition Credit Facility.
The DIP Facility and prepetition secured claims are collateralized by
substantially all of the assets of the Company including accounts receivable,
inventories and property, plant and equipment. The Company has continued to
accrue interest on its prepetition secured debt obligations. Because of the
Chapter 11 filing, there has been no accrual of interest on Prepetition
unsecured debt subsequent to the Petition Date.
Without the timely completion of the sale of the Company's assets discussed
in Note 3, the factors described above raise substantial doubt about the ability
of the Company to continue as a going concern and there can be no assurance that
the Company can continue to generate sufficient cash flow to maintain
operations. These financial statements do not include any adjustments that might
be necessary should the Company be unable to continue as a going concern.
NOTE 3 -- ASSET PURCHASE AGREEMENT
On October 4, 1996, the Company entered into an asset purchase agreement
(the "Agreement") with Ball-Foster Glass Container Co. L.L.C., ("Ball-Foster") a
limited liability company organized under the laws of the State of Delaware.
Pursuant to the Agreement, Ball-Foster will acquire substantially all of the
assets of the Company for $365 million in cash at closing, subject to
adjustment, which may be substantial, as set forth in the Agreement. In
addition, Ball-Foster will assume specified liabilities of the Company. Payment
of the purchase price is guaranteed by Saint-Gobain Corporation, parent company
of Ball-Foster. Closing under the Agreement is subject to several conditions,
including compliance with the Hart-Scott-Rodino Antitrust Improvements Act,
approval by the United States Bankruptcy Court for the State of Delaware as a
sale free and clear of liens, and a closing prior to December 31, 1996. On
November 13, 1996 filings under Hart-Scott-Rodino were made with the Federal
Trade Commission and the Department of Justice with requests for early
termination of the 30 day waiting period.
Also on October 4, 1996, the Company filed a motion with the Bankruptcy
Court seeking an order (i) authorizing the sale to Ball-Foster, subject to
higher and better bids, of substantially all of the Company's assets free and
clear of certain liens, claims and encumbrances and (ii) authorizing assumption
and assignment of certain unexpired leases and executory contracts (the "Sale
Motion"). The Court has entered several amended scheduling orders which
establish the following timetable for the sale process. The deadline for
submissions of higher and better bids is December 2, 1996 at 3:00 pm Eastern
Standard Time. If other bids are submitted, an auction will be held on December
4, 1996 at the office of Stroock & Stroock & Lavan, counsel to the Company. The
sale hearing itself is scheduled for December 9, 1996 at 3:00 pm. Other
adjourned dates have been set for certain objections to the sale and responses
to objections. A number of objections have been filed in connection with the
Sale Motion, some of which assert that the sale cannot proceed without the
consent of the objecting parties, notably Owens-Brockway Glass Container, Inc.,
a party to a technology license agreement with the Company and Coors Brewing
Company, a customer and joint venture partner with the Company in the Rocky
Mountain Bottle Company joint venture. Another party claiming to be a potential
bidder for the assets of the Company, Consumers Packaging Inc. ("Consumers"),
has filed an objection alleging that the Ball-Foster deal cannot be consummated.
To date, Consumers has not submitted a bid to the Company.
Based on the pervasive nature of the uncertainties that exist around the
ultimate resolution of the bankruptcy proceedings discussed in Note 2, which may
include the sale of the Company's assets, management cannot determine the extent
to which the Company's assets have been impaired. Accordingly, no provision for
loss has been reflected in the accompanying condensed consolidated financial
statements for asset impairment.
The Company is actively engaged, together with its Creditors Committee,
Ball-Foster and other interested parties, in reviewing the objections filed and
negotiating with the significant objectors in an effort to
H-25
<PAGE> 201
consensually resolve all objections. The Company believes all interested parties
are working to resolve objections and meet the deadline of a year-end closing as
set forth in the Agreement. However, there can be no assurance that such
objections will be resolved or that certain conditions to closing will be
satisfied or waived.
NOTE 4 -- INCOME TAXES
As a result of continuing losses, management has determined it was no
longer more likely than not that the value of the remaining deferred tax asset
would be realized. As a result, the Company recorded an additional valuation
allowance of $1,825, which is reflected as a provision for income taxes in the
consolidated statement of operations for the quarter ended September 30, 1996.
NOTE 5 -- RESTRUCTURING AND OTHER CHARGES
A summary of activity related to the Company's 1996 and 1995 restructuring
plans follows:
<TABLE>
<CAPTION>
AMOUNT CHARGED
AGAINST LIABILITY
RESTRUCTURING AS OF
LIABILITY SEPTEMBER 30, 1996
------------- ------------------
<S> <C> <C>
1996 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and
pension curtailment losses............................ $25,100 $ 13,100
Writedown of certain manufacturing assets to net
realizable value...................................... 24,900
1995 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and
pension curtailment losses............................ 39,200 33,500
Writedown of certain manufacturing assets to net
realizable value...................................... 36,600
Writedown of previously shutdown manufacturing
facilities to net realizable value.................... 14,000
</TABLE>
NOTE 6 -- PREPETITION LIABILITIES
Prepetition liabilities subject to compromise at September 30, 1996 include
the following:
<TABLE>
<S> <C>
$100,000 10.25% Senior Notes...................................... $100,000
$200,000 9.875% Senior Subordinated Debentures.................... 200,000
Insurance related liabilities..................................... 93,189
Pension related liabilities....................................... 82,487
Trade payables.................................................... 60,946
Other miscellaneous claims........................................ 21,242
Vacation and severance............................................ 9,628
Accrued interest.................................................. 6,909
--------
$574,401
--------
</TABLE>
Prepetition liabilities not subject to compromise at September 30, 1996
include the following:
<TABLE>
<S> <C>
Senior Secured Notes.............................................. $158,025
Accrued interest.................................................. 658
--------
$158,683
--------
</TABLE>
Because of the Chapter 11 proceedings, there has been no accrual of
interest on the $100,000 10.25% Senior Unsecured Notes or the $200,000 9.875%
Senior Subordinated Notes since September 12, 1996. If accrued, interest expense
would have increased $1,500 during the nine months ended September 30, 1996.
H-26
<PAGE> 202
ANCHOR RESOLUTION CORP.
(DEBTOR IN POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEET
FEBRUARY 4, 1997
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and equivalents......................................................... $ 3,449
Accounts receivable, net..................................................... 60,978
Inventories:
Raw materials and manufacturing supplies.................................. 29,649
Semi-finished and finished products....................................... 119,082
Other current assets......................................................... 19,184
--------
Total current assets................................................. 232,342
Property, plant and equipment, net........................................... 311,642
Other assets................................................................. 50,943
Intangible pension asset..................................................... 17,140
Investment in joint venture.................................................. 39,734
--------
$ 651,801
========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
Liabilities not subject to compromise:
Current liabilities:
Debtor-in-Possession Facility.................................................. $ 107,939
Senior Secured Notes........................................................... 158,025
Accounts payable............................................................... 32,558
Accrued expenses............................................................... 35,192
Accrued interest............................................................... 914
Accrued compensation and employee benefits..................................... 58,545
--------
Total current liabilities............................................ 393,173
Pension liabilities............................................................ 44,198
Other long-term liabilities.................................................... 120,206
--------
164,404
Liabilities subject to compromise.............................................. 379,183
--------
Total liabilities.................................................... 936,760
Commitments and contingencies (Note 15)
Stockholder's equity (deficiency in assets):
Common stock -- $.10 par value................................................. --
Capital in excess of par value................................................. $ 576,300
Accumulated deficit............................................................ (838,865)
Amount related to minimum pension liability.................................... (22,394)
--------
(284,959)
--------
$ 651,801
========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
H-27
<PAGE> 203
ANCHOR RESOLUTION CORP.
(DEBTOR IN POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 1, 1997 TO FEBRUARY 4, 1997
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Net sales...................................................................... $ 62,560
Costs and expenses:
Cost of products sold........................................................ 70,608
Selling and administrative expenses.......................................... 3,745
--------
Loss from operations........................................................... (11,793)
Other expense, net............................................................. (595)
Interest expense............................................................... (2,437)
--------
Loss before reorganization items............................................... (14,825)
Reorganization items........................................................... (827)
--------
Net loss....................................................................... $(15,652)
========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
H-28
<PAGE> 204
ANCHOR RESOLUTION CORP.
(DEBTOR IN POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1997 TO FEBRUARY 4, 1997
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $(15,652)
Adjustments to reconcile loss before extraordinary item to net cash used in
operating activities:
Depreciation and amortization............................................. 7,605
Other..................................................................... 127
Decrease in cash resulting from changes in assets and liabilities......... (3,507)
-------
(11,427)
Cash flows from investing activities:
Expenditures for property, plant and equipment............................... (7,186)
Investment in joint venture.................................................. (10)
Other........................................................................ (304)
-------
(7,500)
Cash flows from financing activities:
Net draws on DIP Facility.................................................... 17,484
Principal payments on long-term debt......................................... (6)
-------
17,478
Cash and equivalents:
Decrease in net cash position................................................ (1,449)
Balance, beginning of year................................................... 4,898
-------
Balance, end of period....................................................... $ 3,449
=======
Supplemental disclosure of cash flow information:
Interest payments, net....................................................... $ --
-------
Income tax payments (refunds), net........................................... $ --
=======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
H-29
<PAGE> 205
ANCHOR RESOLUTION CORP.
(DEBTOR IN POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN THOUSANDS)
NOTE 1 -- MANAGEMENT'S RESPONSIBILITY
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. Under the reorganization and anticipated sale of assets discussed in
Notes 2 and 3 below, the Company will sell or otherwise realize assets, and
liquidate or settle liabilities, for amounts substantially less than those
reflected in the condensed consolidated financial statements. Therefore, the
amounts reported in the condensed consolidated financial statements do not give
effect to the adjustments to the carrying value of assets or amounts and
classifications of liabilities that will be necessary pursuant to a plan of
reorganization and sale of substantially all of the Company's assets.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The results of operations for the interim
periods are not necessarily indicative of the results of the full fiscal year.
NOTE 2 -- SALE OF ASSETS
On February 5, 1997, OI and Anchor Glass Acquisition Corporation ("New
Anchor"), a majority-owned subsidiary of CPI, acquired substantially all of the
assets and business of the Company, pursuant to the Asset Purchase Agreement
dated December 18, 1996, as amended (the "Agreement").
New Anchor purchased eleven operating glass container manufacturing
facilities, five idled glass container manufacturing facilities and other
related assets. OI purchased assets and assumed liabilities of the Company's
Antioch, California and Hayward, California facilities and purchased certain
other existing inventories. OI also purchased the Company's investment in Rocky
Mountain Bottle Company, a joint venture with Coors Brewing Company ("Coors"),
and assumed the Company's agreement to manufacture Coors' glass packaging
products in the United States.
The total purchase price approximated $378,000, excluding fees of
approximately $1,500. The purchase price received from OI amounted to
approximately $128,000 and was received in cash. The remaining purchase price of
approximately $250,000 from New Anchor was comprised of: approximately $200,500
in cash, $47,000 face amount (1,879,320 shares) of mandatorily redeemable 10%
cumulative convertible preferred stock and $2,500 of common stock (490,898
shares with an estimated value of $5.00 per share) of New Anchor.
The purchase price paid by the Company is subject to adjustment. On June
13, 1997, Old Anchor delivered to the Company the closing balance sheet which
indicated that Old Anchor believed that it was entitled to additional payments
from the Company and Owens totaling approximately $76,300. On July 28, 1997, the
Company delivered its notice of disagreement to Old Anchor, which requested a
reduction of the purchase price of approximately $96,800. Since that time, the
parties have been negotiating the amount of the adjustment, and in January 1998,
have reached a proposed settlement (the "Proposed Settlement"). The Proposed
Settlement requires the payment by the Company to Old Anchor of an additional
$1,000 in cash and the issuance of warrants for the purchase of additional
shares of common stock. In addition, the Company will issue warrants to purchase
additional shares of common stock to Consumers U.S. or an affiliate. The
Proposed Settlement is subject to final approval by the Company, Old Anchor and
the bankruptcy court.
Proceeds from the sale were used to repay the outstanding balance of the
DIP Facility and accrued interest thereon, of approximately $109,000 (principal
balance of $90,455 at December 31, 1996). The remainder of the proceeds will be
used against prepetition liabilities, as ultimately determined under the
Company's Plan of Reorganization (see Note 3).
H-30
<PAGE> 206
Upon consummation of the purchase and effective February 6, 1997, New
Anchor changed its name to Anchor Glass Container Corporation and the Company
changed its name to Anchor Resolution Corp.
As an objection to the sale, the Pension Benefit Guaranty Corporation
("PBGC") entered a determination to terminate the Company's qualified defined
benefit pension plans. However, in conjunction with the sale, New Anchor assumed
all liabilities of the plans and funded approximately $9,100 of plan
contributions, previously unfunded following the Company's filing of Chapter 11
(see Note 3). Additionally, New Anchor issued to the plans $9,000 face amount
(360,000 shares) of mandatorily redeemable 10% cumulative preferred stock and
Vitro agreed to provide a limited guaranty to the PBGC with respect to the
unfunded benefit liabilities of the Company's defined benefit plans.
Consequently, the PBGC agreed not to terminate the plans as a result of the
Agreement and the assumption of the plans by New Anchor.
NOTE 3 -- BANKRUPTCY PROCEEDINGS
As a result of the continued decline in the Company's results of operations
from the effects of the highly competitive glass container market and the
Company's high debt level, on September 13, 1996 (the "Petition Date"), the
Company filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). On September 30, 1996, Anchor
Recycling Corporation, a wholly-owned subsidiary of the Company, also filed a
voluntary petition to reorganize under Chapter 11 in the same court. The Chapter
11 proceedings are being jointly administered, with the Company managing the
business in the ordinary course as a debtor-in-possession under the supervision
of the Bankruptcy Court. Vitro and the Company concluded that the Chapter 11
filing was necessary in order to preserve the value of its assets and to ensure
that the business has sufficient cash resources to continue operations while it
completed the sale of the business discussed in Note 2.
Under Chapter 11 proceedings, litigation and actions by creditors to
collect certain claims existing at the Petition Date are stayed, without
specific Bankruptcy Court authorization to pay such claims. The Company had
received authorization, pursuant to first day orders, to pay certain claims
related to wages, salaries, vacation, sick pay and other claims. As a
debtor-in-possession, the Company has the right, subject to Bankruptcy Court
approval, and certain other limitations, to assume or reject certain executory
contracts, including unexpired leases. Any claim for damages resulting from the
rejection of an executory contract or an unexpired lease is treated as a general
unsecured claim in the Chapter 11 proceedings.
On September 26, 1996 the United States Trustee appointed a single
unsecured creditors' committee (the "Creditors Committee"). The Creditors
Committee has the right to review and object to certain business transactions
and has participated in the negotiation of the Company's plan of reorganization.
The Creditors Committee has retained the firm of Wachtell, Lipton, Rosen & Katz
as its counsel and Smith Barney Inc. as its financial advisors.
The Company obtained debtor-in-possession ("DIP") financing from Foothill
Capital Corporation, as agent, and Congress Financial Corporation, as co-agent,
(the "Lender Group") which provided for a $130,000 DIP Credit Facility (the "DIP
Facility"), and was approved by the Bankruptcy Court on November 15, 1996. The
DIP Facility, which would have expired September 12, 1997, provided up to
$130,000 under a borrowing base formula, less prepetition advances under the
Company's then existing New Senior Credit Facility (the "Prepetition Credit
Facility") with the Lender Group, on terms substantially the same as the
Prepetition Credit Facility. On February 5, 1997, the DIP Facility was repaid in
full with proceeds from the sale as discussed in Note 2.
The DIP Facility and prepetition secured claims are collateralized by
substantially all of the assets of the Company including accounts receivable,
inventories and property, plant and equipment. The Company has continued to
accrue interest on its prepetition secured debt obligations. Because of the
Chapter 11 filing, there has been no accrual of interest on prepetition
unsecured debt subsequent to the Petition Date.
Of the cash proceeds received from the sale of substantially all the assets
and business of the Company (see Note 2), approximately $109,000 was used to
repay in full the DIP Facility and approximately $11,000 was applied to the
prepayment of real estate taxes, certain costs related to the Company's
partnership with
H-31
<PAGE> 207
Coors (see Note 8) and the termination fee payable to Ball-Foster (see Note 2).
The balance of the net proceeds of the sale remaining after application to the
costs of the winddown and to other administrative and priority claims will be
distributed to the creditors of the Company, including the holders of
approximately $158,000 principal amount of the Company's Senior Secured Notes
and holders of other secured and unsecured claims, pursuant to a Plan of
Reorganization which is being developed by the Company in conjunction with the
Creditors Committee.
The Company has separately reported, as reorganization items on the
consolidated statement of operations, professional fees and similar types of
expenditures relating directly to the Chapter 11 filing. The Company's policy is
to expense all such expenditures as incurred. These expenses are primarily for
legal, claims and accounting services.
NOTE 4 -- RESTRUCTURING AND OTHER CHARGES
A summary of activity related to the Company's 1996 and 1995 restructuring
plans follows:
<TABLE>
<CAPTION>
AMOUNT CHARGED
AGAINST
LIABILITY
RESTRUCTURING AS OF
LIABILITY FEBRUARY 4, 1997
------------- ----------------
<S> <C> <C>
1996 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and
pension curtailment losses.............................. $25,100 $ 23,400
1995 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and
pension curtailment losses.............................. 39,200 36,800
</TABLE>
H-32
<PAGE> 208
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical financial information of
Old Anchor. The selected financial data for the five years ended December 31,
1996 has been derived from Old Anchor's consolidated financial statements. The
selected financial data for the nine months ended September 30, 1996 have been
derived from Old Anchor's unaudited condensed consolidated financial statements.
The following information should be read in conjunction with Old Anchor's
consolidated financial statements, unaudited condensed consolidated financial
statements and the related Old Anchor Management's Discussion and Analysis of
Financial Condition and Results of Operations for Old Anchor, included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996(1) 1996
---------- ---------- ---------- ---------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $1,161,925 1,126,037 $1,089,317 $ 956,639 $ 814,370 $ 640,049
Cost of products sold.............. 1,037,329 1,028,332 996,780 906,393 831,612 636,917
Selling and administrative
expenses......................... 45,785 51,137 52,371 48,998 39,570 30,736
Restructuring and other
charges(1)....................... -- -- 79,481 10,267 49,973 49,973
Impairment of long-lived
assets(2)........................ -- -- -- -- 490,232 --
Write-up of assets held for
sale(1).......................... -- -- -- -- (8,967) --
---------- ---------- ---------- ---------- --------- --------
Income (loss) from operations...... 78,811 46,568 (39,315) (9,019) (588,050) (77,577)
Other income (expense), net........ (523) 500 (2,385) 171 (10,020) (3,379)
Interest expense(3)................ (64,659) (62,535) (56,070) (56,871) (48,601) (42,160)
---------- ---------- ---------- ---------- --------- --------
Income (loss) before reorganization
items, income taxes,
extraordinary items and
cumulative effect of accounting
change........................... 13,629 (15,467) (97,770) (65,719) (646,671) (123,116)
Reorganization items............... -- -- -- -- (5,008) (1,576)
Income taxes(4).................... (1,300) (2,400) (250) (250) (1,825) (1,825)
Extraordinary items(5)............. (9,026) (18,152) -- -- (2,336) (2,336)
Cumulative effect of accounting
change(4)........................ -- 1,776 -- -- -- --
---------- ---------- ---------- ---------- --------- --------
Net income (loss).................. $ 3,303 $ (34,243) $ (98,020) $ (65,969) $(655,840) $ (128,853)
========== ========== ========== ========== ========= ========
OTHER FINANCIAL DATA:
Net cash provided by (used in)
operating activities............. $ 74,092 $ 99,279 $ 27,914 $ 430 $ (28,411) $ 8,471
Net cash used in investing
activities....................... (78,358) (118,470) (96,655) (48,500) (63,892) (253,696)
Net cash provided by (used in)
financing activities............. (4,388) 3,259 28,467 52,198 78,886 249,377
Adjusted EBITDA(6)................. 181,495 150,617 138,257 101,334 34,824 44,256
Depreciation and amortization...... 103,207 103,549 100,476 99,915 101,656 75,239
Capital expenditures............... 77,580 89,901 93,833 70,368 46,254 36,144
Ratio of earnings to fixed
charges(7)....................... 1.19x -- -- -- -- --
BALANCE SHEET DATA (AT END OF
PERIOD):
Accounts receivable................ $ 58,079 $ 58,128 $ 66,618 $ 40,965 $ 55,851 $ 85,130
Inventories........................ 196,827 173,204 176,769 180,574 144,419 166,527
Total assets....................... 1,321,733 1,347,201 1,264,488 1,208,348 643,468 1,195,601
Total debt(8)...................... 526,405 555,222 584,671 557,450 552,848 575,732
Total stockholder's equity
(deficiency in assets)........... 462,063 412,752 324,554 289,603 (269,307) 253,234
</TABLE>
- ---------------
(1) Restructuring and other charges reflects Old Anchor's implementation of a
series of restructuring plans in an effort to respond to the continued
decline in the industry sales volume combined with, in 1996, the loss of a
significant portion of the business of Old Anchor's largest customer. The
following represents
H-33
<PAGE> 209
information regarding the amounts charged against the restructuring
liability for Old Anchor's restructuring plans:
<TABLE>
<CAPTION>
AMOUNT CHARGED
AGAINST
LIABILITY
AS OF
RESTRUCTURING DECEMBER 31,
CHARGES 1996
------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1996 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and
pension curtailment losses.............................. $25,100 $ 20,100
Writedown of certain manufacturing assets to net
realizable value........................................ 24,900
1994/1995 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and
pension curtailment losses.............................. $39,200 $ 33,700
Writedown of certain manufacturing assets to net
realizable value........................................ 36,600
Writedown of previously shutdown manufacturing facilities
to net realizable value................................. 14,000
</TABLE>
During the year ended December 31, 1996, the Company recorded an adjustment
to the carrying value of certain idled facilities held for sale. These
assets were previously written down to an estimated net realizable value.
Upon a current evaluation of quotes and offers on these properties in 1996,
Old Anchor increased their net carrying value by approximately $9.0 million.
The balance of the restructuring liability is anticipated to be expended and
charged against the liability over the next three years.
(2) Impairment of long-lived assets reflects the adjustment for the write-off of
goodwill and other long-lived assets. As a result of the declining
profitability, diminishing cash flow and the bankruptcy proceedings, the
recoverable value of the carrying amount of long-lived assets and
intangibles was reviewed for impairment. Based upon this review, the amount
of remaining excess of the purchase price over the fair value of net assets
acquired at December 31, 1996, of $457.2 million and other long-lived assets
of $33.0 million were written off. The excess cost over fair value of net
assets acquired had been amortized on a straight line basis over a 40 year
period. Amortization expense, included as a component of cost of products
sold, was approximately $13.9 million for each of the years ended December
31, 1996, 1995 and 1994. See Old Anchor's Notes to the Consolidated
Financial Statements, included elsewhere in this Prospectus.
(3) Because of the Chapter 11 proceedings, there has been no accrual of interest
on the $100.0 million 10.25% Senior Notes or the $200.0 million 9.875%
Senior Subordinated Debentures since September 12, 1996. If accrued,
interest expense would have increased $9.2 million during the year ended
December 31, 1996.
(4) Income tax provision reflects any additional valuation allowances required
to be recorded under SFAS 109. The adoption of SFAS 109 effective January 1,
1993 resulted in an increase in the cumulative net deferred tax asset by
$1.8 million. Under SFAS 109, deferred income taxes reflect the net tax
effects of temporary differences between carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes, and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. If on the
basis of available evidence, it is more likely than not that all or a
portion of the deferred tax asset will not be realized, the asset must be
reduced by a valuation allowance.
(5) Extraordinary items in the three years ended December 31, 1992, 1993 and
1996, result from the write-off of financing costs related to debt
extinguished during the relevant periods, net of taxes.
(6) Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization) ("Adjusted EBITDA") is an amount equal to income (loss) before
income taxes, extraordinary items and cumulative effect of accounting change
plus the amounts of restructuring charges, reorganization items, the
impairment of long-lived assets, interest, depreciation and amortization and
less the amount of the write-up of assets held for sale included in the
determination of income (loss) before income taxes, extraordinary items and
cumulative effect of accounting change. The Company believes that, in
addition to cash flow from operations and net earnings, Adjusted EBITDA is a
useful financial performance
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<PAGE> 210
measurement for assessing operating performance as it provides investors
with an additional basis to evaluate the ability of the Company to incur and
service debt and to fund capital expenditures. In evaluating Adjusted
EBITDA, the Company believes that investors should consider, among other
things, the amount by which Adjusted EBITDA exceeds interest costs for the
period, how Adjusted EBITDA compares to principal repayments on debt for the
period and how Adjusted EBITDA compares to capital expenditures for the
period. To evaluate Adjusted EBITDA, the components of Adjusted EBITDA, such
as revenues and operating expenses and the variability of such components
over time, should also be considered. Investors should be cautioned that the
Company's method of calculating Adjusted EBITDA may differ from the methods
used by other companies and, as a result, the Adjusted EBITDA measures
disclosed herein may not be comparable to other similarly titled measures
disclosed by other companies.
(7) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary items plus fixed
charges. Fixed charges consist of interest and amortization of debt expense
plus a portion of operating lease expense representative of the interest
factor. There was a deficiency of earnings to fixed charges in 1993, 1994,
1995 and 1996 of $15.5 million, $97.8 million, $65.7 million and $651.7
million, respectively. For the nine months ended September 30, 1996, there
was a deficiency of earnings to fixed charges of $124.7 million.
(8) Total debt as of December 31, 1996 includes $462.3 million of pre-petition
liabilities and $90.5 million outstanding under Old Anchor's
debtor-in-possession credit facility.
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<PAGE> 211
ANCHOR RESOLUTION CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
RESULTS OF OPERATIONS
Introduction
The following table sets forth certain information derived from the
Consolidated Financial Statements of Anchor Resolution Corp., formerly named
Anchor Glass Container Corporation and currently a debtor-in-possession under
Chapter 11 of the Bankruptcy Code ("Old Anchor"), for the three years ended
December 31, 1996. The following discussion should be read in conjunction with
the Consolidated Financial Statements of Old Anchor and notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1994 1995 1996
------------------ ---------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- ------ ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................... $1,089.3 100.0% $956.6 100.0% $ 814.4 100.0%
Cost of products sold........................ 996.8 91.5 906.4 94.8 831.6 102.1
Selling and administrative expenses.......... 52.4 4.8 49.0 5.1 39.6 4.9
Restructuring and other charges.............. 79.5 7.3 10.3 1.1 50.0 6.1
Impairment of long-lived assets.............. -- -- -- -- 490.2 60.2
Write-up of assets held for sale............. -- -- -- -- (9.0) (1.1)
Loss from operations......................... (39.4) (3.6) (9.1) (1.0) (588.0) (72.2)
Interest expense............................. 56.1 5.2 56.8 5.9 48.6 6.0
Loss before reorganization items, income
taxes and extraordinary item............... (97.8) (9.0) (65.7) (6.9) (651.7) (76.0)
Loss before extraordinary item............... (98.0) (9.0) (66.0) (6.9) (653.5) (80.0)
Net loss..................................... (98.0) (9.0) (66.0) (6.9) (655.8) (80.5)
</TABLE>
The net loss for the year ended December 31, 1996 was $655.8 million
compared to a net loss of $66.0 million for 1995. Included in the loss for 1996
is the impairment of long-lived assets of $490.2 million. Included in the 1996
and 1995 results were first quarter charges of $50.0 million and $10.3 million,
respectively, for Old Anchor's 1996 and 1995 restructuring programs. Excluding
the effect of these items, net loss would have been $115.6 million compared to
$55.7 million for 1995.
The decline in Old Anchor's operations is a direct result of Old Anchor's
high debt levels and industry-wide volume declines that have led to severe
competitive pricing pressures, negatively impacting operating results. Net sales
for 1996 decreased 14.9% compared to 1995, on a volume decline of approximately
14%, primarily in the beer, iced tea and soft drink markets. As an example, Old
Anchor's 1996 volume allocation from its largest customer in 1995,
Anheuser-Busch, has been significantly reduced. The softness in overall industry
volume shipments has led to severe competitive pricing pressures, negatively
impacting operating margins. In accordance with its restructuring plans, Old
Anchor closed its Cliffwood, New Jersey plant in January 1996, and closed its
Waukegan, Illinois, Los Angeles, California and Keyser, West Virginia plants in
1995.
NET SALES
Net sales for 1996 were $814.4 million, a decrease of 14.9% compared to
$956.6 million for 1995. The decrease in net sales principally reflects the
softening in 1996 of the year-to-year demand for glass containers which has
resulted in increased competition for market share and lower pricing trends. In
addition, as described above, Anheuser-Busch has significantly reduced its
purchases from Old Anchor.
H-36
<PAGE> 212
Net sales for 1995 were $956.6 million, a decrease of 12.2% compared to
$1,089.3 million for 1994. The decrease in net sales principally reflects the
softening in 1995 of the year-to-year demand for glass containers in the iced
tea and beer segments and year-to-year reduction of unit shipments in the soft
drink segment, as discussed above. The softness in demand has resulted in
increased competition for market share and lower pricing trends.
COST OF PRODUCTS SOLD
Cost of products sold as a percentage of net sales was 102.1% for 1996
compared to 94.8% for 1995. This increase principally reflects the impact of
reduced shipping volumes and lower pricing trends, as described above. Partially
offsetting this increase is the impact of Old Anchor's strategic initiatives and
cost savings derived from Old Anchor's restructuring plans and re-engineering
program.
Cost of products sold as a percentage of net sales was 94.8% for 1995
compared to 91.5% for 1994. This increase principally reflects the impact of
reduced shipping volumes and lower pricing trends. Additionally, Old Anchor's
gross profit margin was negatively impacted by cost increased in certain raw
materials, specifically packaging materials.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses declined $9.4 million, or 19.2%, in
1996 compared to 1995. This decrease principally reflects lower personnel and
fringe benefit costs as a result of headcount reductions associated with Old
Anchor's re-engineering and cost reduction programs.
Selling and administrative expenses declined $3.4 million, or 6.4%, in 1995
compared to 1994, because of lower personnel and fringe benefit costs as a
result of headcount reductions in that year.
RESTRUCTURING AND OTHER CHARGES
During 1994, formal plans were approved to significantly reduce Old
Anchor's cost structure and to improve productivity. This restructuring program
related primarily to consolidation of underutilized manufacturing operations and
provided for the closure of three of Old Anchor's 17 manufacturing plants. In
the 1994 fourth quarter, Old Anchor recorded a restructuring charge of $79.5
million and in the 1995 first quarter, an additional $10.3 million charge was
recorded to reflect the benefit arrangements for employees affected by this
plan. In January 1996, formal plans were approved to further restructure certain
of Old Anchor's operations to respond to the continued decline in the industry
sales volume combined with the loss of a significant portion of the business of
Old Anchor's largest 1995 customer. A restructuring charge of approximately
$50.0 million has been recorded in the 1996 Consolidated Statement of Operations
for the closure of the Cliffwood, New Jersey plant and other restructuring
obligations.
IMPAIRMENT OF LONG-LIVED ASSETS
As a result of declining profitability, diminishing cash flows and the
bankruptcy proceedings, the entire $457.2 million of goodwill and $33.0 million
of other long-lived assets were written off.
WRITE-UP OF ASSETS HELD FOR SALE
In December 1996, Old Anchor wrote up the value of certain assets held for
sale by $9.0 million.
INTEREST EXPENSE
Interest expense was $48.6 million for 1996 compared to $56.8 million for
1995. Because of the Bankruptcy Proceedings, there has been no accrual of
interest on the $100.0 million 10.25% Senior Notes or the $200.0 million 9.857%
Senior Subordinated Debentures since September 12, 1996. If accrued, interest
expense would have increased by $9.1 million in 1996.
H-37
<PAGE> 213
Interest expense was $56.8 million for the year ended December 31, 1995
compared to $56.1 million for the corresponding period of 1994. The increase
reflected higher prevailing interest rates, and higher average working capital
borrowings outstanding during 1995, as compared to 1994.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the continued decline in Old Anchor's results of operations
from the effect of the highly competitive glass container market, and Old
Anchor's high debt level, on September 13, 1996 (the "Petition Date"), Old
Anchor filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11") in the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"). On September 30,
1996, Anchor Recycling Corporation, a wholly-owned subsidiary of Old Anchor,
also filed a voluntary petition to reorganize under Chapter 11 in the same
court. The Chapter 11 proceedings are being jointly administered, with Old
Anchor managing the business in the ordinary course as a debtor-in-possession
under the supervision of the Bankruptcy Court. Old Anchor concluded that the
Chapter 11 filing was necessary in order to preserve the value of its assets and
to ensure that the business had sufficient cash resources to continue operations
while it completed the sale of the business discussed in Note 2 to the Notes to
the Consolidated Financial Statements, appearing elsewhere herein.
Old Anchor obtained debtor-in-possession ("DIP") financing from Foothill
Capital Corporation, as agent and Congress Financial Corporation, as co-agent
(the "Lender Group") to provide for a $130.0 million DIP Credit Facility (the
"DIP Facility"), which was approved by the Bankruptcy Court on November 15,
1996. The DIP Facility, which would expire September 30, 1997, provided up to
$130.0 million under a borrowing base formula, less prepetition advances under
Old Anchor's then existing Prepetition Credit Facility with the Lender Group, on
terms substantially the same as the Prepetition Credit Facility.
Advances outstanding at any one time were not to exceed an amount equal to
the Borrowing Base, consisting of accounts receivable and finished product
inventory, as defined in the Prepetition Credit Facility, and amended by the DIP
Facility. At December 31, 1996, Old Anchor's available borrowing base, as
defined under the DIP Facility was approximately $113.7 million against which
$90.5 was outstanding. Interest, at prime plus 1.125%, as defined, was payable
monthly. A commitment fee of 0.5% of the unused portion of the DIP Facility was
payable monthly.
On February 5, 1997, Anchor Glass Acquisition Corporation ("New Anchor"), a
wholly-owned subsidiary of Consumers Packaging Inc. ("CPI"), and Owens-Brockway
Glass Container Inc. ("OI") acquired substantially all of the assets and
business of Old Anchor in accordance with the terms of the Asset Purchase
Agreement, dated December 18, 1996 (the "Agreement") as discussed in Note 2 to
the Notes to Consolidated Financial Statements. The total purchase price
approximated $387.9 million, excluding fees of approximately $9.9 million. The
purchase price received from OI amounted to approximately $128.4 million and was
received in cash. The remaining purchase price of approximately $250.0 million
from New Anchor was comprised of approximately $200.5 million in cash, $47.0
million face amount (1,879,320 shares) of mandatorily redeemable 10% cumulative
convertible preferred stock and $2.5 million of common stock (490,898 shares
with an estimated value of $5.00 per share) of New Anchor. The purchase price is
subject to adjustment as defined in the Agreement.
Proceeds from the sale were used to repay the outstanding balance of the
DIP Facility and accrued interest thereon, at February 5, 1997, of approximately
$109.0 million. The remainder of the proceeds will be used to satisfy
prepetition liabilities, as to be determined under Old Anchor's Plan of
Reorganization. Old Anchor's principal sources of liquidity through February 5,
1997 were funds derived from operations and borrowings under the DIP Facility.
In 1996, operating activities consumed $28.4 million in cash compared to
$0.4 million and $27.9 million of cash provided in 1995 and 1994, respectively.
These increases in cash consumed reflect the increase in losses and the changes
in working capital items during the periods compared.
Capital expenditures in 1996 were $46.3 million compared to $70.4 million
and $93.8 million in 1995 and 1994, respectively. In addition, in 1996, Old
Anchor invested approximately $18.6 million in the joint venture
H-38
<PAGE> 214
with Coors Brewing Company ("Coors"). Old Anchor invested $20.0 million in the
joint venture in 1995. Also in 1995, Old Anchor entered into sale and leaseback
transactions, with respect to certain of its glass manufacturing equipment, with
an aggregate net selling price of approximately $48.3 million.
Cash flows from financing activities for the years ended December 31, 1996,
1995 and 1994 were $78.9 million, $52.2 million and $28.5 million, respectively.
The 1996 cash flows from financing activities principally reflects a $92.5
million capital contribution received from Vitro, Sociedad Anonima and
borrowings under the Prepetition Credit Facility, modified by the DIP Facility.
In February 1997, Old Anchor received an additional capital contribution of $8.4
million in satisfaction of obligations outstanding under the $20.0 million
letter of credit facility, which was terminated at that time.
As a result of the Bankruptcy Proceedings, Old Anchor is in default of
various covenants relating to Old Anchor's outstanding prepetition debt.
However, under Chapter 11 proceedings, litigation or actions by creditors
related to these defaults are stayed. In addition, the DIP Facility required
that Old Anchor's collateral value and availability, as defined, could not be
less than a specified amount as measured on a rolling four-week period
throughout the term of the DIP Facility. Prior to the repayment of the DIP
Facility, Old Anchor was in full compliance with these covenants.
IMPACT OF INFLATION
The impact of inflation on the costs of Old Anchor, and the ability to pass
on cost increases in the form of increased sales prices, is dependent upon
market conditions. While the general level of inflation in the domestic economy
has been at relatively low levels since Old Anchor's formation in 1983, Old
Anchor has generally been unable, since the end of 1991, to fully pass on
inflationary cost increases as a result of competitive pricing pressures. This
has negatively impacted Old Anchor's operating results.
SEASONALITY
Due principally to the seasonal nature of the brewing, iced tea and soft
drink industries, in which demand is stronger during the summer months, Old
Anchor's shipment volume is typically highest in the second and third quarters.
Consequently, Old Anchor historically builds inventory during the first quarter
in anticipation of seasonal demands during the second and third quarters.
However, industry patterns existing over the last 18 months have somewhat
altered the normal seasonal trends. In addition, Old Anchor generally schedules
shutdowns of its plants for furnace rebuilds and machine repairs in the first
and fourth quarters of the year to coincide with scheduled holiday and vacation
time under its labor union contracts. These shutdowns and seasonal sales
patterns adversely affect profitability during the first and fourth quarters.
H-39
<PAGE> 215
ANNEX A
SUMMARIZATION LETTERS OF AAA
SUMMARIZATION LETTER -- LIQUIDATION IN PLACE BASIS
At the request of the Initial Purchasers, AAA was engaged to appraise
certain property exhibited to us as that of Anchor Glass Container Corporation.
Our services were provided in accordance with the Uniform Standards of
Professional Appraisal Practice, (USPAP) as promulgated by The Appraisal
Foundation, an organization founded by Congress in 1986.
We made our investigation to express an opinion, as of December 31, 1996,
of the market value of the real estate and personal property. The real
property's fee simple estate was appraised, while the personal property was
valued on the premise of liquidation-in-place. It was understood that our
opinion would provide a basis for effectuating financing arrangements.
Appraisals are time and use specific so it is entirely inappropriate to use our
appraisal for any purpose other than that specified.
The term market value is equivalent to open market and is defined as the
most reasonable price a property should bring in a competitive and open market
under all conditions requisite to a fair sale, the buyer and seller each acting
prudently and knowledgeably, and assuming the price is not affected by undue
stimulus. Implicit in this definition is the consummation of a sale as of a
specified date and the passing of title from seller to buyer under conditions
whereby: (1) buyer and seller are typically motivated; (2) both parties are well
informed or well advised, and acting in what they consider their best interests;
(3) a reasonable time is allowed for exposure in the open market; (4) payment is
made in terms of cash in U.S. dollars or in terms of financial arrangements
comparable thereto; and (5) the price represents the normal consideration for
the property sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale. It was assumed the real
estate was held in fee simple, except for the real property located in Salem,
New Jersey which was a leasehold interest, and clear of any liens and
encumbrances.
Fair market value is defined as the estimated amount at which the assets
might be expected to exchange between a willing buyer and a willing seller,
neither being under compulsion, each having reasonable knowledge of all relevant
facts. When fair market value is established on the premise of
liquidation-in-place, it is assumed that the buyer and seller would be
contemplating retention of the personal property at its present location for
continued use of like operations. This value premise represents the estimated
amount a property should realize if sold on a negotiated basis given a
reasonable amount of time in which to find a buyer, the property would not be
operating or producing a product at the time of its sale, but would be capable
of operation and production. TO UNDERSTAND THE APPRAISAL PROCESS AND THE
ASSUMPTIONS IMPLICIT IN THE ABOVE DEFINITIONS, THE READER IS URGED TO STUDY THE
APPRAISAL IN ITS ENTIRETY.
Our investigation included real estate, including land, land improvements,
and buildings; and personal property, comprising machinery and equipment, office
furniture and equipment, licensed vehicles, and construction in progress.
Excluded from the investigation were supplies, materials on hand, inventories,
company records, and any current or intangible assets that might exist.
We personally inspected the designated assets and studied market
conditions. We considered all three traditional approaches to value and applied
the most appropriate techniques, considering the use of the appraisal.
Therefore, we conducted a complete appraisal according to USPAP guidelines as we
understand them. No consideration was given to the impact of any environmental
concerns which are associated with the subject properties. No investigation was
made of the title to or any liabilities against the appraised property.
We appraised real and personal property at the following locations:
Glass Container Plants at Winchester, IN; Connellsville, PA; Salem, NJ;
Jacksonville, FL; Shakopee, MN; Warner Robins, GA; Henryetta, OK; Elmira,
NY; and Lawrenceburg, IN.
The Mold Repair Shop at Zanesville, OH, and the Central Machine Repair Shop
at Streator, IL.
A-1
<PAGE> 216
Based on the investigation described, we concluded that as of December 31,
1996, the designated properties' market value on the premises of open market and
liquidation-in-place is reasonably represented by the amount of TWO HUNDRED
FORTY-TWO MILLION NINE HUNDRED SIXTY-FIVE THOUSAND DOLLARS ($242,965,000).
The value stated above is based upon the premise and for the purpose stated
and is defined and further detailed in the appraisal reports, exhibits and
general service conditions provided to BT Securities Corporation.
SUMMARIZATION LETTER -- CONTINUED USE BASIS
At the request of the initial Purchasers, AAA was engaged to appraise
certain property exhibited to us as that of Anchor Glass Container Corporation.
Our services were provided in accordance with the Uniform Standards of
Professional Appraisal Practice, (USPAP) as promulgated by The Appraisal
Foundation, an organization founded by Congress in 1986.
We made our investigation to express an opinion, as of December 31, 1996,
of the market value of the real estate and personal property. The fee simple
estate was appraised for the nine real estate locations identified as being
owned, while the subleasehold estate was appraised for the real property
designated as being leased. The personal property was valued on the premise of
continued use. It was understood that our opinion would provide a basis for
allocation of the purchase price of the several classes of assets acquired.
Appraisals are time and use specific so it is entirely inappropriate to use our
appraisal for any purpose other than that specified.
Fair market value is defined as the estimated amount at which the assets
might be expected to exchange between a willing buyer and a willing seller,
neither being under compulsion, each having reasonable knowledge of all relevant
facts. When fair market value is established on the premise of continued use, it
is assumed that the buyer and seller would be contemplating retention of the
property at its present location as part of the current operations. Given the
data available and the trends available, it was concluded that prospective
profits were adequate to justify ownership and an arm's-length exchange. This
value premise represents the estimated amount a property should realize if sold
on a negotiated basis given a reasonable amount of time in which to find a
buyer, and does not represent the amount that might be realized from piecemeal
disposition in the open market or from an alternative use of the property. TO
UNDERSTAND THE APPRAISAL PROCESS AND THE ASSUMPTIONS IMPLICIT IN THE ABOVE
DEFINITIONS, THE READER IS URGED TO STUDY THE APPRAISAL IN ITS ENTIRETY.
Our investigation included real estate, including land, land improvements,
and buildings; and personal property, comprising machinery and equipment, office
furniture and equipment, licensed vehicles, and construction in progress.
Excluded from the investigation were supplies, material on hand, inventories,
company records, and any current or intangible assets that might exist.
We personally inspected the designated assets and studied market
conditions. We considered all three traditional approaches to value and applied
the most appropriate techniques, considering the use of the appraisal.
Therefore, we conducted a complete appraisal according to USPAP guidelines as we
understand them. No consideration was given to the impact of any environmental
concerns which are associated with the subject properties. No investigation was
made of the title to or any liabilities against the appraised property.
We appraised real and personal property at the following locations;
Glass Container Plants at Winchester, IN; Connellsville, PA; Salem, NJ;
Jacksonville, FL; Shakoppe, MN; Warner Robins, GA; Henryetta, OK; Elmira,
NY; and Lawrenceburg, IN.
The Mold Repair Shop at Zanesville, OH, and the Central Machine Repair Shop
at Streator, IL.
Based on the investigation described, we concluded that as of December 31,
1996, the designated properties' market value on the premises of continued use
is reasonably represented by the aggregate amount of THREE HUNDRED TWELVE
MILLION FOUR HUNDRED TWENTY-THREE THOUSAND DOLLARS ($312,423,000).
The value stated above is based upon the premise and for the purpose stated
and is defined and further detailed in the appraisal reports, exhibits and
general service conditions provided to BT Securities Corporation.
A-2
<PAGE> 217
======================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE GUARANTORS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN
THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF NOR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 1
Risk Factors............................. 15
The Exchange Offer....................... 25
The Anchor Acquisition and The Note
Offering............................... 33
Use of Proceeds.......................... 34
Capitalization........................... 35
Unaudited Pro Forma Financial
Statements............................. 36
Management's Discussion and Analysis of
Pro Forma Financial Condition and
Results of Operations.................. 42
Selected Financial Data.................. 44
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 47
Business................................. 50
Management............................... 62
Principal Stockholders................... 66
Certain Transactions..................... 68
Description of Capital Stock............. 69
Description of Revolving Credit
Facility............................... 70
Description of the Notes................. 71
Certain U.S. Federal Income Tax
Considerations......................... 106
Outstanding Notes Registration Rights.... 107
Book Entry; Delivery and Form............ 108
Plan of Distribution..................... 110
Legal Matters............................ 111
Experts.................................. 112
Index to Financial Statements............ F-1
Index to Financial Information for Old
Anchor................................. H-1
Summarization Letters of AAA Appraisal... A-1
</TABLE>
------------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
[ANCHOR LOGO]
ANCHOR GLASS CONTAINER CORPORATION
OFFER TO EXCHANGE UP TO $150,000,000 OF ITS NEW 11 1/4% FIRST MORTGAGE NOTES DUE
2005, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF ITS OUTSTANDING 11 1/4% FIRST
MORTGAGE NOTES DUE 2005
------------------------
PROSPECTUS
------------------------
JANUARY , 1998
======================================================
<PAGE> 218
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ANCHOR GLASS CONTAINER CORPORATION
Certificate of Incorporation
Article VIII of the Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") for Anchor Glass Container Corporation (the
"Company") provides for the indemnification of directors and officers of the
Company and any persons serving at the request of the Company as a director,
trustee, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including service with respect to an
employee benefit plan, to the fullest extent permitted by the General Corporate
Law of the State of Delaware (the "DGCL"). The Certificate of Incorporation also
allows the Company, by action of the Board of Directors, to indemnify other
officers, employees and agents of the Company. These rights to indemnification
(i) are contract rights; (ii) cannot be changed by any amendment to the
Certificate of Incorporation to adversely affect any person being indemnified
with respect to any alleged action or inaction occurring prior to such
amendment; (iii) subject to any rights imposed by law and the By-Laws of the
Company, include the right to have the Company advance expenses incurred in
defending any such action, suit or proceeding prior to the final disposition;
and (iv) are not exclusive of any other right which any person may have or may
acquire under the Certificate of Incorporation, or any statute, by-law or
agreement, or by any vote of the stockholders or disinterested directors of the
Company, or otherwise. In addition to the indemnification provided by Article
VIII, Article IX limits the personal liability of directors for monetary damages
arising out of a breach of fiduciary duty to the fullest extent permitted by the
DGCL.
The Certificate of Incorporation generally prohibits the Company from
indemnifying any person in connection with an action, suit or proceeding (or
portion thereof) initiated by such person unless such action, suit or proceeding
(or portion thereof) was authorized by the Board of Directors. However, this
prohibition does not apply to a counterclaim, cross-claim or third party claim
brought by an indemnitee in any action, suit or proceeding. In addition, persons
claiming a right to indemnification or advancement may bring suit against the
Company if the claim is not paid in full by the Company within sixty days, in
the case of a claim for indemnification, or thirty days, in the case of a claim
for advancement, after receipt of the written claim.
By-laws
The By-laws of the Company contain no provision for indemnification.
CONSUMERS U.S., INC.
Certificate of Incorporation
The Certificate of Incorporation of Consumers U.S., Inc. (the "Parent
Guarantor") provides that the personal liability of the directors of the Parent
Guarantor is limited to the fullest extent permitted by the DGCL and that the
Parent Guarantor shall indemnify the directors, officers, employees and agents
to the fullest extent permitted by the DGCL. The right to indemnification is not
exclusive of any other right which any person may have or may acquire under the
Certificate of Incorporation, or any statute, by-law or agreement, or by any
vote of the stockholders or disinterested directors of the Parent Guarantor, or
otherwise.
By-laws
The By-laws of the Parent Guarantor contain no provision for
indemnification.
II-1
<PAGE> 219
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Under the DGCL, directors, officers, employees, and other individuals may
be indemnified against expenses (including attorneys' fees), judgements, fines,
and amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation -- a "derivative action")
if they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard of care is applicable in the case of a
derivative action, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with defense or settlement of
such an action and Delaware law requires court approval before there can be any
indemnification of expenses where the person seeking indemnification has been
found liable to the corporation.
Delaware corporations may limit the personal liability of their directors
for monetary damages for a breach of fiduciary duty, provided, however, that the
directors can still be held personally liable (i) for a breach of the duty of
loyalty to the corporation and its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL (described below), and (iv) for any
transaction from which the director derived an improper personal benefit.
Section 174 of the DGCL makes directors personally liable for unlawful dividends
or unlawful stock repurchases or redemptions in certain circumstances and
expressly sets forth a negligence standard with respect to such liability.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------- -----------------------------------------------------------------------------------
<C> <S>
2.1 Asset Purchase Agreement dated as of December 18, 1996 among Anchor Glass Container
Corporation, now known as Anchor Resolution Corp. ("Old Anchor"), Consumers
Packaging Inc. and Owens-Brockway Glass Container Inc.
2.2 Amendment to Asset Purchase Agreement (the "Asset Purchase Agreement") dated as of
February 5, 1997 by and among Old Anchor, Consumers Packaging Inc. and
Owens-Brockway Glass Container Inc.
2.3 Order of United States Bankruptcy Court for the District of Delaware approving (i)
the Asset Purchase Agreement and (ii) the assumption and assignment of certain
related executory contracts
2.4 Order of United States Bankruptcy Court for the District of Delaware approving the
Amendment to the Asset Purchase Agreement
2.5 Memorandum of Understanding dated February 5, 1997 among Old Anchor, Consumers
Packaging Inc., and the Company
3.1 Amended and Restated Certificate of Incorporation of the Company
3.2 Certificate of Incorporation of the Parent Guarantor
3.3 Certificate of Amendment to Certificate of Incorporation of the Parent Guarantor
3.4 Bylaws of the Company
3.5 Bylaws of the Parent Guarantor
3.6 Certificate of Designation for Series A 10% Cumulative Convertible Preferred Stock
3.7 Certificate of Designation for Series B 8% Cumulative Convertible Preferred Stock
4.1 Indenture dated as of April 17, 1997 among the Company, the Parent Guarantor and
The Bank of New York, as trustee
4.2 Form of Initial Notes (included in Exhibit 4.1)
4.3 Form of Exchange Notes (included in Exhibit 4.1)
</TABLE>
II-2
<PAGE> 220
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------- -----------------------------------------------------------------------------------
<C> <S>
4.4 Security Agreement dated as of February 5, 1997 among the Company and Bankers Trust
Company, as agent under the Revolving Credit Agreement
4.5 Assignment of Security Agreement dated as of April 17, 1997 among the Company,
Bankers Trust Company, as assignor, and The Bank of New York, as assignee and as
trustee under the Indenture
4.6 Pledge Agreement dated as of April 17, 1997 among the Parent Guarantor and The Bank
of New York, as trustee under the Indenture
4.7 Intercreditor Agreement dated as of February 5, 1997 among The Bank of New York, as
Note Agent, and BT Commercial Corporation, as Credit and Shared Collateral Agent
4.8 Amendment No. 1 to the Intercreditor Agreement, dated as of April 17, 1997 among
The Bank of New York, as Note Agent, and BT Commercial Corporation, as Credit and
Shared Collateral Agent
4.9 Registration Rights Agreement dated as of April 17, 1997 among the Company, the
Parent Guarantor, BT Securities Corporation and TD Securities (USA) Inc.
5.1* Opinion of Eckert Seamans Cherin & Mellott, LLC
5.2* Opinion of Jones, Day, Reavis & Pogue
10.1 Credit Agreement (the "Credit Agreement") dated as of February 5, 1997 among the
Company, Bankers Trust Company, as Issuing Bank, BT Commercial Corporation, as
Agent and Co-Syndication Agent, PNC Bank, National Association, as Co-Syndication
Agent and Issuing Bank, and the various financial institutions party thereto
10.2 First Amendment to the Credit Agreement dated as of March 11, 1997 among the
Company, Bankers Trust Company, BT Commercial Corporation, and PNC Bank, National
Association
10.3 Second Amendment to the Credit Agreement dated as of April 9, 1997 among the
Company, Bankers Trust Company, BT Commercial Corporation, and PNC Bank, National
Association
10.4 Third Amendment and Waiver to the Credit Agreement dated as of May 23, 1997 among
the Company, Bankers Trust Company, BT Commercial Corporation, PNC Bank, National
Association and the various financial institutions party to the Credit Agreement
10.5 Fourth Amendment to the Credit Agreement dated as of September 15, 1997 among the
Company, Bankers Trust Company, PNC Bank, National Association and the various
financial institutions party to the Credit Agreement
10.6 Assignment of Security Interest in U.S. Trademarks and Patents dated February 5,
1997 by the Company to BT Commercial Corporation, as Collateral Agent under the
Credit Agreement
10.7 Assignment of Security Interest in U.S. Copyrights dated February 5, 1997 by the
Company to BT Commercial Corporation, as Collateral Agent under the Credit
Agreement
10.8 Guaranty dated February 5, 1997, by the Parent Guarantor in favor of BT Commercial
Corporation and the other financial institutions party to the Credit Agreement Plan
10.9 Termination Agreement dated February 3, 1997 by and between Consumers Packaging
Inc., the Company and the Pension Benefit Guaranty Corporation
10.10 Release Agreement among Old Anchor, the Company, the Official Committee of
Unsecured Creditors of Anchor Glass Container Corporation (Old Anchor) and Vitro,
Sociedad Anonima
10.11 Agreement (the "Vitro Agreement") dated as of December 18, 1996 between Vitro,
Sociedad Anonima, Consumers Packaging Inc., on behalf of itself, and Consumers
Packaging Inc., on behalf of the Company
10.12 First Amendment to the Vitro Agreement dated as of February 4, 1997 among Vitro,
Sociedad Anonima, Consumers Packaging Inc. and the Company
10.13 Waiver Agreement dated as of February 5, 1997 by and between Old Anchor and
Consumers Packaging Inc.
10.14 Assignment and Assumption Agreement dated as of February 5, 1997 by and between
Consumers Packaging Inc. and the Company
</TABLE>
II-3
<PAGE> 221
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.15 Assignment and Assumption Agreement dated as of February 5, 1997 between Consumers
Packaging Inc. and the Company relating to certain employee benefit plans
10.16 Assignment and Assumption Agreement dated as of February 5, 1997 between Consumers
Packaging Inc. and the Company relating to certain commitment letters
10.17 Bill of Sale, Assignment and Assumption Agreement dated as of February 5, 1997 by
and between Old Anchor and the Company
10.18 Assignment of Patent Property and Design Property from Old Anchor to the Company
10.19 Trademark Assignment from Old Anchor to the Company
10.20 Foreign Trademark Assignment from Old Anchor to the Company
10.21 Copyright Assignment from Old Anchor to the Company
10.22 Agreement dated as of February 5, 1997 between The Travelers Indemnity Company and
its Affiliates, including The Aetna Casualty and Surety Company and their
predecessors, and the Company
10.23 Allocation Agreement dated as of February 5, 1997 between Consumers Packaging Inc.
and Owens-Brockway Glass Container Inc.
10.24 Supply Agreement dated as of February 5, 1997 by and between the Company and Owens-
Brockway Glass Container Inc.
10.25 Transition Agreement dated as of February 5, 1997 between Consumers Packaging Inc.,
the Company and Owens-Brockway Glass Container Inc.
10.26+ Technical Assistance and License Agreement executed December 18, 1996 by
Owens-Brockway Glass Container Inc. and Consumers Packaging Inc.
10.27 Assurance Agreement (the "Assurance Agreement") dated as of February 5, 1997 among
Owens-Brockway Glass Container Inc., Consumers Packaging Inc., the Company, BT
Commercial Corporation, Bankers Trust Company and The Bank of New York
10.28 Letter agreement relating to Assurance Agreement dated April 17, 1997 addressed to
Owens-Brockway Glass Container Inc. and signed by Bankers Trust Company and The
Bank of New York
10.29 Intercompany Agreement dated as of April 17, 1997 among G&G Investments, Inc.,
Glenshaw Glass Company, Inc., Hillsboro Glass Company, I.M.T.E.C. Enterprises,
Inc., Consumers Packaging Inc., Consumers International Inc., the Parent Guarantor,
the Company, BT Securities Corporation and The Bank of New York, as trustee under
the Indenture
10.30 Management Agreement dated as of February 5, 1997 by and between the Company and
G&G Investments, Inc.
10.31 Anchor Glass Container Corporation/Key Executive Employee Retention Plan
10.32 Lease Agreement -- Anchor Place at Fountain Square (the "Lease Agreement") dated
March 31, 1988, by and between Old Anchor and Fountain Associates I Ltd. relating
to the Company's headquarters in Tampa, Florida
10.33 First Amendment to Lease Agreement effective as of June 16, 1992, by and between
Fountain Associates I Ltd. and Old Anchor
10.34 Second Amendment to Lease Agreement effective as of September 30, 1993, by and
between Fountain Associates I Ltd. and Old Anchor
10.35 Third Amendment to Lease Agreement effective as of February 22, 1995, by and
between Fountain Associates I Ltd. and Old Anchor
10.36 Agreement dated as of March 31, 1996 by and between Fountain Associates I Ltd.,
Citicorp Leasing, Inc. and Old Anchor
10.37 Amended and Restated Agreement effective as of September 12, 1996, by and between
Fountain Associates I Ltd., Citicorp Leasing Inc. and Old Anchor
</TABLE>
II-4
<PAGE> 222
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.38 Sixth Amendment to Lease and Second Amendment to Option Agreement dated as of
February 5, 1997, by and between Fountain Associates I Ltd., Citicorp Leasing Inc.
and Old Anchor
10.39 Building Option Agreement dated March 31, 1988, by and between Fountain Associates
I, Ltd. and Old Anchor
10.40 First Amendment to Building Option Agreement effective as of June 16, 1992, by and
between Fountain Associates I, Ltd. and Old Anchor
10.41+ Supply Agreement effective as of June 17, 1996 between The Stroh Brewery Company
and the Company
10.42+ Supply Agreement between Bacardi International Limited and the Company
10.43 Warrant Agreement dated as of February 5, 1997 between the Company and Bankers
Trust Company
10.44 Form of Warrant issued pursuant to the Warrant Agreement
10.45*+ Rebate Agreement dated as of January 1, 1996 between Bacardi International Limited
and the Company
12.1 Statement re: computation of ratio of earnings to fixed charges for the period from
February 5, 1997 to September 30, 1997
12.2 Statement re: computation of ratio of earnings to fixed charges for the years ended
December 31, 1992, 1993, 1994, 1995 and 1996
21.1 List of Subsidiaries of the Company
21.2 List of Subsidiaries of the Parent Guarantor
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Eckert Seamans Cherin & Mellott, LLC, included in Exhibit 5.1
23.3* Consent of Jones, Day, Reavis & Pogue, included in Exhibit 5.2
23.4* Consent of American Appraisal Associates, Inc.
24.1 Power of Attorney of the Company
24.2 Power of Attorney of the Parent Guarantor
25.1 Statement on Form T-1 of the eligibility of the Trustee with respect to the Company
25.2 Statement on Form T-1 of the eligibility of the Trustee with respect to the Parent
Guarantor
27.1 Financial Data Schedule of Old Anchor
27.2 Financial Data Schedule of the Company
27.3 Financial Data Schedule of the Parent Guarantor
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to DTC Participants
99.4 Form of Letter to Clients and Form of Instruction to Book-Entry Transfer
Participants
</TABLE>
- ---------------
* Filed herewith
+ Confidential treatment requested pursuant to Rule 406 of Regulation C.
All other exhibits were filed previously.
II-5
<PAGE> 223
(b) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II
ANCHOR RESOLUTION CORP.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------------------------------------- -------- -------- -------- ---------- --------
ADDITIONS
---------------------
BALANCE CHARGED
AT TO COSTS CHARGED BALANCE
BEGINNING AND TO OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- -------------------------------------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful accounts..... $1,826 $1,126 $ -- $1,449(A) $1,503
Year ended December 31, 1995
Allowance for doubtful accounts..... $3,447 $ 656 $ -- $2,277(A) $1,826
Year ended December 31, 1994
Allowance for doubtful accounts..... $3,615 $ 50 $ -- $ 218(A) $3,447
</TABLE>
- ---------------
(A) Accounts written off
SCHEDULE II
ANCHOR GLASS CONTAINER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM FEBRUARY 5, 1997 TO SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ------------------------------------------ -------- -------- -------- ---------- ----------
ADDITIONS
--------------------
BALANCE
AT CHARGED
BEGINNING TO COSTS CHARGED BALANCE AT
OF AND TO OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------------ -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Period from February 5, 1997 to September
30, 1997
Allowance for doubtful accounts......... $1,630(B) $225 -- $ 65(A) $1,790
</TABLE>
- ---------------
(A) Accounts written off
(B) Amount recognized as part of Anchor Acquisition.
II-6
<PAGE> 224
ITEM 22. UNDERTAKINGS.
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:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Securities and
Exchange Commission (the "Commission") pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a 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.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(5) 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.
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 foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the 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
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.
II-7
<PAGE> 225
SIGNATURES
Pursuant to the requirements of the Securities Act, Anchor Glass Container
Corporation has duly caused this Amendment No. 3 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Pittsburgh, in the Commonwealth of Pennsylvania, on January 23, 1998.
ANCHOR GLASS CONTAINER CORPORATION
By: /s/ M. WILLIAM LIGHTNER, JR.
------------------------------------
M. William Lightner, Jr.
Senior Vice President -- Finance
Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to
the Registration Statement has been signed by the following persons in the
capacities indicated on January 23, 1998.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
* Chairman, Chief Executive Officer and
- --------------------------------------------- Director (Principal Executive Officer)
John J. Ghaznavi
/s/ M. WILLIAM LIGHTNER, JR. Senior Vice President -- Finance, Chief
- --------------------------------------------- Financial Officer, Treasurer and Director
M. William Lightner, Jr. (Principal Financial Officer)
* Controller (Principal Accounting Officer)
- ---------------------------------------------
Edward M. Jonas
* Director
- ---------------------------------------------
David T. Gutowksi
* Director
- ---------------------------------------------
C. Kent May
* Director
- ---------------------------------------------
Paul H. Farrar
</TABLE>
*By: /s/ M. WILLIAM LIGHTNER, JR.
-----------------------------------
M. William Lightner, Jr.
Pursuant to Powers of Attorney
filed herewith or previously with
the Securities and Exchange
Commission
II-8
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act, Consumers U.S., Inc.
has duly caused this Amendment No. 3 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Pittsburgh, in the Commonwealth of Pennsylvania, on January 23, 1998.
CONSUMERS U.S., INC.
BY: /s/ M. WILLIAM LIGHTNER, JR.
------------------------------------
M. William Lightner, Jr.
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to
the Registration Statement has been signed by the following persons in the
capacities indicated on January 23, 1998.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
* Chairman, Chief Executive Officer and
- --------------------------------------------- Director (Principal Executive Officer)
John J. Ghaznavi
/s/ M. WILLIAM LIGHTNER, JR. Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial and Accounting
M. William Lightner, Jr. Officer)
* Director
- ---------------------------------------------
David T. Gutowksi
* Director
- ---------------------------------------------
C. Kent May
</TABLE>
*By: /s/ M. WILLIAM LIGHTNER, JR.
-----------------------------------
M. William Lightner, Jr.
Pursuant to Powers of Attorney
filed herewith or previously with
the Securities and Exchange
Commission
II-9
<PAGE> 227
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------- -----------------------------------------------------------------------------------
<C> <S>
2.1 Asset Purchase Agreement dated as of December 18, 1996 among Anchor Glass Container
Corporation, now known as Anchor Resolution Corp. ("Old Anchor"), Consumers
Packaging Inc. and Owens-Brockway Glass Container Inc.
2.2 Amendment to Asset Purchase Agreement (the "Asset Purchase Agreement") dated as of
February 5, 1997 by and among Old Anchor, Consumers Packaging Inc. and
Owens-Brockway Glass Container Inc.
2.3 Order of United States Bankruptcy Court for the District of Delaware approving (i)
the Asset Purchase Agreement and (ii) the assumption and assignment of certain
related executory contracts
2.4 Order of United States Bankruptcy Court for the District of Delaware approving the
Amendment to the Asset Purchase Agreement
2.5 Memorandum of Understanding dated February 5, 1997 among Old Anchor, Consumers
Packaging Inc., and the Company
3.1 Amended and Restated Certificate of Incorporation of the Company
3.2 Certificate of Incorporation of the Parent Guarantor
3.3 Certificate of Amendment to Certificate of Incorporation of the Parent Guarantor
3.4 Bylaws of the Company
3.5 Bylaws of the Parent Guarantor
3.6 Certificate of Designation for Series A 10% Cumulative Convertible Preferred Stock
3.7 Certificate of Designation for Series B 8% Cumulative Convertible Preferred Stock
4.1 Indenture dated as of April 17, 1997 among the Company, the Parent Guarantor and
The Bank of New York, as trustee
4.2 Form of Initial Notes (included in Exhibit 4.1)
4.3 Form of Exchange Notes (included in Exhibit 4.1)
4.4 Security Agreement dated as of February 5, 1997 among the Company and Bankers Trust
Company, as agent under the Revolving Credit Agreement
4.5 Assignment of Security Agreement dated as of April 17, 1997 among the Company,
Bankers Trust Company, as assignor, and The Bank of New York, as assignee and as
trustee under the Indenture
4.6 Pledge Agreement dated as of April 17, 1997 among the Parent Guarantor and The Bank
of New York, as trustee under the Indenture
4.7 Intercreditor Agreement dated as of February 5, 1997 among The Bank of New York, as
Note Agent, and BT Commercial Corporation, as Credit and Shared Collateral Agent
4.8 Amendment No. 1 to the Intercreditor Agreement, dated as of April 17, 1997 among
The Bank of New York, as Note Agent, and BT Commercial Corporation, as Credit and
Shared Collateral Agent
4.9 Registration Rights Agreement dated as of April 17, 1997 among the Company, the
Parent Guarantor, BT Securities Corporation and TD Securities (USA) Inc.
5.1* Opinion of Eckert Seamans Cherin & Mellott, LLC
5.2* Opinion of Jones, Day, Reavis & Pogue
</TABLE>
<PAGE> 228
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.1 Credit Agreement (the "Credit Agreement") dated as of February 5, 1997 among the
Company, Bankers Trust Company, as Issuing Bank, BT Commercial Corporation, as
Agent and Co- Syndication Agent, PNC Bank, National Association, as Co-Syndication
Agent and Issuing Bank, and the various financial institutions party thereto
10.2 First Amendment to the Credit Agreement dated as of March 11, 1997 among the
Company, Bankers Trust Company, BT Commercial Corporation, and PNC Bank, National
Association
10.3 Second Amendment to the Credit Agreement dated as of April 9, 1997 among the
Company, Bankers Trust Company, BT Commercial Corporation, and PNC Bank, National
Association
10.4 Third Amendment and Waiver to the Credit Agreement dated as of May 23, 1997 among
the Company, Bankers Trust Company, BT Commercial Corporation, PNC Bank, National
Association and the various financial institutions party to the Credit Agreement
10.5 Fourth Amendment to the Credit Agreement dated as of September 15, 1997 among the
Company, Bankers Trust Company, BT Commercial Corporation, PNC Bank, National
Association, and the various financial institutions party to the Credit Agreement
10.6 Assignment of Security Interest in U.S. Trademarks and Patents dated February 5,
1997 by the Company to BT Commercial Corporation, as Collateral Agent under the
Credit Agreement
10.7 Assignment of Security Interest in U.S. Copyrights dated February 5, 1997 by the
Company to BT Commercial Corporation, as Collateral Agent under the Credit
Agreement
10.8 Guaranty dated February 5, 1997, by the Parent Guarantor in favor of BT Commercial
Corporation and the other financial institutions party to the Credit Agreement Plan
10.9 Termination Agreement dated February 3, 1997 by and between Consumers Packaging
Inc., the Company and the Pension Benefit Guaranty Corporation
10.10 Release Agreement among Old Anchor, the Company, the Official Committee of
Unsecured Creditors of Anchor Glass Container Corporation (Old Anchor) and Vitro,
Sociedad Anonima
10.11 Agreement (the "Vitro Agreement") dated as of December 18, 1996 between Vitro,
Sociedad Anonima, Consumers Packaging Inc., on behalf of itself, and Consumers
Packaging Inc., on behalf of the Company
10.12 First Amendment to the Vitro Agreement dated as of February 4, 1997 among Vitro,
Sociedad Anonima, Consumers Packaging Inc. and the Company
10.13 Waiver Agreement dated as of February 5, 1997 by and between Old Anchor and
Consumers Packaging Inc.
10.14 Assignment and Assumption Agreement dated as of February 5, 1997 by and between
Consumers Packaging Inc. and the Company
10.15 Assignment and Assumption Agreement dated as of February 5, 1997 by and between
Consumers Packaging Inc. and the Company relating to certain employee benefit plans
10.16 Assignment and Assumption Agreement dated as of February 5, 1997 between Consumers
Packaging Inc. and the Company relating to certain commitment letters
10.17 Bill of Sale, Assignment and Assumption Agreement dated as of February 5, 1997 by
and between Old Anchor and the Company
10.18 Assignment of Patent Property and Design Property from Old Anchor to the Company
10.19 Trademark Assignment from Old Anchor to the Company
10.20 Foreign Trademark Assignment from Old Anchor to the Company
10.21 Copyright Assignment from Old Anchor to the Company
</TABLE>
<PAGE> 229
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.22 Agreement dated as of February 5, 1997 between The Travelers Indemnity Company and
its Affiliates, including The Aetna Casualty and Surety Company and their
predecessors, and the Company
10.23 Allocation Agreement dated as of February 5, 1997 between Consumers Packaging Inc.
and Owens-Brockway Glass Container Inc.
10.24 Supply Agreement dated as of February 5, 1997 by and between the Company and Owens-
Brockway Glass Container Inc.
10.25 Transition Agreement dated as of February 5, 1997 between Consumers Packaging Inc.,
the Company and Owens-Brockway Glass Container Inc.
10.26+ Technical Assistance and License Agreement executed December 18, 1996 by
Owens-Brockway Glass Container Inc. and Consumers Packaging Inc.
10.27 Assurance Agreement (the "Assurance Agreement") dated as of February 5, 1997 among
Owens-Brockway Glass Container Inc., Consumers Packaging Inc., the Company, BT
Commercial Corporation, Bankers Trust Company and The Bank of New York
10.28 Letter agreement relating to Assurance Agreement dated April 17, 1997 addressed to
Owens-Brockway Glass Container Inc. and signed by Bankers Trust Company and The
Bank of New York
10.29 Intercompany Agreement dated as of April 17, 1997 among G&G Investments, Inc.,
Glenshaw Glass Company, Inc., Hillsboro Glass Company, I.M.T.E.C. Enterprises,
Inc., Consumers Packaging Inc., Consumers International Inc., the Parent Guarantor,
the Company, BT Securities Corporation and The Bank of New York, as trustee under
the Indenture
10.30 Management Agreement dated as of February 5, 1997 by and between the Company and
G&G Investments, Inc.
10.31 Anchor Glass Container Corporation/Key Executive Employee Retention Plan
10.32 Lease Agreement -- Anchor Place at Fountain Square (the "Lease Agreement") dated
March 31, 1988, by and between Old Anchor and Fountain Associates I Ltd. relating
to the Company's headquarters in Tampa, Florida
10.33 First Amendment to Lease Agreement effective as of June 16, 1992, by and between
Fountain Associates I Ltd. and Old Anchor
10.34 Second Amendment to Lease Agreement effective as of September 30, 1993, by and
between Fountain Associates I Ltd. and Old Anchor
10.35 Third Amendment to Lease Agreement effective as of February 22, 1995, by and
between Fountain Associates I Ltd. and Old Anchor
10.36 Agreement dated as of March 31, 1996 by and between Fountain Associates I Ltd.,
Citicorp Leasing, Inc. and Old Anchor
10.37 Amended and Restated Agreement effective as of September 12, 1996, by and between
Fountain Associates I Ltd., Citicorp Leasing Inc. and Old Anchor
10.38 Sixth Amendment to Lease and Second Amendment to Option Agreement dated as of
February 5, 1997, by and between Fountain Associates I Ltd., Citicorp Leasing Inc.
and Old Anchor
10.39 Building Option Agreement dated March 31, 1988, by and between Fountain Associates
I, Ltd. and Old Anchor
10.40 First Amendment to Building Option Agreement effective as of June 16, 1992, by and
between Fountain Associates I, Ltd. and Old Anchor
10.41+ Supply Agreement effective as of June 17, 1996 between The Stroh Brewery Company
and the Company
</TABLE>
<PAGE> 230
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.42+ Supply Agreement between Bacardi International Limited and the Company
10.43 Warrant Agreement dated as of February 5, 1997 between the Company and Bankers
Trust Company
10.44 Form of Warrant issued pursuant to the Warrant Agreement
10.45*+ Rebate Agreement dated as of January 1, 1996 between Bacardi International Limited
and the Company
12.1 Statement re: computation of ratio of earnings to fixed charges for the period from
February 5, 1997 to September 30, 1997
12.2 Statement re: computation of ratio of earnings to fixed charges for the years ended
December 31, 1992, 1993, 1994, 1995 and 1996
21.1 List of Subsidiaries of the Company
21.2 List of Subsidiaries of the Parent Guarantor
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Eckert Seamans Cherin & Mellott, LLC, included in Exhibit 5.1
23.3* Consent of Jones, Day, Reavis & Pogue, included in Exhibit 5.2
23.4* Consent of American Appraisal Associates, Inc.
24.1 Power of Attorney of the Company
24.2 Power of Attorney of the Parent Guarantor
25.1 Statement on Form T-1 of the eligibility of the Trustee with respect to the Company
25.2 Statement on Form T-1 of the eligibility of the Trustee with respect to the Parent
Guarantor
27.1 Financial Data Schedule of Old Anchor
27.2 Financial Data Schedule of the Company
27.3 Financial Data Schedule of the Parent Guarantor
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to DTC Participants
99.4 Form of Letter to Clients and Form of Instruction to Book-Entry Transfer
Participants
</TABLE>
- ---------------
* Filed herewith.
+ Confidential treatment requested pursuant to Rule 406 of Regulation C.
All other exhibits have been filed previously.
<PAGE> 1
EXHIBIT 5.1
[ECKERT SEAMAN'S CHERIN & MELLOTT, LLC LETTERHEAD]
January 21, 1998
Anchor Glass Container Corporation
Consumers U.S., Inc.
One Anchor Plaza
4343 Anchor Plaza Parkway
Tampa, Florida 33634-7513
Gentlemen:
We have acted as counsel to Anchor Glass Container
Corporation, a Delaware corporation (the "Company"), and Consumers U.S., Inc., a
Delaware corporation and parent of the Company (the "Guarantor"), in connection
with the proposed issuance and exchange of up to $150,000,000 aggregate
principal amount of the Company's 11 1/4% First Mortgage Notes due 2005 (the
"New Notes") for an equal principal amount of the Company's 11 1/4% First
Mortgage Notes due 2005 outstanding on the date hereof (the "Old Notes"), to be
issued pursuant to the Indenture dated as of April 17, 1997 (the "Indenture") by
and among the Company, as issuer, the Guarantor, as guarantor, and The Bank of
New York, as trustee (the "Trustee"). The New Notes are to be guaranteed on a
senior secured basis (the "Guarantee") by the Guarantor.
We have examined such documents, records and matters of law as
we have deemed necessary for purposes of this opinion, and based thereupon we
are of the opinion that:
1. The New Notes have been duly authorized.
2. The Guarantee has been duly authorized.
The opinions expressed herein are limited to the laws of the
State of Delaware and the federal laws of the United States of America, as
currently in effect.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement on Form S-4 filed by the Company and the Guarantor
to register the exchange of the New Notes for the Old Notes under the Securities
Act of 1933 and to the reference
<PAGE> 2
[ECKERT SEAMAN'S CHERIN & MELLOTT, LLC LETTERHEAD]
January 21, 1998
Anchor Glass Container
Corporation
Page 2
to us under the caption "Legal Matters" in the Prospectus constituting a part of
such Registration Statement.
Very truly yours,
/s/ ECKERT SEAMANS CHERIN & MELLOTT, LLC
- ----------------------------------------------
ECKERT SEAMANS CHERIN & MELLOTT, LLC
JKH: amg
<PAGE> 1
EXHIBIT 5.2
[JONES, DAY, REAVIS & POGUE LETTERHEAD]
January 21, 1998
Anchor Glass Container Corporation
Consumers U.S., Inc.
One Anchor Plaza
4343 Anchor Plaza Parkway
Tampa, Florida 33634-7513
Gentlemen:
We are acting as counsel for Anchor Glass Container Corporation, a
Delaware corporation (the "Company"), and Consumers U.S., Inc., a Delaware
corporation and parent of the Company (the "Guarantor"), in connection with the
proposed issuance and exchange of up to $150,000,000 aggregate principal amount
of the Company's 11 1/4% First Mortgage Notes due 2005 (the "New Notes") for an
equal principal amount of the Company's 11 1/4% First Mortgage Notes due 2005
outstanding on the date hereof (the "Old Notes"), to be issued pursuant to the
Indenture dated as of April 17, 1997 (the "Indenture") by and among the Company,
as issuer, the Guarantor, as guarantor, and The Bank of New York, as trustee
(the "Trustee"). The New Notes are to be guaranteed on a senior secured basis
(the "Guarantee") by the Guarantor.
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion, and based thereupon we are of the
opinion that:
1. When the New Notes have been duly executed by authorized officers of
the Company and authenticated by the Trustee in accordance with the
Indenture and issued in exchange for the Old Notes in accordance with
the Indenture and the Exchange Offer, the New Notes will be valid and
binding obligations of the Company.
2. When the New Notes have been duly executed by authorized officers of
the Company and authenticated by the Trustee in accordance with the
Indenture and issued in exchange for
<PAGE> 2
[JONES, DAY, REAVIS & POGUE LETTERHEAD]
Anchor Glass Container Corporation
Consumers U.S., Inc.
January 21, 1998
Page 2
the Old Notes in accordance with the Indenture and the Exchange Offer,
the Guarantee will be a valid and binding obligation of the Guarantor.
The opinions expressed herein are limited to the laws of the State of
New York and the federal laws of the United States of America, as currently in
effect.
We hereby consent to the filing of this opinion as Exhibit 5.2 to the
Registration Statement on Form S-4 filed by the Company and the Guarantor to
register the exchange of the New Notes for the Old Notes under the Securities
Act of 1933 and to the reference to us under the caption "Legal Matters" in the
Prospectus constituting a part of such Registration Statement.
Very truly yours,
JONES, DAY, REAVIS & POGUE
<PAGE> 1
Exhibit 10.45
REBATE AGREEMENT
This Rebate Agreement is made to be effective between the parties
hereto as of and from January 1, 1996, by and between Anchor Glass Container
Corporation, a Delaware corporation with offices located at 4343 Anchor Plaza
Parkway, Tampa, Florida 33634-7537 ("Anchor"), Vitro Envases Norte America, S.A.
de C.V., a Mexican corporation with offices located at Avenida Ricardo Margain,
440 Garza Garcia, Nuevo Leon, Mexico C.P. 66265 ("Vitro"), Bacardi International
Limited, a Bermuda company with offices located at 65 Pitts Bay Road, Hamilton
HM CX, Bermuda ("BIL"), and Bacardi-Martini (Monaco) S.A.M., a Monagasque
corporation with offices located at Le Monte-Carlo Sun, 74 Boulevard d'ltalie,
MC- 98011, Monaco Cedex ("Bacardi Monaco").
WITNESSETH:
WHEREAS, Anchor and Vitro have formed a strategic alliance to supply
the North American glass container needs of certain members of the
Bacardi-Martini group of companies;
WHEREAS, BIL has been authorized by Bacardi Limited, the ultimate
parent company of the Bacardi-Martini group of companies ("BL"), to negotiate
and enter into a long-term, strategic supply agreement for the glass container
needs of the BIL-Covered Affiliates (as hereinafter defined);
WHEREAS, Bacardi Monaco has been authorized by BL to negotiate and
enter into a long-term, strategic supply agreement for the glass container needs
of the Bacardi Monaco-Covered Affiliates (as hereinafter defined);
WHEREAS, BIL and Anchor are, simultaneously herewith, entering into
a Strategic Supply Agreement (the "Anchor Agreement") pursuant to which Anchor
will supply the
<PAGE> 2
glass container needs of the BIL-Covered Affiliates and such other affiliates of
BIL as BIL and Anchor may from time to time agree;
WHEREAS, Bacardi Monaco and Vitro are, simultaneously herewith,
entering into a Strategic Supply Agreement (the "Vitro Agreement"; together with
the Anchor Agreement, the "Supply Agreements") pursuant to which Vitro will
supply the glass container needs of the Bacardi Monaco-Covered Affiliate and
such other affiliates of Bacardi Monaco as Bacardi Monaco and Vitro may from
time to time agree;
WHEREAS, Anchor and Vitro (together, the "Sellers") have offered, as
an inducement to BIL and Bacardi Monaco (together, the "Buyers") to enter into
the Supply Agreements, to provide rebates, based on group-wide purchases of
glass containers under the Supply Agreements, to the affiliates of BIL and
Bacardi Monaco from time to time purchasing glass containers pursuant to the
Supply Agreements;
WHEREAS, the parties now desire to set forth their agreement as to the
terms upon which such rebates will be paid;
NOW THEREFORE, in consideration of the foregoing premises and the
mutual promises set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound, hereby agree as follows:
ARTICLE 1.
DEFINITIONS
Section 1.1 Defined Terms. The following terms, when used in this
Agreement, shall, except where the context otherwise requires, have the
following meanings:
"Agreement" means this agreement and all exhibits, schedules and
attachments hereto.
<PAGE> 3
"Anchor" has the meaning set forth in the first paragraph hereof.
"Anchor Agreement" has the meaning set forth in the preamble.
"Annual Base Amount" means, for Measurement Year 1996, *** . For
Measurement Years subsequent to 1996, Annual Base Amount means the number of
glass containers (expressed in gross terms) shipped during the immediately
preceding Measurement Year to all Purchasing Affiliates.
"Annual Volume Rebate" has the meaning set forth in Article II.
"Annual Rebate Notice" has the meaning set forth in Section 3.4.
"Bacardi Monaco" has the meaning set forth in the first paragraph.
"Bacardi Monaco-Covered Affiliates" means Bacardi y Compania, S.A.
de C.V., together with such other members of the Bacardi-Martini Group as may
from time to time purchase glass containers pursuant to the Vitro Agreement.
"Bacardi Monaco-Covered Affiliate Average Annual Invoice Price"
means, for any Measurement Year, the total price stated on all of the invoices
issued by Sellers to Bacardi Monaco-Covered Affiliates during the Measurement
Year divided by the total number of glass containers that were the subject of
those invoices.
"Bacardi Monaco-Covered Affiliate Annual Volume Rebate" means an
amount equal to the percentage set forth in Schedule C of the product of (i) the
Bacardi Monaco-Covered Affiliate Average Annual Invoice Price for the
Measurement Year, multiplied by (ii) the Bacardi Monaco-Covered Affiliate Excess
Volume for such Measurement Year.
"Bacardi Monaco-Covered Affiliate Base Amount" means, for
Measurement Year 1996, *** . For Measurement Years subsequent to 1996,
the Bacardi Monaco-Covered
*** Confidential treatment requested pursuant to Rule 406.
<PAGE> 4
Affiliate Base Amount means the number of glass containers (expressed in gross
terms) shipped during the immediately preceding Measurement Year to all Bacardi
Monaco-Covered Affiliates.
"Bacardi Monaco-Covered Affiliate Excess Volume" means (i) the
number of glass containers (expressed in gross terms) shipped during a
Measurement Year to all Bacardi Monaco-Covered Affiliates less (ii) the Bacardi
Monaco-Covered Affiliate Base Amount for the Measurement Year; provided, that in
no event shall the Bacardi Monaco-Covered Affiliate Excess Volume be less than
zero (0). For the avoidance of doubt, the parties acknowledge and agree that no
adjustment is to be made in determining the Bacardi Monaco-Covered Affiliate
Excess Volume by virtue of the addition of new Purchasing Affiliates to this
Agreement.
"Bacardi Monaco-Covered Affiliate Percentage Increase" means (i) the
quotient of (A) one hundred (100), divided by (B) the number of glass containers
(expressed in gross terms) shipped to a Bacardi Monaco-Covered Affiliate during
the year immediately preceding the Measurement Year, multiplied by (ii) the
positive difference, if any, between (A) the number of glass containers
(expressed in gross terms) shipped to such Bacardi Monaco-Covered Affiliate
during the Measurement Year less (B) the number of glass containers (expressed
in gross terms) shipped to such Bacardi Monaco-Covered Affiliate during the year
immediately preceding the Measurement Year. For Measurement Year 1996, the
number of glass containers (expressed in gross terms) shipped to each Bacardi
Monaco-Covered Affiliate during the year immediately preceding the Measurement
Year, i.e., 1995, is set forth in Schedule A. For the avoidance of doubt, where
the number of glass containers shipped to a Bacardi Monaco-Covered Affiliate
during the Measurement Year is less than the number of glass containers shipped
to such Bacardi Monaco-Covered Affiliate during the year immediately preceding
the Measurement Year, the Percentage Increase for such Bacardi Monaco-Covered
Affiliate is zero (0).
"Bacardi Monaco-Covered Affiliate Share" has the meaning set forth
in
<PAGE> 5
Section 3.2.
"Bacardi-Martini Group" means Bacardi Limited and its direct and
indirect subsidiaries.
"Bacardi-Martini Products" means those products marketed by the
Bacardi-Martini Group for which the Bacardi-Martini Group owns the relevant
trademarks.
"BIL" has the meaning set forth in the first paragraph hereof.
"BIL-Covered Affiliates" means Castleton Beverage Corporation,
Bacardi Corporation, Bacardi-Martini Canada, Inc., and Bacardi & Company
Limited, together with such other members of the Bacardi-Martini Group as may
from time to time purchase glass containers pursuant to the Anchor Agreement.
"BIL-Covered Affiliate Average Annual Invoice Price" means, for any
Measurement Year, the total price stated on all of the invoices issued by
Sellers to BIL-Covered Affiliates during the Measurement Year divided by the
total number of glass containers that were the subject of those invoices.
"BIL-Covered Affiliate Annual Volume Rebate" means an amount equal
to the percentage set forth in Schedule D of the product of (i) the BIL-Covered
Affiliate Average Annual Invoice Price for the Measurement Year, multiplied by
(ii) the BIL-Covered Affiliate Excess Volume for such Measurement Year.
"BIL-Covered Affiliate Base Amount" means, for Measurement Year
1996, *** . For Measurement Years subsequent to 1996, the BIL-Covered
Affiliate Base Amount means the number of glass containers (expressed in gross
terms) shipped during the immediately preceding Measurement Year to all
BIL-Covered Affiliates.
*** Confidential treatment requested pursuant to Rule 406.
<PAGE> 6
"BIL-Covered Affiliate Excess Volume" means (i) the number of glass
containers (expressed in gross terms) shipped during a Measurement Year to all
BIL-Covered Affiliates less (ii) the BIL-Covered Affiliate Base Amount for the
Measurement Year; provided, that in no event shall the BIL-Covered Affiliate
Excess Volume be less than zero (0). For the avoidance of doubt, the parties
acknowledge and agree that no adjustment is to be made in determining the
BIL-Covered Affiliate Excess Volume by virtue of the addition of new Purchasing
Affiliates to this Agreement.
"BIL-Covered Affiliate Percentage Increase" means (i) the quotient
of (A) one hundred (100), divided by (B) the number of glass containers
(expressed in gross terms) shipped to a BIL-Covered Affiliate during the year
immediately preceding the Measurement Year, multiplied by (ii) the positive
difference, if any, between (A) the number of glass containers (expressed in
gross terms) shipped to such BIL-Covered Affiliate during the Measurement Year
less (B) the number of glass containers (expressed in gross terms) shipped to
such BIL-Covered Affiliate during the year immediately preceding the Measurement
Year. For Measurement Year 1996, the number of glass containers (expensed in
gross terms) shipped to each BIL-Covered Affiliate during the year immediately
preceding the Measurement Year, i.e., 1995, is set forth in Schedule A. For the
avoidance of doubt, where the number of glass containers shipped to a
BIL-Covered Affiliate during the Measurement Year is less than the number of
glass containers shipped to such BIL-Covered Affiliate during the year
immediately preceding the Measurement Year, the Percentage Increase for such
BIL-Covered Affiliate is zero (0).
"BIL-Covered Affiliate Share" has the meaning set forth in Section
3.3.
"BL" has the meaning set forth in the preamble.
"Buyers" has the meaning set forth in the preamble.
<PAGE> 7
"Excess Volume" means (i) the number of glass containers (expressed
in gross terms) shipped during a Measurement Year to all Purchasing Affiliates
less (ii) the Annual Base Amount for the Measurement Year; provided, that in no
event shall Excess Volume be less than zero (0). For the avoidance of doubt, the
parties acknowledge and agree that no adjustment is to be made in determining
Excess Volume by virtue of the addition of new Purchasing Affiliates to this
Agreement.
"Measurement Year" means the calendar year during which the number
of glass containers shipped to the Purchasing Affiliates is measured to
determine the Annual Volume Rebate.
"Purchasing Affiliate" shall mean the BIL-Covered Affiliates, the
Bacardi Monaco-Covered Affiliates, and such other members of the Bacardi-Martini
Group as may from time to time purchase glass containers pursuant to either or
both of the Supply Agreements.
"Review Period" has the meaning set forth in Section 3.4.
"Sellers" has the meaning set forth in the preamble.
"Supply Agreements" has the meaning set forth in the preamble.
"Vitro" has the meaning set forth in the first paragraph hereof.
"Vitro Agreement" has the meaning set forth in the preamble.
Section 1.2 Cross-References. Unless otherwise specified, references
in this Agreement to any section are references to such section of this
Agreement and, unless otherwise specified, references in any section or
definition to any clause are references to such clause of such section or
definition.
Section 1.3 General Provisions Relating to Definitions. Terms for
which meanings are defined in this Agreement shall apply equally to the singular
and plural forms of the terms defined. Whenever the context may permit or
require, any pronoun shall include the
<PAGE> 8
corresponding masculine, feminine and neuter forms. The term "including" means
including, without limiting the generality of any description preceding such
term. Each reference herein to any person shall include a reference to such
person's successors and permitted assigns. Unless otherwise specified,
references to any agreement, instrument or other document in this Agreement
refer to such agreement, instrument or other document as originally executed or,
if subsequently varied, replaced or supplemented from time to time, as so
varied, replaced or supplemented and in effect at the relevant time of reference
thereto.
ARTICLE 2.
ANNUAL VOLUME REBATE
Sellers agree to pay to the Purchasing Affiliates, in accordance
with the provisions of Article III, an Annual Volume Rebate for each Measurement
Year in which the Excess Volume is greater than zero (0). For each such
Measurement Year the Annual Volume Rebate shall be equal to the sum of (i) the
Bacardi Monaco-Covered Affiliate Annual Volume Rebate and (ii) the BIL-Covered
Affiliate Annual Volume Rebate.
ARTICLE 3.
PAYMENT
Section 3.1 Time of Payment. The Sellers shall pay the Annual Volume
Rebate for each Measurement Year by February 1 of the year following the
Measurement Year.
Section 3.2 Allocation of Bacardi Monaco-Covered Affiliate Annual
Volume Rebate Payment. The Sellers shall pay to the Bacardi Monaco-Covered
Affiliates that purchased glass containers pursuant to the Supply Agreements
during the Measurement Year the Bacardi Monaco-Covered Annual Volume Rebate for
the Measurement Year. The Bacardi Monaco-Covered Affiliate Annual Volume Rebate
shall be allocated among the Bacardi Monaco-Covered
<PAGE> 9
Affiliates so as to pay each Bacardi Monaco-Covered Affiliate its Bacardi
Monaco-Covered Affiliate Share. For each Bacardi Monaco-Covered Affiliate, the
Bacardi Monaco-Covered Affiliate Share shall equal (i) the quotient of (A) such
Bacardi Monaco-Covered Affiliate's Percentage Increase, divided by (B) the sum
of all Bacardi Monaco-Covered Affiliate Percentage Increases, multiplied by (ii)
the Bacardi Monaco-Covered Affiliate Annual Volume Rebate. For the avoidance of
doubt, the sum of all Bacardi Monaco-Covered Affiliate Percentage Increases may
or may not equal one hundred percent (100%).
Section 3.3 Allocation of BIL-Covered Affiliate Annual Volume Rebate
Payment. The Sellers shall pay to the BIL-Covered Affiliates that purchased
glass containers pursuant to the Supply Agreements during the Measurement Year
the BIL-Covered Affiliate Annual Volume Rebate for the Measurement Year. The
BIL-Covered Affiliate Annual Volume Rebate shall be allocated among the
BIL-Covered Affiliates so as to pay each BIL-Covered Affiliate its BIL-Covered
Affiliate Share. For each BIL-Covered Affiliate, the BIL-Covered Affiliate Share
shall equal (i) the quotient of (A) such BIL-Covered Affiliate's Percentage
Increase, divided by (B) the sum of all BIL-Covered Affiliate Percentage
Increases, multiplied by (ii) the BIL-Covered Affiliate Annual Volume Rebate.
For the avoidance of doubt, the sum of all BIL-Covered Affiliate Percentage
Increases may or may not equal one hundred percent (100%).
Section 3.4 Currency. The payment to each Purchasing Affiliate
pursuant to Sections 3.2 and 3.3 shall be in the currency in which that
Purchasing Affiliate paid the Sellers for glass containers purchased pursuant to
the Supply Agreements during the relevant Measurement Year or, if the Purchasing
Affiliate made payments in more than one currency, pro rata on the basis of
aggregate purchases made by the Purchasing Affiliate in each currency determined
on the basis of foreign exchange rates in effect on December 31 of the
Measurement Year.
<PAGE> 10
Section 3.5 Annual Rebate Notice and Review. Sellers shall provide
to Buyers and each Purchasing Affiliate an Annual Rebate Notice by January 7 of
the year following the Measurement Year. The Annual Rebate Notice shall state
(i) the total amount of the Bacardi Monaco-Covered Affiliate Annual Volume
Rebate (ii) the total amount of the BIL-Covered Affiliate Annual Volume Rebate,
(iii) the allocation of the Annual Volume Rebate among the Purchasing Affiliates
pursuant to Sections 3.2 and 3.3, and (iv) the amount to be paid to each
Purchasing Affiliate in respect of the Annual Volume Rebate, stated in the
appropriate currency pursuant to Section 3.4. Buyers shall have ten (10) days
from the date of the submission of the Annual Rebate Notice to review such
Notice (the "Review Period"). For such purpose, Sellers shall afford Buyers
reasonable access to all books, records and work papers used by Sellers to
prepare the Annual Rebate Notice. If, in Buyers' reasonable judgement, the
Annual Rebate Notice does not fairly present the Annual Volume Rebate as payable
in accordance with this Agreement, then Buyers shall have the right to propose
any adjustment thereto within the Review Period. Buyers and Sellers shall use
their best effort for five (5) days after the expiration of the Review Period to
agree upon any such proposed adjustments. Any dispute as to the content or
preparation of the Annual Rebate Notice which is not resolved by Buyers and
Sellers during such 5-day period shall, if either Buyers or Sellers by notice to
the other party so request, be submitted for resolution in accordance with the
provisions of this Agreement to the Washington, D.C. office of Price Waterhouse,
whose costs shall be divided equally between Buyers and Sellers. The decision of
such firm shall be final and binding on Buyers and Sellers in the absence of
manifest error.
<PAGE> 11
ARTICLE 4.
TERM
The term of this Agreement, as between the parties hereto, shall
commence on January 1, 1996, and shall continue for so long as either of the
Supply Agreements remains in force.
ARTICLE 5.
EXTENSION OF SCOPE OF AGREEMENT
Upon the addition of any member of the Bacardi-Martini Group as a
"Purchasing Affiliate" for purposes of either or both of the Supply Agreements,
such member of the Bacardi-Martini Group shall thereupon, without any further
action on the part of any party hereto, be and become a Purchasing Affiliate for
purposes of this Agreement. Each such additional Purchasing Affiliate shall be
designated either a Bacardi Monaco-Covered Affiliate or a BIL-Covered Affiliate.
ARTICLE 6.
MISCELLANEOUS
Section 6.1 Notices. All notices required or desired to be given
hereunder shall be in writing, and shall be sent by (a) registered or certified
mail, return receipt requested, postage prepaid, (b) a reputable overnight
courier service, or (c) facsimile transmission. Notices shall be addressed as
follows:
(a) If to the Buyers:
(i) Bacardi International Limited
P.O. Box HM 720
65 Pitts Bay Road
Hamilton HM CX
BERMUDA
<PAGE> 12
Attention: President
Fax: 441-292-0562
(ii) Bacardi-Martini (Monaco) S.A.M.
Le Monte-Carlo Sun
74 Boulevard d'ltalie
Boite Postal 405
MC - 98011
MONACO CEDEX
Attention: President
Fax: 93-25-15-80
(b) If to the Sellers:
(i) Anchor Glass Container Corporation
4343 Anchor Plaza Parkway
Tampa, Florida 33634-7537
USA
Attention: Brad Tucker
Fax: 813-882-7795
(ii) Vitro Envases Norte America, S.A. de C.V.
Avenida Ricardo Margain
440 Garza Garcia
Nuevo Leon
Mexico C.P. 66265
Attention: Luis Noriega Pasquel
Fax: 011-525-281-2085
(c) If to any Purchasing Affiliate:
at the address for such Purchasing Affiliate set forth on
Schedule B hereto
or to such other address as either party shall designate for itself or its
affiliates by notice to the other. Any notice given by a Seller to the Buyers
hereunder shall be given to each of the Buyers and each Purchasing Affiliate.
Any notice given by a Buyer to the Sellers hereunder shall be given to each of
the Sellers. Notices given in accordance with the requirements of this Section
shall be deemed given (a) fifteen days after mailing if given by mail, (b) on
the third regular business day in the jurisdiction to which such notice is
addressed following delivery of the notice to an authorized representative of an
overnight courier service if given by overnight courier
<PAGE> 13
service, and (c) on the next regular business day in the jurisdiction to which
such notice is addressed following confirmed facsimile transmission of the
notice.
Section 6.2 Assignment. Neither this Agreement nor any of the rights
or interests of the Buyers or the Sellers hereunder may be assigned,
transferred, or conveyed by operation of law or otherwise without the prior
written consent of the other parties, except to a parent or subsidiary (direct
or indirect) of the assigning party, in which event the party so assigning shall
remain obligated and liable to the other parties for the full and complete
performance of this Agreement by the assignee.
Section 6.3 Law and Jurisdiction. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York,
regardless of the laws that might govern under that state's principles of
conflicts of laws. Subject to the provisions of Section 3.5, any controversy or
claim arising out of or relating to this Agreement, or the breach thereof, shall
be settled by arbitration in accordance with the rules of the American
Arbitration Association in effect at the time such arbitration is instituted.
The arbitration panel shall be composed of three arbitrators, one of whom shall
be chosen by the Buyers, acting together, one of whom shall be chosen by the
Sellers, acting together, and one of whom shall be chosen by the two arbitrators
previously designated. If the Buyers and/or the Sellers fail to choose an
arbitrator within fourteen (14) days after receiving notice of commencement of
arbitration or if the two arbitrators fail to choose a third arbitrator within
fourteen (14) days of their appointment, such arbitrators shall be chosen by the
American Arbitration Association. Unless the parties to the arbitration shall
otherwise agree to a different place of arbitration, the place of arbitration
shall be Washington, D.C. The arbitration shall be conducted in the English
language. The arbitration award shall be final and binding upon the parties
thereto and may be entered in any court having jurisdiction.
<PAGE> 14
Section 6.4 Survival of Rights of Parties. The termination or
expiration of this Agreement shall not release any party from any liability,
obligation, or agreement which, pursuant to any provision of this Agreement, is
to survive or be performed after such termination or expiration.
Section 6.5 Subject Headings. The subject headings in this Agreement
have been placed herein for the convenience of the parties and shall not be
considered in any question of interpretation or construction of this Agreement.
Section 6.6 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all
of which taken together shall constitute one and the same instrument.
Section 6.7 Amendments. No term or provision of this Agreement may
be changed, waived, discharged, or terminated orally, but only by an instrument
in writing signed by the party against whom the enforcement of such change,
waiver, discharge, or termination is sought.
Section 6.8 Entire Agreement. All prior understandings, agreements,
and negotiations had by and between the parties hereto are merged in this
Agreement, which alone constitutes the entire agreement of the parties. The
Supply Agreements and this Agreement constitute the entire agreement between the
parties relative to the supply of glass containers by the Sellers to the Buyers
and the Purchasing Affiliates.
Section 6.9 Purchasing Affiliates. The Purchasing Affiliates are
intended beneficiaries of the rights accorded the Buyers under this Agreement
and each Purchasing Affiliate shall have the right to enforce any such right
directly against Seller without the need to join either Buyer in any such
action.
<PAGE> 15
Section 6.10 Obligations Joint and Several. The obligations of the
Sellers hereunder shall be joint and several.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives on the date(s) and places
set forth below.
SELLERS: BUYERS:
ANCHOR GLASS CONTAINER BACARDI INTERNATIONAL
CORPORATION LIMITED
/s/ Alfonso Gomez Palacio /s/Eduardo M. Cutillas
By: Alfonso Gomez Palacio By: Eduardo M. Cutillas
-------------------------- -----------------------------
Title: President and CEO Title: Director
-------------------------- -----------------------------
Date: August 27, 1996 Date: September 6, 1996
-------------------------- -----------------------------
Executed In: Tampa, Florida Executed In: Hamilton, Bermuda
-------------------------- -----------------------------
City, State City, State
VITRO ENVASES NORTE AMERICA, BACARDI-MARTINI (MONACO) S.A.M.
S.A. de C.V.
/s/ Fernando Florez /s/ Maurizio Cisrario /s/ Jean Paul De Vit
By: Fernando Florez By: Maurizio Cisrario Jean Paul De Vit
-------------------------- -------------------------------------
Title: Vice Predisent Operations Title: President General Deputy Manager
-------------------------- -------------------------------------
Date: August 27, 1996 Date: September 9, 1996
-------------------------- -------------------------------------
Executed In: Tampa, Florida Executed In: Monte-Carlo (Principality of
-------------------------- Monaco
City, State -------------------------------
City, State
<PAGE> 17
REBATE AGREEMENT
dated as of January 1, 1996,
between
Anchor Glass Container Corporation,
Vitro Envases Notre America, S.A. de C.V.,
Bacardi International Limited,
and
Bacardi-Martini (Monaco)
Schedule A
Glass Containers Shipped to Purchasing Affiliates in 1995:
Number of Glass
Containers
Purchasing Affiliate Shipped (Gross)
-------------------- ---------------
***
*** Confidential treatment requested pursuant to Rule 406.
<PAGE> 18
REBATE AGREEMENT
dated as of January 1, 1996,
between
Anchor Glass Container Corporation,
Vitro Envases Norte America, S.A. de C.V.,
Bacardi International Limited,
and
Bacardi-Martini (Monaco)
Schedule B
Notice addresses for Purchasing Affiliates:
(a) Castleton Beverage Corporation
12200 North Main Street
Jacksonville, Florida 32228
U.S.A.
P.O. Box 26368
Jacksonville, Florida 32226-6368
U.S.A.
Attention: President
Fax: 904-751-1397
(b) Bacardi Corporation
Highway 165, Kilometer 2.6
Bayview Industrial Area
Catano, Puerto Rico 00962
P.O. Box 363549
San Juan, Puerto Rico 00936-3549
Attention: President
Fax: 787-788-5075
(c) Bacardi-Martini Canada, Inc.
1000 Steeles Avenue E
Brampton, Ontario L65 1A1
Canada
Attention: President
Fax: 905-451-1941
(d) Bacardi & Company Limited
Millar Road
P.O. Box N-4880
Nassau
Bahamas
Attention: President
Fax: 809-362-1415
(e) Bacardi Y Compania S.A. de C.V.
Autopista Mexico Queretaro No. 4431
C.P. 54900 Tultitlan
Estado de Mexico
Attention: President
Fax: 52-5-310- 8474
<PAGE> 19
REBATE AGREEMENT
dated as of January 1, 1996,
between
Anchor Glass Container Corporation,
Vitro Envases,
Norte America, S.A. de C.V.
Bacardi International Limited,
and
Bacardi-Martini (Monaco)
Schedule C
The percentage for the calculation of the Bacardi Monaco-Covered
Affiliate Annual Volume Rebate is: *** .
*** Confidential treatment requested pursuant to Rule 406.
<PAGE> 20
*** Confidential treatment requested pursuant to Rule 406.
<PAGE> 1
Exhibit 23.4
[AMERICAN APPRAISAL ASSOCIATES LETTERHEAD]
CONSENT OF APPRAISER
We hereby consent to the references made to us and/or our appraisal by Anchor
Glass Container Corporation under the caption(s) "Prospectus Summary," "Risk
Factors - Security for the Notes," "Business - Competitive Strengths,"
"Business - Facilities," "Description of the Notes - Security," and "Experts"
in the Prospectus constituting a part of Amendment No. 3 to Registration
Statement (No. 333-31363) on Form S-4. In addition we consent to the filing of
our Summarization Letters therein as an annex to the Registration Statement. In
giving such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
AMERICAN APPRAISAL ASSOCIATES, INC.
By: /s/ Ronald M. Goergen
----------------------------------
Ronald M. Goergen
President
Milwaukee, Wisconsin
January 23, 1998
