<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 21, 1997
REGISTRATION NO. 333-19999
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PLASTIC CONTAINERS, INC.
(EACH NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3085 13-3632393
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
CONTINENTAL PLASTIC CONTAINERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3085 06-1056158
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
CONTINENTAL CARIBBEAN CONTAINERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3085 66-0342024
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
PLASTIC CONTAINERS, INC.
ONE AERIAL WAY
SYOSSET, NEW YORK 11791
(516) 822-4940
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
----------------
ABDO YAZGI, ESQ.
SECRETARY
PLASTIC CONTAINERS, INC.
ONE AERIAL WAY
SYOSSET, NEW YORK 11791
(516) 822-4940
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
----------------
COPIES TO:
VINCENT MONTE-SANO, ESQ.
CARTER, LEDYARD & MILBURN
2 WALL STREET
NEW YORK, NEW YORK 10005
(212) 732-3200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon consummation of the Exchange Offer described herein.
IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS A 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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 21, 1997
PROSPECTUS
PLASTIC CONTAINERS, INC.
LOGO
OFFER TO EXCHANGE ITS
10% SENIOR SECURED NOTES DUE 2006, SERIES B, WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
10% SENIOR SECURED NOTES DUE 2006, SERIES A,
WHICH HAVE NOT BEEN SO REGISTERED
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS THEREUNDER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED.
----------
Plastic Containers Inc., a Delaware corporation ("PCI" or the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal" and together with this Prospectus the "Exchange Offer"), to
exchange $1,000 principal amount of its 10% Senior Secured Notes due 2006,
Series B (the "New Notes"), which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), for each $1,000 principal amount of
its outstanding 10% Senior Secured Notes due 2006, Series A (the "Old Notes"),
of which $125,000,000 aggregate principal amount is outstanding as of the date
hereof. The New Notes and the Old Notes are collectively referred to herein as
the "Senior Secured Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on the
date the Exchange Offer expires, which will be , 1997, unless
the Exchange Offer is extended (the latest date to which the Exchange Offer is
extended being herein referred to as the "Expiration Date"). Tenders of Old
Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Offer is not conditioned upon any minimum
amount of Old Notes being tendered for exchange. Old Notes may be tendered only
in integral multiples of $1,000.
The New Notes upon issuance will be senior secured obligations of the Company
evidencing the same debt as the Old Notes tendered in exchange therefor, and
will be entitled to the benefits of the same Indenture (as defined herein),
which governs both the Old Notes and the New Notes. The New Notes are in all
material respects identical to the Old Notes except that the New Notes have
been registered under the Securities Act whereas the Old Notes were not.
Accordingly, the New Notes will not in general be subject to the restrictions
on resale applicable to the Old Notes. See "The Exchange Offer -- Purpose and
Effect of the Exchange Offer."
The Old Notes and the New Notes constitute new issues of securities with no
established trading market. No assurance can be given as to the liquidity of
the trading market for either the Old Notes or the New Notes. Any Old Notes not
tendered and accepted in the Exchange Offer will remain outstanding. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Notes or tendered but unaccepted Old
Notes could be adversely affected. Following consummation of the Exchange
Offer, the holders of Old Notes will continue to be subject to the existing
restrictions on transfer thereof and PCI will have no further obligation to
such holders to provide for the registration under the Securities Act of the
Old Notes held by them, except if a holder of Old Notes shall notify the
Company, within 20 business days following the consummation of the Exchange
Offer, that (i) such holder was prohibited by law or the policy of the
Securities and Exchange Commission (the "Commission") from participating in the
Exchange Offer, or (ii) such holder may not resell the New Notes acquired by it
in the Exchange Offer to the public without delivering a prospectus, and this
Prospectus (including any amendment or supplement thereto) is not appropriate
or available for such resales by such holder. See "Registration Rights."
The New Notes will bear interest at a rate of 10% per annum from the
Expiration Date, the date of their original issuance. Interest on the New Notes
will be payable semi-annually on June 15 and December 15 of each year,
commencing June 15, 1997. Holders of Old Notes that are accepted for exchange
will receive accrued interest thereon to the date of issuance of the New Notes
at a rate of 10% per annum. Such interest will be paid with the first interest
payment on the New Notes. Interest on the Old Notes accepted for exchange will
cease to accrue upon issuance of the New Notes.
The Senior Secured Notes will mature on December 15, 2006. Except as
described in this Prospectus, the Senior Secured Notes will not be redeemable
prior to December 15, 2001. Thereafter, the Senior Secured Notes will be
redeemable, in whole or in part, at the option of PCI at an initial price of
105% of the principal amount thereof, declining ratably thereafter per annum to
100% on and after December 15, 2004, plus in each case accrued and unpaid
interest to the date of redemption. See "Description of Senior Secured Notes--
Redemption."
The New Notes, like the Old Notes, (i) will be fully and unconditionally
guaranteed (the "Guarantees"), jointly and severally, by the Company's wholly-
owned subsidiaries, Continental Plastic Containers, Inc. ("CPC") and
Continental Caribbean Containers, Inc. ("Caribbean") (collectively, the
"Guarantors" or the "Continental Plastic Container Companies"), and (ii) will
be secured by a lien on and security interest in all of the issued and
outstanding capital stock of the Guarantors and substantially all of the assets
and properties owned by the Company and the Guarantors other than accounts
receivable, inventory and certain equipment securing capital lease obligations
(the "Collateral"). The New Notes will rank equally in right of payment with
the Old Notes and all other unsubordinated indebtedness of the Company, and the
Guarantees will rank equally in right of payment with all unsubordinated
indebtedness of CPC and Caribbean, respectively. As of December 31, 1996, the
aggregate outstanding principal amount of the Company's indebtedness was
approximately $130.0 million, comprised of the Old Notes and other
unsubordinated indebtedness ranking equally with the New Notes.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN RISKS
ASSOCIATED WITH AN INVESTMENT IN THE SENIOR SECURED NOTES.
Each broker-dealer that receives New Notes pursuant to the Exchange Offer in
exchange for Old Notes being held for its own account as a result of market-
making or other trading activities may be a statutory underwriter for purposes
of the Securities Act, and must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, such broker-dealer will not be deemed to be
admitting that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as amended or supplemented from time to time, may be used by
such a broker-dealer in connection with resales of New Notes received by it in
exchange for Old Notes so held. See "Plan of Distribution."
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.
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THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-4 (herein referred
to, together with all exhibits and schedules thereto and any amendments
thereof, as the "Registration Statement") under the Securities Act with
respect to the New Notes 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, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the New Notes offered hereby,
reference is made to the Registration Statement. Descriptions in this
Prospectus of certain documents are summaries of all their material provisions
but may not necessarily be complete and, in each instance, reference is made
to the copy of the document filed as an exhibit to the Registration Statement.
PCI is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith
files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information, as well as
the Registration Statement, can be inspected and copied at the Public
Reference Section of the Commission's office at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices in New
York (7 World Trade Center, 13th Floor, New York, New York 10048) and Chicago
(Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois
60661). Copies of such reports and information and the Registration Statement
may be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Commission maintains a Web site that contains reports and other information
regarding registrants (such as PCI) that file electronically with the
Commission. The address of such site is http://www.sec.gov.
The Company intends to furnish the holders of Senior Secured Notes with its
Annual Reports on Form 10-K containing financial information which will be
examined and reported upon, with an opinion expressed by, an independent
certified public accountant.
For so long as any Old Notes remain outstanding, and during any period in
which the Company and the Guarantors are not subject to Section 13 or 15(d) of
the Exchange Act, the Company and the Guarantors will make available, upon
request, to any registered holder or beneficial owner of Old Notes in
connection with any prospective resale of Old Notes pursuant to Rule 144A
under the Securities Act, and to any prospective purchaser designated by such
holder or beneficial owner, the information required by Rule 144A(d)(4).
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless the context otherwise requires, references to "PCI" or the "Company"
refer to Plastic Containers, Inc. and its subsidiaries on a consolidated basis,
and references to the "Continental Plastic Container Companies" refer jointly
to the Company's subsidiaries, Continental Plastic Containers, Inc. ("CPC") and
Continental Caribbean Containers, Inc. ("Caribbean"). Certain capitalized terms
in this summary are defined elsewhere in this Prospectus. See, in particular,
"Description of Senior Secured Notes--Certain Definitions."
THE COMPANY
Plastic Containers, Inc. is a leader in developing, manufacturing and
marketing a wide range of custom extrusion blow-molded plastic containers for
food and juice, household chemicals, automotive products and motor oil,
industrial and agricultural chemicals, and hair care products. The Company
manufactures single and multi-layer containers, primarily from high density
polyethylene ("HDPE") and polypropylene ("PP") resins, ranging in size from two
ounces to two and one-half gallons. Management believes that, based on
revenues, the Company is among the largest U.S. manufacturers of extrusion
blow-molded plastic containers for (i) food and juice, (ii) automotive motor
oil and (iii) household chemical products.
In 1996, PCI sold over 1.5 billion containers to national consumer product
companies, including Coca-Cola Foods, Mobil Oil and Procter & Gamble. The
Company often is the sole supplier of a customer's container requirements for
specific product categories or for particular container sizes. The Company has
long-standing relationships with most of its customers and has long-term
contractual agreements with remaining terms of up to five years with customers
who represent approximately $215.0 million, or 80%, of the Company's fiscal
1996 dollar sales volume. All of these contracts provide for changes in raw
material prices to be passed through to the customer. Contracts representing
approximately 22% of the Company's 1996 dollar sales volume expire in 1997.
The principal executive offices of the Company are located at One Aerial Way,
Syosset, New York 17791, telephone number (516) 822-4940. The principal
executive offices of the Continental Plastic Container Companies are located at
301 Merritt 7 Corporate Park, Norwalk, Connecticut 06856, telephone number
(203) 750-5800.
THE REFINANCING
In the last quarter of 1996, the Company engaged in a series of related
transactions (collectively, the "Refinancing") comprised of (i) the offer and
sale of the Old Notes (the "Old Note Offering"), (ii) a cash tender offer (the
"Tender Offer") to purchase any and all of the Company's $104.7 million
aggregate principal amount of outstanding 10 3/4% Senior Secured Notes Due 2001
(the "10 3/4% Notes"), (iii) the discharge of all 10 3/4% Notes not purchased
in the Tender Offer (the "Redemption"), (iv) a sale/leaseback financing for
approximately $40.6 million (the "Sale/Leaseback") involving certain equipment
and a mortgage on one facility, and (v) a $30.0 million loan (the "Continental
Can Loan") by PCI to Continental Can Company, Inc. ("Continental Can"), which
prior to the Refinancing owned a 50% equity interest in PCI and which used the
proceeds of the Continental Can Loan to acquire an additional 34% equity
interest in PCI, thereby increasing its ownership to 84%. See "The Refinancing"
and "Ownership of PCI."
3
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THE EXCHANGE OFFER
The Exchange Offer........ The Company is offering to exchange $1,000
principal amount of New Notes for each $1,000
principal amount of Old Notes that is properly
tendered and accepted. As of the date of this
Prospectus, $125,000,000 aggregate principal amount
of Old Notes was outstanding. See "The Exchange
Offer."
Based on interpretations given by the staff of the
Commission in no-action letters issued to persons
other than the Company, management of the Company
believes that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by any holder thereof (other than any
such holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act, or certain broker-dealers and their
affiliates) without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes
are acquired in the ordinary course of such
holder's business and that such holder has no
arrangement or understanding with any person to
participate in the distribution of such New Notes.
See "The Exchange Offer--Purpose and Effect of the
Exchange Offer" and "Plan of Distribution."
Expiration Date........... The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1997, unless
extended. The term "Expiration Date" shall mean the
latest date to which the Exchange Offer is
extended. The Company will accept for exchange any
and all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will be
deemed to be issued on the Expiration Date and will
be delivered promptly following the Expiration
Date.
Interest on the New Notes
and Old Notes............ Each New Note will bear interest from the
Expiration Date and interest on the Old Notes
accepted for exchange will cease to accrue on the
Expiration Date. Holders of Old Notes that are
accepted for exchange will receive accrued interest
on the Old Notes at the rate of 10% per annum from
the date of original issuance of the Old Notes
(December 17, 1996) through the Expiration Date,
payable on June 15, 1997 with the first interest
payment on the New Notes, and will receive accrued
interest on the New Notes at the rate of 10% per
annum from and after the Expiration Date.
Condition to the Exchange The Company may terminate the Exchange Offer if it
Offer.................... determines that its ability to proceed with the
Exchange Offer is prohibited or could be materially
impaired by any legal or governmental action, any
law, statute, rule or regulation or any
interpretation thereof by the staff of the
Commission. The Company does not expect any of the
foregoing to occur, although there can be no
assurances that any such condition will not occur.
See "The Exchange Offer--Condition to the Exchange
Offer."
4
<PAGE>
Procedures for For Old Notes to be validly tendered pursuant to
Tendering................ the Exchange Offer, either (i) book-entry
confirmation of a valid book-entry transfer must be
received by the Exchange Agent prior to the
expiration of the Exchange Offer, or (ii) a
properly completed Letter of Transmittal (or a
facsimile thereof) duly executed by the registered
holder of such Old Notes, together with the
certificates for the Old Notes tendered and any
other documents required by the Letter of
Transmittal, must be received by the Exchange Agent
prior to the expiration of the Exchange Offer at
one of its addresses set forth herein under the
caption "The Exchange Offer--Exchange Agent." No
provision has been made for the delayed guaranteed
delivery of Old Note certificates. See "The
Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners........ Any person who is a beneficial owner of Old Notes
which are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee, and who wishes to tender Old Notes in the
Exchange Offer, should contact such nominee
promptly with instructions to tender such Old Notes
on such beneficial owner's behalf. If a beneficial
owner wishes to tender directly, such beneficial
owner must, prior to completing and executing the
Letter of Transmittal and delivering his Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such beneficial
owner's name or obtain and submit a properly
completed endorsement or bond power from the
registered holder. The transfer of registered
ownership may take considerable time and may be
difficult to complete prior to the expiration of
the Exchange Offer.
Withdrawal Rights.........
Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date by following the procedures set
forth in "The Exchange Offer--Withdrawal Rights."
Certain Federal Income
Tax Considerations....... For a general discussion of the Federal income tax
consequences of exchanging Old Notes for New Notes,
see "Certain Tax Consequences."
Exchange Agent............ United States Trust Company of New York is the
Exchange Agent. The addresses and telephone numbers
of the Exchange Agent are set forth under the
caption "The Exchange Offer--Exchange Agent."
5
<PAGE>
SUMMARY OF TERMS OF SENIOR NOTES
The Exchange Offer relates to $125,000,000 aggregate principal amount of New
Notes. The form and terms of the New Notes will be in all material respects
identical to the form and terms of the Old Notes. However, the New Notes will
be registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. The New Notes will evidence the same debt as
the Old Notes tendered in exchange therefor, will be issued under, and entitled
to the benefits of, the same Indenture and will be treated as a single class
thereunder with the Old Notes. See "Description of Senior Notes."
Securities Offered........ $125,000,000 aggregate principal amount of 10%
Senior Secured Notes due 2006, Series B.
Maturity.................. December 15, 2006.
Interest Payment Dates.... Interest will accrue from the date of issuance and
will be payable semi-annually on each June 15 and
December 15, commencing June 15, 1997.
Optional Redemption....... Except as described below, the Senior Secured Notes
will not be redeemable by PCI prior to December 15,
2001. On or after that date, the Senior Secured
Notes may, subject to certain requirements, be
redeemed at the option of PCI, in whole or in part,
at an initial price of 105% of the principal amount
thereof, declining ratably thereafter per annum to
100% on and after December 15, 2004, plus in each
case accrued and unpaid interest, if any, to the
date of redemption. In addition, on or prior to
December 15, 1999, PCI may, subject to certain
requirements, redeem up to $40.0 million of the
aggregate principal amount of the Senior Secured
Notes with the net cash proceeds of a Public Equity
Offering (as defined herein) which yields gross
proceeds of $15.0 million or more, at a redemption
price equal to 109% of the principal amount thereof
to be redeemed plus accrued and unpaid interest, if
any, to the redemption date, provided that
immediately following such redemption, not less
than $85.0 million aggregate principal amount of
the Senior Secured Notes remain outstanding and any
such redemption occurs not more than 120 days after
the consummation of any such Public Equity
Offering. See "Description of Senior Secured
Notes--Redemption."
Change of Control......... In the event of a Change of Control, the Company
will be obligated to make an offer to repurchase
all outstanding Senior Secured Notes at a price
equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of
repurchase. See "Description of Senior Secured
Notes--Change of Control."
Asset Sale Proceeds....... The Company will be obligated in certain
circumstances to make offers to purchase Senior
Secured Notes at a redemption price of 100% of the
principal amount thereof, plus accrued interest, if
any, to the date of purchase, with a portion of the
net cash proceeds of certain sales or other
dispositions of assets. See "Description of Senior
Secured Notes--Certain Covenants--Disposition of
Proceeds of Asset Sales."
6
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Ranking and Guarantees....
The Senior Secured Notes are senior obligations of
the Company ranking senior in right of payment to
the Company's subordinated indebtedness, if any,
and equally in right of payment with the Old Notes
and all other unsubordinated indebtedness of the
Company, including indebtedness under the Company's
$50.0 million revolving credit facility (the
"Revolving Credit Facility"). As of December 31,
1996, the aggregate principal amount of the
Company's indebtedness was approximately $130.0
million, comprised of the Old Notes and other
unsubordinated indebtedness ranking equally with
the New Notes. The Company's obligations under the
Senior Secured Notes are fully and unconditionally
guaranteed, jointly and severally, by CPC and
Caribbean. The Guarantees rank equally with the
Guarantors' guarantees of the Revolving Credit
Facility and all other unsubordinated indebtedness
of the Guarantors. See "Description of Senior
Secured Notes--Ranking and Guarantees" and
"Description of the Revolving Credit Facility."
Security..................
The Senior Secured Notes are secured by a lien on
and security interest in (i) all of the issued and
outstanding capital stock of the Guarantors, (ii)
the promissory note evidencing the Continental Can
Loan and (iii) substantially all of the assets and
properties owned by the Company and the Guarantors
(after giving effect to the Refinancing) other than
accounts receivable, inventory and certain
equipment securing capital lease obligations (the
"Collateral"). See "Description of Senior Secured
Notes--Security" and "The Refinancing."
Certain Covenants......... The Indenture (as defined herein) contains certain
covenants that, among other things, limit the
ability of the Company and its subsidiaries to (i)
incur additional indebtedness, (ii) create or agree
to liens on their assets, (iii) make certain
investments or loans, (iv) pay dividends and
certain other distributions to shareholders, or
make certain Restricted Payments, (v) enter into
mergers, consolidations or sales of all or
substantially all of their assets, (vi) make Asset
Sales, (vii) enter into transactions with the
Company's affiliates, and (viii) engage in sale-
leaseback transactions. See "Description of Senior
Secured Notes--Certain Covenants."
Use of Proceeds...........
There will be no cash proceeds to the Company from
the exchange of New Notes for Old Notes pursuant to
the Exchange Offer. The aggregate net proceeds from
the Sale/Leaseback and the Old Note Offering were
approximately $160.6 million, and were used (i) to
repurchase any and all of the 10 3/4% Notes
pursuant to the Tender Offer and effect the
Redemption, (ii) to make the Continental Can Loan,
and (iii) to repay amounts outstanding under the
Revolving Credit Facility. The balance of such net
proceeds is being used for general corporate
purposes, including working capital. See "Use of
Proceeds."
7
<PAGE>
Comparison of New Notes
with Old Notes........... The New Notes will be identical to the Old Notes
except that the New Notes have been registered
under the Securities Act and in general may be
reoffered and resold by the holders (other than
"affiliates" of the Company and certain broker-
dealers and their affiliates) without restrictions
or limitations under such Act. The Letter of
Transmittal includes representations by the
tendering holder that, among other things, (i) the
New Notes to be received pursuant to the Exchange
Offer are being acquired in the ordinary course of
the business of the person receiving such New
Notes, (ii) neither such holder nor any such other
person has an arrangement or understanding to
participate in the distribution of such New Notes
and (iii) neither such holder nor any such other
person is an "affiliate" (as defined in Rule 405
under the Securities Act) of the Company. In the
case of a broker-dealer that receives New Notes for
its own account in exchange for Old Notes which
were acquired by it as a result of market-making or
other trading activities, the Letter of Transmittal
also includes an acknowledgment that the broker-
dealer will deliver a copy of this Prospectus in
connection with the resale by it of New Notes
received pursuant to the Exchange Offer. See the
"Exchange Offer--Purpose and Effect of the Exchange
Offer" and "--Procedures for Tendering" and "Plan
of Distribution."
Registration Rights.......
The Company entered into a Registration Rights
Agreement for the benefit of all holders of Old
Notes, in which it agreed to make the Exchange
Offer. The Registration Rights Agreement provides
that if the Company fails to consummate the
Exchange Offer on or prior to June 16, 1997, the
Company will file a shelf registration statement
(the "Shelf Registration Statement") to cover
resales of Senior Secured Notes by holders who
provide certain information required for inclusion
in the Shelf Registration Statement, and who agree
to be bound by the terms of the Registration Rights
Agreement. Upon a Registration Default (as defined
herein), the Company will be required to pay
certain Liquidated Damages to the affected holders
of Senior Secured Notes. See "Registration Rights."
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary financial data under the captions "Statement of Operations Data"
and "Balance Sheet Data" set forth below are derived from, and should be read
in conjunction with, the Company's audited consolidated financial statements
and the related notes thereto appearing elsewhere herein, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." For
a discussion of the assumptions on which "Pro Forma Data" below is based, see
"Unaudited Pro Forma Data."
8
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1994 1995 1996
(DOLLARS IN THOUSANDS;
UNITS IN MILLIONS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $230,480 $277,061 $267,793
Gross profit.................................... 37,900 39,393 43,004
Selling, general and administrative expenses.... 28,480 30,059 28,829
Plant rationalization and realignment........... 855 (98) 6,500
Operating income................................ 8,565 9,432 7,675
Interest expense, net........................... 11,629 11,586 12,784
Net loss ....................................... (2,525) (225) (10,904)
OTHER DATA:
EBITDA(1)....................................... $ 33,622 $ 33,465 $ 28,984
EBITDA adjusted for plant rationalization and
realignment costs(2)........................... 34,477 33,367 35,484
Cash flows from (used in):
Operating activities........................... 17,592 12,495 24,546
Investing activities........................... (14,898) (30,345) (10,511)
Financing activities........................... (5,480) 16,533 (3,285)
Selling, general and administrative expenses as
a percentage of net sales...................... 12.4% 10.8% 10.8%
Depreciation and amortization................... $ 25,057 $ 24,033 $ 21,309
Units shipped................................... 1,316 1,452 1,528
Capital expenditures:
Maintenance.................................... $ 3,639 $ 6,607 $ 5,975
Growth......................................... 11,300 24,086 15,265
-------- -------- --------
Total......................................... $ 14,989 $ 30,693 $ 21,240
======== ======== ========
PRO FORMA DATA:(3)
EBITDA(1)....................................... -- -- $ 23,168
EBITDA adjusted for plant rationalization and
realignment costs(2)........................... -- -- 29,668
Cash flows from (used in):
Operating activities........................... -- -- 18,647
Investing activities........................... -- -- (10,511)
Financing activities........................... -- -- (3,285)
Ratio of net debt to EBITDA..................... -- -- 5.08x
Ratio of net debt to EBITDA adjusted for plant
rationalization and realignment costs.......... -- -- 3.97x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 25,302
Property, plant and equipment, net.......................... 102,245
Total assets................................................ 205,650
Total debt (including current portion)...................... 129,982
Stockholders' equity........................................ 14,214
</TABLE>
- --------------------
(1) "EBITDA" is defined as operating income plus depreciation and amortization.
Management believes that EBITDA information is commonly reported and widely
used by investors and other interested parties because EBITDA is a useful
measure for comparing operating performance and debt servicing ability on a
consistent basis without regard to depreciation and amortization, which can
vary significantly depending upon accounting methods (particularly when
acquisitions are involved) or nonoperating factors (such as historical
cost). However, the Company's EBITDA as presented herein may not be
comparable in all instances to other similar types of measures used by
other companies. EBITDA should not be considered as an alternative to
operating income or net loss (as determined in accordance with generally
accepted accounting principles) as a measure of the Company's operating
performance, or as an alternative to net cash provided by operating,
investing and financing activities (as determined in accordance with
generally accepted accounting principles) as a measure of its ability to
meet cash needs. The Company's Revolving Credit Facility contains certain
covenants incorporating the same definition of EBITDA.
(2) EBITDA adjusted for plant rationalization and realignment is presented
because management believes that it is useful for comparing EBITDA
information without regard to this non-recurring charge.
(3) Gives pro forma effect to the Refinancing as if each transaction in the
Refinancing had taken place on January 1, 1996. On a pro forma basis,
EBITDA and cash flows from operating activities are negatively impacted by
the lease expense adjustment. See "Unaudited Pro Forma Data."
9
<PAGE>
RISK FACTORS
Prospective purchasers of the Senior Secured Notes offered hereby should
consider the specific factors set forth below.
LEVERAGE AND DEBT SERVICE
The Company has significant amounts of outstanding indebtedness. As of
December 31, 1996, after giving effect to the Refinancing, the aggregate
outstanding principal amount of the Company's indebtedness was approximately
$130.0 million. For the year ended December 31, 1996, the Company's earnings
were insufficient to cover fixed charges by $5.5 million. The Company's
obligations to make principal and interest payments on outstanding
indebtedness, and to comply with the covenants in the indenture relating to
the Senior Secured Notes (the "Indenture"), will have several important
effects on its future operations, including the following: (i) the portion of
the Company's cash flow from operations which will be dedicated to the payment
of interest on its indebtedness will not be available for other purposes; (ii)
the financial covenants and other restrictions contained in the Revolving
Credit Facility documents and the Indenture will require the Company to meet
certain financial tests and will limit its ability to borrow additional funds
or to dispose of assets; and (iii) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, general
corporate purposes or other purposes may be impaired. Additionally, the
Company's ability to meet its debt service obligations and to reduce its total
debt will be dependent upon the Company's future performance, which will be
subject to general economic conditions and to financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control. An inability of the Company to meet the financial covenants under the
Revolving Credit Facility could result in an acceleration of amounts due
thereunder.
No assurance can be given that the Company will maintain a level of cash
flow from operations sufficient to permit it to service its indebtedness and
pursue its operating strategies.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
The Company's three largest customers currently, Procter & Gamble, Coca-Cola
Foods and Mobil Oil, accounted respectively for approximately 29%, 13% and 10%
of net sales in 1996. Although the Company has long-standing relationships
with these customers, the loss of one or more of them could have a material
adverse effect on the Company's operating results.
POSSIBLE DEFAULTS RESULTING FROM A CHANGE OF CONTROL
Although the Indenture requires PCI to make an offer (a "Change of Control
Offer") to repurchase the Senior Secured Notes upon the occurrence of a Change
of Control (as defined), there can be no assurance that, if a Change of
Control were to occur, PCI would have sufficient funds at that time to pay the
purchase price for all Senior Secured Notes, or would be able to obtain the
financing necessary to meet such repurchase obligation. In addition, the
existence of a Change of Control (or the financial effect of consummating a
Change of Control Offer) would constitute a default under the Revolving Credit
Facility. Furthermore, PCI's ability to purchase Senior Secured Notes could be
limited by future borrowing agreements. See "Description of Senior Secured
Notes--Change of Control."
UNCERTAINTIES CONCERNING COLLATERAL
Each of CPC and Caribbean has issued a Guarantee of the obligations of the
Company under the Senior Secured Notes, and has pledged, as security for its
Guarantee obligations, substantially all of its owned real and personal
property, other than accounts receivable, inventory and certain equipment
securing capital lease obligations. The net book value of the Collateral
(excluding the promissory note evidencing the Continental Can Loan (the
"Continental Can Note") and the stock of the Guarantors) as of December 31,
1996, was approximately $91.9 million. There can be no assurance that the
proceeds from the sale or sales of the Collateral
10
<PAGE>
securing the Guarantees would be sufficient to satisfy the amounts due on the
Senior Secured Notes in the event of a default. In addition, the ability of
the holders of Senior Secured Notes to realize upon the Collateral may be
subject to certain bankruptcy law limitations in the event of a bankruptcy.
The Collateral release provisions of the Indenture permit the release of
Collateral for the Senior Secured Notes without substitution of collateral of
equal value under certain limited circumstances. See "Description of Senior
Secured Notes--Security," "--Possession, Use and Release of Collateral," and
"--Certain Bankruptcy Limitations."
EFFECT OF FRAUDULENT CONVEYANCE STATUTES ON THE GUARANTEES
As a holding company with no operations of its own and no assets apart from
the Guarantors, the Company is dependent upon distributions of the earnings of
the Guarantors to service its debt obligations. Although holders of Senior
Secured Notes are direct creditors of the Guarantors by virtue of the
Guarantees, existing or future creditors of the Guarantors could avoid or
subordinate the Guarantees (and the mortgages and liens securing the
Guarantees) under fraudulent conveyance laws if they were successful in
establishing that (i) the Guarantees were incurred with fraudulent intent or
(ii) either of the Guarantors did not receive fair consideration or reasonably
equivalent value for issuing its Guarantee and that it (w) was insolvent at
the time of such issuance, (x) was rendered insolvent by reason of such
issuance, (y) was engaged in a business or transaction for which its assets
constituted unreasonably small capital to carry on its business or (z)
intended to incur, or believed that it would incur, debts beyond its ability
to pay such debts as they matured. Management of the Company and the
Guarantors believe that the Guarantors (w) were solvent at the time of the
issuance of the Guarantees, (x) were not rendered insolvent by reason of such
issuance, (y) were not at the time of such issuance, and are not, engaged in a
business or transaction for which their assets constitute unreasonably small
capital to carry on their businesses and (z) did not then intend to incur, or
will incur, debts beyond their ability to pay such debts as they mature.
The measures of insolvency for purposes of determining whether a fraudulent
conveyance occurred would vary depending upon the laws of the relevant
jurisdiction and upon the valuation assumptions and methodology applied by the
court. Generally, however, a company would be considered insolvent for
purposes of the foregoing if the sum of the company's debts, including
contingent, unliquidated and unmatured liabilities, is greater than all of
such company's property at a fair valuation, or if the present fair saleable
value of the company's assets is less than the amount that will be required to
pay the probable liability on its existing debts as they become absolute and
matured.
ABSENCE OF PUBLIC MARKET FOR THE SENIOR SECURED NOTES; RESTRICTIONS ON
TRANSFER
The Senior Secured Notes constitute a new issue of securities for which
there is currently no established market, and there can be no assurance as to
the liquidity of markets that may develop for the Senior Secured Notes, the
ability of holders of the Senior Secured Notes to sell them or the price at
which such holders would be able to sell their Senior Secured Notes. If such
markets were to exist, the Senior Secured Notes could trade at prices that may
be higher or lower than the initial market values thereof depending on many
factors, including prevailing interest rates and the markets for similar
securities. The Old Notes are currently eligible for trading in the PORTAL
market.
The Old Notes were offered in reliance upon exemptions from registration
under the Securities Act and applicable state securities laws. Therefore, the
Old Notes may be transferred or resold only in transactions registered under
or exempt from the Securities Act and applicable state securities laws. If
issued in the Exchange Offer, the New Notes generally may be resold or
otherwise transferred by each holder without the requirement of further
registration or other restriction. The New Notes, however, also will
constitute a new issue of securities with no established trading market. The
Exchange Offer is not conditioned upon any minimum or maximum aggregate
principal amount of Old Notes being tendered for exchange. No assurance can be
given as to the liquidity of the trading market for the New Notes, or, in the
case of non-tendering holders of Old Notes, the trading market for the Old
Notes following the Exchange Offer.
11
<PAGE>
THE REFINANCING
The Company recently engaged in a series of related transactions
(collectively, the "Refinancing") comprised of the Old Note Offering, the
Tender Offer, the Redemption, the Sale/Leaseback and the Continental Can Loan.
The overall purposes of the Refinancings were to reduce the Company's
borrowing costs, improve liquidity and enable the Company to make the
Continental Can Loan. See "Ownership of PCI."
THE TENDER OFFER
On October 24, 1996 the Company commenced the Tender Offer to purchase for
cash any or all, but not less than two-thirds in aggregate principal amount,
of its $104.7 million aggregate principal amount of outstanding 10 3/4% Notes
at a price of $1,042.00 per $1,000.00 principal amount of 10 3/4% Notes plus
accrued and unpaid interest. The Tender Offer, which expired on December 9,
1996, included the solicitation of consents to a proposed amendment to the
discharge provisions of the indenture relating to the 10 3/4% Notes (the "10
3/4% Note Indenture"). The Company paid $10.00 for each $1,000.00 principal
amount of 10 3/4% Notes for which such consents were received. The Company
received tenders and consents representing $101.7 million of the aggregate
principal amount of the outstanding 10 3/4% Notes.
THE REDEMPTION
Since the Company purchased less than 100% of the outstanding 10 3/4% Notes
pursuant to the Tender Offer, on December 17, 1996, the Company effected a
discharge of its obligations under the 10 3/4% Note Indenture (the
"Discharge"). As a result of the Discharge, the Company and the Guarantors
were released from their respective obligations under all restrictive
covenants and most other provisions of the 10 3/4% Note Indenture, and the
collateral securing the 10 3/4% Notes was released. Certain of such collateral
was thereupon pledged to secure on a first priority basis the Old Notes
immediately upon their issuance on December 17, 1996.
Concurrently with and as part of the Discharge, the Company deposited with
the trustee under the 10 3/4% Note Indenture cash sufficient to effect the
redemption, on April 1, 1997, of all the 10 3/4% Notes not purchased pursuant
to the Tender Offer, at a redemption price of 100% of the principal amount of
such 10 3/4% Notes, pursuant to the mandatory redemption provisions of the 10
3/4% Note Indenture, together with accrued and unpaid interest to such date.
The Company incurred an extraordinary charge of $7.3 million in the fourth
quarter of 1996 in connection with (i) the early retirement of the 10 3/4%
Notes in the Tender Offer and the Redemption, and (ii) the write-off of the
related unamortized deferred financing fees.
THE SALE/LEASEBACK
On December 17, 1996, CPC consummated a sale to General Electric Capital
Corporation ("GECC") and certain other financial institutions, and the
leaseback to CPC (the "Leases"), of certain equipment (the "Equipment")
located in CPC's facilities in Baltimore, Maryland; Cincinnati, Ohio; Elk
Grove, Illinois; DuPage, Illinois; and Houston, Texas. CPC's obligations under
the Leases are guaranteed by the Company. The proceeds to the Company from the
Sale/Leaseback were approximately $40.6 million, which approximated the book
value of the Equipment. CPC's obligations under the Sale/Leaseback are secured
by an assignment of all ground leases for such facilities leased by CPC
(Cincinnati, Elk Grove, DuPage and Houston), a first mortgage on the real
property at CPC's Baltimore facility, a subordinated security interest in the
Continental Plastic Container Companies' accounts receivable and inventories
and in the Continental Can Note, a security interest in certain machinery
currently leased by GECC to CPC and, when unencumbered, a security interest in
certain equipment currently securing capital lease obligations. In connection
with the Sale/Leaseback, CPC is obligated to deliver certain waivers from the
landlords and mortgagees of the facilities where the Equipment is located, and
in the event that CPC fails to deliver such waivers for two specified
facilities by June 1998, if the lessor so elects, CPC must repurchase the
Equipment located at such facilities.
12
<PAGE>
The terms of the Leases range from 88 months to 109 months, subject to
options of CPC to repurchase the Equipment after 78 months and 83 months for
an aggregate of approximately $19.2 million. CPC's monthly cash rental
payments under the Sale/Leaseback are approximately $0.5 million.
THE CONTINENTAL CAN LOAN
The Company has 100 shares of common stock outstanding (the "PCI Shares").
Prior to December 17, 1996, 50 PCI Shares were owned by Continental Can and 50
shares were owned by Merrywood, Inc. ("Merrywood"), a corporation which is
one-third owned by Jose Luis Zapata (a director of Continental Can, PCI and
each of the Guarantors) and one-third owned by Cayo Zapata (who was, until
October 22, 1996, a director of Continental Can, PCI and each of the
Guarantors). See "Management." Continental Can was contractually obligated to
purchase 34 PCI Shares from Merrywood on or prior to February 7, 1997, for
$30.0 million in cash, and to purchase Merrywood's remaining 16 PCI Shares on
or prior to December 31, 2000, for approximately $15.4 million plus certain
interest accruing from December 1, 1996.
Continental Can purchased the 34 PCI Shares in December 1996 and borrowed
from PCI the $30.0 million purchase price. Simultaneously with such purchase,
Continental Can granted Merrywood a security interest in the 84 PCI Shares
which Continental Can now owns, as security for the performance by Continental
Can of its obligations under its agreement with Merrywood. See "Ownership of
PCI."
The Continental Can Loan is for a term of 10 1/2 years from the closing date
of the Refinancing (December 17, 1996) and accrues interest, payable at
maturity, at an annual rate of 6.9%, compounded semi-annually. The note
evidencing the Continental Can Loan has been pledged by PCI as part of the
Collateral securing the Senior Secured Notes.
USE OF PROCEEDS
There will be no cash proceeds to the Company from the exchange of New Notes
for Old Notes pursuant to the Exchange Offer. The aggregate net proceeds
received by the Company from the Old Note Offering and the Sale/Leaseback were
approximately $160.6 million after the deduction of fees and expenses relating
to the Refinancing. The Company applied (a) $112.5 million of such net
proceeds to repurchase any or all of the 10 3/4% Notes pursuant to the Tender
Offer at a price of 105.2% of principal amount plus accrued and unpaid
interest, and pursuant to the subsequent Redemption of 10 3/4% Notes which
were not tendered or purchased in the Tender Offer, (b) $30.0 million of such
net proceeds to make the Continental Can Loan, and (c) approximately $7.3
million of such net proceeds to repay borrowings under the Revolving Credit
Facility (the current interest rate on such borrowings is 8.5%). The balance
of such net proceeds is being used for general corporate purposes, including
working capital.
13
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on December 17, 1996, to Donaldson,
Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc. and Societe
Generale Securities Corporation (collectively, the "Initial Purchasers") for
resale in transactions exempt from the registration requirements of the
Securities Act. In connection with the sale of the Old Notes, the Company, the
Guarantors and the Initial Purchasers entered into a Registration Rights
Agreement dated December 11, 1996 (the "Registration Rights Agreement"), which
requires the Company to use its best efforts to offer to the holders of the
Old Notes the opportunity to exchange their Old Notes for a like principal
amount of New Notes which may be reoffered and resold without restrictions or
limitations under the Securities Act by those holders who duly exchange Old
Notes under the Exchange Offer and make certain representations required in
the Letter of Transmittal. The Exchange Offer is being made to satisfy in part
the Company's obligations under the Registration Rights Agreement. See
"Registration Rights." A copy of the Registration Rights Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus is
a part.
Based on interpretations by the staff of the Commission set forth in no-
action letters addressed to Exxon Capital Holdings Corporation (April 13,
1988), Morgan Stanley & Co. Incorporated (June 5, 1991), Shearman & Sterling
(July 2, 1993) and Grupo Financiero InverMexico, S.A. (April 4, 1995),
management of the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may in general be offered for resale,
resold and otherwise transferred by any holder of such New Notes without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, any holder who (i) is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act, (ii) is participating in a
distribution of the New Notes to be received in the Exchange Offer, (iii) is a
broker-dealer that acquired the Old Notes in a transaction other than as part
of its market-making or other trading activities, or (iv) is not acquiring the
New Notes in the ordinary course of its business cannot rely on such
interpretations by the staff of the Commission. A secondary resale of New
Notes by such a holder (i) must be covered by an effective Registration
Statement under the Securities Act containing the selling securityholder
information required by Item 507 of Regulation S-K of the Commission, and (ii)
must comply with the prospectus delivery requirements of the Securities Act.
In addition, any tendering holder which is a broker-dealer and which, having
made certain representations in the Letter of Transmittal, receives New Notes
may be deemed to be an "underwriter" with respect to such New Notes and, in
connection with any resale of such New Notes, must comply with the prospectus
delivery requirements of the Securities Act (for which purpose this
Prospectus, as amended or supplemented from time to time, may be used as the
required prospectus).
The Company has not requested and does not expect to request an interpretive
letter from the Commission staff with respect to the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. On the Expiration Date, the Company will issue
$1,000 principal amount of New Notes in exchange for each $1,000 principal
amount of outstanding Old Notes tendered and accepted in the Exchange Offer.
As of the date of this Prospectus, $125,000,000 aggregate principal amount of
the Old Notes is outstanding. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only
in integral multiples of $1,000.
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes, with both the Old Notes and the New Notes bearing interest
at the rate of 10% per annum from and after the Expiration
14
<PAGE>
Date. The New Notes have been registered under the Securities Act and hence
the certificates evidencing the New Notes will not bear legends restricting
the transfer thereof. The New Notes will evidence the same debt as the Old
Notes and will be entitled to the benefits of the Indenture.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses in connection with the Exchange Offer. See "--Payment of Expenses"
below.
In the event the Exchange Offer is consummated, subject to certain
exceptions contained in the Registration Rights Agreement, the Company will
not be required to register the Old Notes under the Securities Act. In such
event, investors seeking liquidity in their investment would have to rely on
exemptions to registration requirements under the United States securities
laws. See "Registration Rights."
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1997 (the "Expiration Date"). The Company reserves the right,
at its discretion, to extend the Exchange Offer to a later date, in which
event the term "Expiration Date" will mean such later date and the Exchange
Offer will expire at 5:00 p.m., New York City time, on such later date. The
Company will notify the Exchange Agent of any extension by oral or written
notice and will make a public announcement thereof prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date of the Exchange Offer.
The Company reserves the right to delay accepting any Old Notes under the
Exchange Offer, or to terminate the Exchange Offer and not accept under the
Exchange Offer any Old Notes not previously accepted, if any of the events set
forth below under "--Condition to the Exchange Offer" occurs and is not waived
by the Company, by giving oral or written notice of such delay or termination
to the Exchange Agent. The Company also reserves the right to amend the terms
of the Exchange Offer in any manner. Any such delay in acceptance, termination
or amendment will be followed as promptly as practicable by public
announcement thereof.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, termination or amendment, the Company will have
no obligation to publish, advertise or otherwise communicate any such public
announcement, other than by making a release to the Dow Jones News Service,
the substance of which is carried over the Dow Jones Broad Tape.
PROCEDURES FOR TENDERING
Except as set forth below, for a holder validly to tender Old Notes pursuant
to the Exchange Offer, either (i) such Old Notes must be transferred pursuant
to the procedures for book-entry transfer described under the caption "--Book-
Entry Transfer" below, and a book-entry confirmation must be received by the
Exchange Agent prior to the expiration of the Exchange Offer, or (ii) a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof), together with any required signature guarantees, the certificates
for the Old Notes tendered and any other documents required by the
instructions to the Letter of Transmittal, must be received by the Exchange
Agent at one of the addresses set forth below under the caption "--Exchange
Agent" prior to the expiration of the Exchange Offer. No provision has been
made for the delayed guaranteed delivery of Old Note certificates. Letters of
Transmittal and Old Notes should be sent only to the Exchange Agent, not to
the Company.
15
<PAGE>
THE LETTER OF TRANSMITTAL INCLUDES REPRESENTATIONS BY THE TENDERING HOLDER
TO THE COMPANY THAT, AMONG OTHER THINGS, (I) THE NEW NOTES TO BE RECEIVED
PURSUANT TO THE EXCHANGE OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF
BUSINESS OF THE PERSON RECEIVING SUCH NEW NOTES (WHETHER OR NOT SUCH PERSON IS
THE HOLDER), (II) NEITHER SUCH HOLDER NOR ANY SUCH OTHER PERSON HAS AN
ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE
DISTRIBUTION OF SUCH NEW NOTES, (III) NEITHER SUCH HOLDER NOR ANY SUCH OTHER
PERSON IS AN "AFFILIATE," AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT, OF
THE COMPANY, AND (IV) IF THE TENDERING HOLDER IS A BROKER OR A DEALER (AS
DEFINED IN THE EXCHANGE ACT), IT ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS
A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES. In the case
of a broker-dealer that receives New Notes for its own account in exchange for
Old Notes which were acquired by it as a result of market-making or other
trading activities, the Letter of Transmittal will also include an
acknowledgment that the broker-dealer will deliver a copy of this Prospectus
in connection with the resale by it of New Notes received pursuant to the
Exchange Offer. See "Plan of Distribution."
Delivery of Letters of Transmittal in the Offer
If certificates for Old Notes are registered in the name of a person or
persons other than the signer of a Letter of Transmittal, then in order to
tender such Old Notes pursuant to the Exchange Offer, the certificates
evidencing such Old Notes must be endorsed, or accompanied by appropriate bond
powers signed, by the registered holder or holders exactly as the name or
names of such holder or holders appear on the certificates, with the
signature(s) on the certificates or bond powers guaranteed as provided below.
Any beneficial owner whose Old Notes are registered in the name of The
Depository Trust Company ("DTC") or its nominee for the account of a
participant in DTC's system, or in the name of a broker, dealer, commercial
bank, trust company or other nominee, and who wishes to tender Old Notes in
the Exchange Offer should contact such participant or nominee promptly with
instructions to tender Old Notes on such beneficial owner's behalf. If a
beneficial owner wishes to tender Old Notes personally, such beneficial owner
must, prior to completing and executing the Letter of Transmittal and
delivering such Old Notes, either make appropriate arrangements to register
ownership of the Old 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 and may be difficult to complete
prior to the expiration of the Exchange Offer.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holder tendering Old Notes. If such delivery is by mail, it is suggested
that the holder use properly insured, registered mail with return receipt
requested, and that the mailing to the Exchange Agent be made sufficiently in
advance of the Expiration Date to permit delivery to the Exchange Agent on or
prior thereto. Except as otherwise provided herein, such delivery will be
deemed made when actually received or confirmed by the Exchange Agent.
Book-Entry Transfer
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish an account with respect to the Old Notes at DTC for
the purpose of facilitating the Exchange Offer, and subject to the
establishment thereof, any financial institution that is a participant in
DTC's system (a "Participant") may make book-entry delivery of Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with DTC's Automated Tender Offer
Program ("ATOP") for such book-entry transfers. However, the exchange of New
Notes for Old Notes so tendered will only be made after timely book-entry
confirmation of such book-entry transfer of Old Notes into the Exchange
Agent's account, and timely receipt by the Exchange Agent of an Agent's
Message and any other documents required by the Letter of Transmittal. The
term "Agent's Message" means a message, transmitted by DTC and received by the
Exchange Agent and forming a part of a book-entry confirmation, which states
that DTC has received an express
16
<PAGE>
acknowledgment, from a Participant tendering Old Notes which are the subject
of such book-entry confirmation, that such Participant has received and agrees
to be bound by the terms of the Letter of Transmittal, and that the Company
may enforce such agreement against such Participant. An Agent's Message will
constitute a representation to the Company by the beneficial owners of the
appropriate Old Notes of the matters referred to in the second paragraph above
under the caption "--Procedures for Tendering."
Delivery of documents to DTC in accordance with DTC's procedures does not
constitute delivery to the Exchange Agent.
Signature Guarantees
Signatures on the Letter of Transmittal need not be guaranteed if the Old
Notes tendered thereby are tendered (i) by the registered holder thereof,
unless such holder has completed the box entitled "Special Delivery
Instructions" in the Letter of Transmittal, or (ii) for the account of a firm
(an "Eligible Institution") that is a participant in the Security Transfer
Agents Medallion Program or the Stock Exchange Medallion Program (generally a
member of a registered national securities exchange, a member of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office in the United States). In all other cases, all signatures on
the Letter of Transmittal must be guaranteed by an Eligible Institution. See
the instructions to the Letter of Transmittal.
Lost or Missing Certificates
If a holder desires to tender Old Notes pursuant to the Exchange Offer but
the certificates evidencing such Old Notes have been mutilated, lost, stolen
or destroyed, such holder should write to or telephone the Exchange Agent
about procedures for promptly obtaining replacement certificates for such Old
Notes, arranging for indemnification or any other matter that requires
handling by the Trustee.
Other Matters
Notwithstanding any other provision of the Exchange Offer, the exchange of
New Notes for Old Notes pursuant to the Exchange Offer will occur only after
timely receipt by the Exchange Agent of a book-entry confirmation with respect
to such Old Notes, or receipt of the certificates for tendered Old Notes
together with a properly completed and duly executed Letter of Transmittal in
proper form (or a facsimile thereof) and any other required documents.
The tender of Old Notes pursuant to the procedures described above, and
acceptance thereof by the Company, will constitute a binding agreement between
the tendering beneficial owners and the Company upon the terms and subject to
the conditions of the Exchange Offer.
Subject to and effective upon the acceptance for exchange of Old Notes, by
executing and delivering a Letter of Transmittal, a tendering holder of Old
Notes (i) irrevocably sells, assigns and transfers to, or upon the order of,
the Company all right, title and interest in and to all the Old Notes tendered
thereby and (ii) irrevocably constitutes and appoints the Exchange Agent the
true and lawful agent and attorney-in-fact of such holder (with full knowledge
that the Exchange Agent also acts as agent of the Company) with respect to
such tendered Old Notes, with full power of substitution and resubstitution
(such power of attorney being deemed to be an irrevocable power coupled with
an interest) to (a) deliver certificates representing such Old Notes, or
transfer ownership of such Old Notes, on the account books maintained by DTC,
together, in any such case, with all accompanying evidences of transfer and
authenticity, to or upon the order of the Company, (b) present such Old Notes
for transfer on the Old Note register and (c) receive all benefits or
otherwise exercise all rights of beneficial ownership of such Old Notes, all
in accordance with the terms of the Exchange Offer.
All questions as to the form of all documents and the validity (including
time of receipt) and acceptance of all tenders and withdrawals of Old Notes
will be determined by the Company in its sole discretion, which determination
shall be final and binding. Alternative, conditional or contingent tenders
will not be considered valid. The Company reserves the absolute right to
reject any or all tenders of Old Notes that are not in proper form or the
acceptance of which would, in the opinion of the Company management, be
unlawful. The
17
<PAGE>
Company also reserves the right to waive any defects, irregularities or
conditions of tender as to particular Old Notes without waiving the defects,
irregularities or conditions of tender as to other Old Notes. The Company's
interpretations of the terms and conditions of the Exchange Offer (including
the instructions in the Letter of Transmittal) will be final and binding. Any
defect or irregularity in connection with tenders of Old Notes must be cured
within such reasonable time as the Company determines, unless waived by the
Company. Tenders of Old Notes shall not be deemed to have been made until all
defects and irregularities have been waived by the Company or cured. None of
the Company, the Exchange Agent or any other person will be under any duty to
give notice of any defects or irregularities in tenders of Old Notes, or will
incur any liability to holders of Old Notes for failure to give any such
notice.
WITHDRAWAL OF TENDERS
Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at any
time prior to the expiration of the Exchange Offer but are thereafter
irrevocable. If the Company either (i) reduces the principal amount of Old
Notes subject to the Exchange Offer or (ii) increases or decreases the
consideration offered in exchange for the Old Notes, and if, at the time that
notice of such reduction, increase or decrease is first published, sent or
given to holders of Old Notes in the manner specified herein, the Exchange
Offer is scheduled to expire at any time earlier than the expiration of a
period ending on the tenth business day from, and including, the date that
such notice is first so published, sent or given, then the Exchange Offer will
be extended until the expiration of such period of ten business days.
Any holder who tenders Old Notes may withdraw them by delivery of a written
notice of withdrawal or revocation, as applicable, subject to the limitations
described herein. To be effective, a written or facsimile transmission of the
notice of withdrawal of a tender must either be made pursuant to DTC's ATOP
procedures or (i) be received by the Exchange Agent, at one of the addresses
specified below under the caption "--Exchange Agent," prior to the expiration
of the Exchange Offer, (ii) specify the name of the registered holder of the
Old Notes to be withdrawn, (iii) contain a description of the Old Notes to be
withdrawn, the certificate numbers shown on the particular certificates
representing such Old Notes, and the aggregate principal amount represented by
such Old Notes, and (iv) be signed by the holder of such Old Notes in the same
manner as the original signature on the Letter of Transmittal (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee register the transfer of the Old Notes into the
name of the person withdrawing such Old Notes. The signature(s) on the notice
of withdrawal of any tendered Old Notes must be guaranteed by an Eligible
Institution unless such Old Notes have been tendered for the account of an
Eligible Institution. If the Old Notes to be withdrawn have been delivered or
otherwise identified to the Exchange Agent, a signed notice of withdrawal is
effective immediately upon receipt by the Exchange Agent of written or
facsimile transmission of the notice of withdrawal even if physical release is
not yet effected.
A withdrawal of a tender of Old Notes may not be rescinded, and Old Notes
properly withdrawn will not be deemed to be validly tendered for purposes of
the Exchange Offer. However, withdrawn Old Notes may be retendered by
repeating the applicable procedures for tendering described above at any time
on or prior to the expiration of the Exchange Offer.
All questions as to the form and validity (including time of receipt) of any
delivery or withdrawal of a tender will be determined by the Company in its
sole discretion, which determination shall be final and binding. None of the
Company, the Exchange Agent or any other person will be under any duty to give
notification of any defect or irregularity in any delivery or withdrawal of a
tender or incur any liability for failure to give any such notification.
CONDITION TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company will
not be required to accept any Old Notes tendered in connection with the
Exchange Offer, and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Old Notes, if any legal or governmental
action, any law, statute,
18
<PAGE>
rule or regulation or any interpretation thereof by the staff of the
Commission might, in the Company's sole judgment, prohibit the Exchange Offer
or otherwise materially impair the ability of the Company to proceed with the
Exchange Offer.
The foregoing condition is for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
conditions or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. Any determination by the Company
concerning the events described above will be final and binding upon all
parties. See "Registration Rights."
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange Agent
for the Exchange Offer. Completed Letters of Transmittal, together with
certificates evidencing Old Notes and any other documents required by the
Letter of Transmittal, as well as all correspondence in connection with the
Exchange Offer, should be addressed to the Exchange Agent, as follows:
UNITED STATES TRUST COMPANY OF NEW YORK
By Mail: By Facsimile By Hand:
Transmission:
United States Trust Company (212) 420-6152 United States Trust
of New York Company of New York
P.O. Box 844 111 Broadway
Cooper Station Lower Level
New York, NY 10276-0844 Corporate Trust Window
New York, NY
Confirm by telephone:
(800) 548-6565
By Overnight Courier:
United States Trust Company of New York
770 Broadway
New York, NY 10003
Attention: Corporate Trust
PAYMENT OF EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone or in person by officers and regular employees of
the Company and its affiliates.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of the Old Notes, and in handling or forwarding
tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company, and are estimated in the aggregate to be $190,000,
including fees and expenses of the Exchange Agent and the Trustee and
printing, accounting and legal fees.
19
<PAGE>
UNAUDITED PRO FORMA DATA
The following Pro Forma Statement of Operations for the year ended December
31, 1996, gives effect to the Refinancing as if each transaction in the
Refinancing had taken place on January 1, 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------
ACTUAL ADJUSTMENTS AS ADJUSTED
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................ $267,793 $ -- $267,793
Cost of goods sold....................... 224,789 (5,593)(a) 225,012
5,816 (b)
-------- ------- --------
Gross profit........................... 43,004 (223) 42,781
Selling, general and administrative ex-
penses.................................. 28,829 (448)(c) 28,817
436 (d)
Plant rationalization and realignment.... 6,500 6,500
-------- ------- --------
Operating income....................... 7,675 (211) 7,464
Other income (expense):
Interest income........................ 102 102
Interest expense....................... (12,886) (583) (13,469)(e)
Loss on disposal of assets............. (366) (366)
-------- ------- --------
Total other income (expense)......... (13,150) (583) (13,733)
-------- ------- --------
Loss before income taxes and extraordi-
nary item............................. (5,475) (794) (6,269)
Income tax benefit....................... 1,876 1,876
-------- ------- --------
Loss before extraordinary item(f)...... $ (3,599) $ (794) $ (4,393)
======== ======= ========
</TABLE>
- ---------------------
(a) Reflects reduction in depreciation expense resulting from the
Sale/Leaseback.
(b) Represents lease expense resulting from the Sale/Leaseback.
(c) Reflects the elimination of amortization expense due to the write-off of
deferred fees related to the 10 3/4% Notes.
(d) Represents amortization expense for goodwill arising from the purchase of
34 PCI common shares by Continental Can from Merrywood, assuming such
goodwill is amortized over a period of 40 years.
(e) Pro forma interest expense is computed as follows:
<TABLE>
<S> <C>
Actual interest expense........................................... $ 12,886
Less: Interest on 10 3/4% Notes................................... (11,255)
Interest expense on Revolving Credit Facility................... (1,162)
Add: Interest on Senior Secured Notes at 10%...................... 12,500
--------
Cash interest expense........................................... 12,969
Add: Amortization of deferred financing fees...................... 500
--------
Pro forma interest expense...................................... $ 13,469
========
</TABLE>
(f) In the fourth quarter of 1996, the Company incurred an extraordinary
charge of $7,305 in connection with the early retirement of the 10 3/4%
Notes in the Tender Offer and the Redemption and the write-off of the
related unamortized deferred financing fees.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1992 1993 1994 1995 1996
(DOLLARS IN THOUSANDS; UNITS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................. $ 200,742 $207,035 $230,480 $277,061 $ 267,793
Cost of goods sold........ 169,755 175,455 192,580 237,668 224,789
--------- -------- -------- -------- ---------
Gross profit.............. 30,987 31,580 37,900 39,393 43,004
Selling, general and
administrative expenses.. 29,159 27,820 28,480 30,059 28,829
Plant rationalization and
realignment.............. 159 (134) 855 (98) 6,500
--------- -------- -------- -------- ---------
Operating income.......... 1,669 3,894 8,565 9,432 7,675
Interest expense, net..... (10,979) (11,929) (11,629) (11,586) (12,784)
(Loss) gain on disposal of
assets................... 363 (147) (350) (346) (366)
--------- -------- -------- -------- ---------
Loss before income taxes
and extraordinary loss... (8,947) (8,182) (3,414) (2,500) (5,475)
Income tax benefit........ 971 1,473 1,631 2,505 1,876
--------- -------- -------- -------- ---------
Income (loss) before
extraordinary items and
accounting changes....... (7,976) (6,709) (1,783) 5 (3,599)
Extraordinary items and
accounting changes....... (3,005) -- (742) (230) (7,305)
--------- -------- -------- -------- ---------
Net loss.................. $ (10,981) $ (6,709) $ (2,525) $ (225) $ (10,904)
========= ======== ======== ======== =========
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
(DOLLARS IN THOUSANDS; UNITS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(1)............... $ 28,251 $ 29,623 $ 33,622 $ 33,465 $ 28,984
EBITDA adjusted for
plant rationalization
and realignment
costs(2)............... 28,410 29,489 34,477 33,367 35,484
Cash flows from (used
in):
Operating activities... 13,094 9,139 17,592 12,495 24,546
Investing activities... (17,463) (15,903) (14,898) (30,345) (10,511)
Financing activities... 9,903 (107) (5,480) 16,533 (3,285)
Depreciation and
amortization........... 26,582 25,729 25,057 24,033 21,309
Units shipped........... 1,206 1,227 1,316 1,452 1,528
Capital expenditures:
Maintenance............ $ 6,615 $ 5,008 $ 3,689 $ 6,607 $ 5,975
Growth................. 11,274 11,067 11,300 24,086 15,265
-------- -------- -------- -------- --------
Total................ $ 17,889 $ 16,075 $ 14,989 $ 30,693 $ 21,240
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges(3)....... -- (4) -- (4) -- (4) -- (4) -- (4)
PRO FORMA DATA:(5)
EBITDA(1)............... -- -- -- -- $ 23,168
EBITDA adjusted for
plant rationalization
and realignment
costs(2)............... -- -- -- -- 29,668
Cash flows from (used
in):...................
Operating activities... -- -- -- -- 18,647
Investing activities... -- -- -- -- (10,511)
Financing activities... -- -- -- -- (3,285)
Ratio of net debt to
EBITDA................. -- -- -- -- 5.08x
Ratio of net debt to
EBITDA adjusted for
plant rationalization
and realignment costs.. -- -- -- -- 3.97x
Ratio of earnings to
fixed charges(3)....... -- -- -- -- -- (6)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
BALANCE SHEET DATA:
<S> <C>
Working capital............................................... $ 25,302
Property, plant and equipment, net............................ 102,245
Total assets.................................................. 205,650
Total debt (including current portion)........................ 129,982
Stockholders' equity.......................................... 14,214
</TABLE>
- ---------------------
(1) "EBITDA" is defined as operating income plus depreciation and
amortization. Management believes that EBITDA information is commonly
reported and widely used by investors and other interested parties because
EBITDA is a useful measure for comparing operating performance and debt
servicing ability on a consistent basis without regard to depreciation and
amortization, which can vary significantly depending upon accounting
methods (particularly when acquisitions are involved) or nonoperating
factors (such as historical cost). However, the Company's EBITDA as
presented herein may not be comparable in all instances to other similar
types of measures used by other companies.EBITDA should not be considered
as an alternative to operating income or net loss (as determined in
accordance with generally accepted accounting principles) as a measure of
the Company's operating performance, or as an alternative to net cash
provided by operating, investing and financing activities (as determined
in accordance with generally accepted accounting principles) as a measure
of its ability to meet cash needs. The Company's Revolving Credit Facility
contains certain covenants incorporating the same definition of EBITDA.
(2) EBITDA adjusted for plant rationalization and realignment is presented
because management believes that it is useful for comparing EBITDA
information without regard to this non-recurring charge.
(3) For purposes of determining the ratio of earnings to fixed charges,
earnings consist of earnings from continuing operations before income
taxes and extraordinary items plus fixed charges. Fixed charges consist of
interest expense, amortization of deferred financing fees, and that
portion of lease rental expense representative of the interest factor.
(4) Earnings were insufficient to cover fixed charges for the years ended
December 31, 1992, 1993, 1994, 1995 and 1996 by $8,947, $8,182, $3,414,
$2,500 and $5,475, respectively.
(5) Gives pro forma effect to the Refinancing as if each transaction in the
Refinancing had taken place on January 1, 1996. On a pro forma basis,
EBITDA and cash flows from operating activities are negatively impacted by
the lease expense adjustment. See "Unaudited Pro Forma Data."
(6) On a pro forma basis, earnings were insufficient to cover fixed charges
by $6,269 for the year ended December 31, 1996.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
GENERAL
The Company is a leader in developing, manufacturing and marketing a wide
range of custom extrusion blow-molded plastic containers for food and juice,
household chemicals, automotive products and motor oil, industrial and
agricultural chemicals, and hair care products. The Company manufactures
single and multi-layer containers, primarily from HDPE and PP resins, ranging
in size from two ounces to two and one-half gallons. Management believes that,
based on revenues, the Company is among the largest U.S. manufacturers of
extrusion blow-molded plastic containers for (i) food and juice, (ii)
automotive motor oil and (iii) household chemical products.
Approximately 80% of the Company's 1996 sales were made under contracts with
customers with remaining terms of up to five years. In most cases, contracts
are renewed or replaced by new contracts prior to expiration. The terms of the
contracts, including any minimum purchasing requirements and the customers'
ability to cancel, vary greatly with no accepted norm except for pass-throughs
of raw material price increases and decreases.
PCI's principal raw materials are HDPE and PP resins, which are delivered to
PCI in pellet form. During periods of tighter supply, PCI is typically able to
procure sufficient quantities of resins to supply all of its customers' needs.
PCI's dollar profit is substantially unaffected by fluctuations in resin
prices because changes in resin prices are passed through to customers by
means of corresponding changes in product pricing.
The Company was organized in October 1991 for the purpose of acquiring the
Continental Plastic Container Companies. In November 1991, PCI purchased all
the issued and outstanding capital stock of the Continental Plastic Container
Companies in a transaction involving total consideration of $150,450 (the
"Acquisition"). The Company is currently 84% owned by Continental Can, a
publicly-held company which is principally engaged, through its subsidiaries,
in manufacturing materials and containers used in the packaging industry. See
"Ownership of PCI."
RESULTS OF OPERATIONS
1996 COMPARED WITH 1995
Net Sales. Net sales in 1996 decreased $9,268 (3.3%) to $267,793, compared
to 1995 net sales of $277,061. The decrease in sales was the result of lower
raw material costs that were passed on to customers in the form of lower
prices. Lower resin prices accounted for lower sales of approximately $9,400
in 1996 compared to 1995. Total unit volume for 1996 increased 5.1% compared
to 1995; however, this increase did not have a significant impact on total
sales due to changes in product mix. The increase in total unit volume was the
result of a unit volume increase in automotive and motor oil containers of
26.4%, offset by unit volume decreases in household chemical containers and
food and juice containers of 3.0% and 3.5%, respectively. Automotive and motor
oil containers are generally smaller and lower priced than household chemical
or food and juice containers.
Gross Profit. Gross profit in 1996 was $43,004, an increase of $3,611 (9.2%)
over gross profit of $39,393 in 1995. The increase in gross profit in 1996
resulted primarily from productivity improvements and increased efficiencies,
leading to a reduction in manufacturing costs. Higher than normal
manufacturing costs were incurred in 1995 due to start-up expenses and
inefficiencies associated with a large number of capital projects that took
place during the first nine months of 1995. These projects impacted
performance at the majority of PCI's manufacturing locations. PCI had been
awarded contracts with a number of its major customers that required new
installations and changes to many of its existing lines. These awards were a
result of PCI's successful sales and marketing efforts to increase volume, but
unfortunately all occurred during a relatively short period of time. Technical
and engineering resources were not available to simultaneously handle all of
the installations.
22
<PAGE>
Abnormal levels of installation-related expenses for hiring and training
hundreds of new employees and the resulting learning curve costs and general
inefficiencies continued through the last six months of 1995. The assimilation
of the new product lines was substantially completed by the end of 1995. This,
coupled with a number of other productivity enhancements implemented during
1996, resulted in the significant year-to-year improvement.
Gross profit as a percentage of net sales was 16.1% in 1996 compared to
14.2% in 1995. The increase in gross profit percentage was the result of the
decrease in sales associated with lower resin prices as well as the reduction
in manufacturing costs. Excluding the impact of lower resin prices on sales,
gross profit percentage in 1996 would have been 15.5%.
SG&A. Selling, general and administrative (SG&A) expense in 1996 decreased
$1,230 (4.1%) to $28,829, compared to $30,059 in 1995. The decrease reflects
higher levels of spending in 1995 to support an increase in new business as
well as the Company's efforts in 1996 to reduce SG&A expense in several areas.
SG&A expense as a percentage of net sales was 10.8% in both 1996 and 1995,
reflecting a decrease in sales resulting from lower material costs, offset by
lower SG&A expense in 1996. Excluding the impact of lower resin prices on
sales, SG&A as a percentage of net sales in 1996 would have been 10.4%.
Plant Rationalization and Realignment. During 1996, PCI recorded charges
amounting to $6,500 for plant rationalization and realignment in connection
with plans to consolidate certain manufacturing operations. The Company closed
one plant in 1996 and will close another plant by the end of the first quarter
of 1997. Production from these plants is being transferred to other existing
facilities. The components of the $6,500 charge include approximately $1,400
for employee severance costs, approximately $1,600 for an impairment loss
relating to fixed assets, and approximately $3,500 for non-cancellable lease
obligations and related facility closing costs. The consolidations are
expected to result in higher equipment utilization, improved productivity and
lower operating costs. For further discussion of this consolidation, see Note
3 of the Notes to Consolidated Financial Statements appearing elsewhere in
this Prospectus.
Other Expense. Other expense in 1996 was $13,150, an increase of $1,218
(10.2%) compared to $11,932 in 1995. This increase resulted primarily from an
increase in interest expense due to additional short-term borrowings
outstanding during 1996.
Income Tax Benefit. Income tax benefit was $1,876 in 1996 compared to $2,505
in 1995. For further discussion of the Company's accounting for income taxes,
see "Utilization of Net Operating Loss Carry- forwards" below.
Extraordinary Loss. The Company incurred an extraordinary loss in the fourth
quarter of 1996 of $7,305 related to the purchase and redemption of the 10
3/4% Notes. The loss consists of the premium paid to purchase the notes and
the write-off of the related unamortized deferred financing fees.
Net Loss. Net loss in 1996 was $10,904, compared to a net loss of $225 in
1995. The loss in 1996 was the result of the charges for plant rationalization
and realignment and the extraordinary loss, which combined to negatively
impact net income by $11,578.
1995 COMPARED WITH 1994
Net Sales. Net Sales in 1995 increased $46,581 (20.2%) to $277,061, compared
to 1994 net sales of $230,480. Sales growth was due in part to increases in
unit volume of 10.2% in 1995 compared to 1994. Increases in unit volumes were
experienced in most of the Company's markets, including a 10.3% increase in
household chemical containers, a 9.2% increase in food and juice containers, a
4.6% increase in automotive and motor oil containers, and a 93.1% increase in
hair care containers. Additional sales growth is due to increases in raw
material costs that are passed on to customers in the form of higher prices.
Higher resin prices accounted for approximately $23,000, or 10.0%, of sales
growth in 1995.
Gross Profit. Gross profit increased $1,493 (3.9%) to $39,393 in 1995,
compared to $37,900 in 1994. Gross profit as a percentage of sales was 14.2%
in 1995 compared to 16.4% in 1994. The decrease in gross
23
<PAGE>
profit percentage was due in part to increased revenues associated with higher
resin prices. As discussed above, additional revenues attributed to increases
in resin prices are a direct pass through of raw material cost increases to
customers and do not result in a corresponding increase in gross profit
dollars. Excluding the impact of higher resin prices, the gross profit
percentage for 1995 would have been 15.5%. Contributing to the lower gross
profit percentage in 1995 was also an increase in manufacturing costs.
Manufacturing costs increased as a percentage of sales in 1995 due to
inefficiencies experienced in incorporating additional sales volume in certain
plants. The increased volume required installation of additional lines at
these plants, resulting in substantial amounts of installation-related
expenses. These expenses were incurred primarily in the third quarter of 1995
and by the fourth quarter manufacturing expense as a percentage of sales had
returned to a level comparable to 1994.
SG&A. SG&A expenses increased $1,579 (5.5%) to $30,059 in 1995, compared to
$28,480 in 1994. Travel, hiring, and other related expenses increased in 1995
to support the additional sales volume and plant expansion activity. Expenses
for professional services also increased approximately $600 in 1995. SG&A
expense as a percent of sales was 10.8% in 1995 compared to 12.4% in 1994. The
decline in the percentage was due to the increase in sales and the relatively
fixed nature of a majority of these expenses.
Operating Income. Operating income increased $867 (10.1%) to $9,432 in 1995,
compared to $8,565 in 1994. This increase resulted from the excess of
additional gross profit dollars generated from the increased sales over the
increase in SG&A costs. Operating income as a percentage of sales was 3.4% in
1995 compared to 3.7% in 1994. Excluding the effect of higher resin prices on
sales, operating income as a percentage of sales would have been 3.7% in 1995.
Other Income/Expenses. Other income/expenses remained stable in 1995
compared to 1994. A decrease in interest expense related to the retirement of
$5,300 principal amount of the 10 3/4% Notes in 1994, was offset by an
increase in interest expense from a higher average outstanding balance on the
Revolving Credit Facility during 1995.
Income Taxes. Income tax benefit was $2,500 in 1995 compared to $1,631 in
1994. For further discussion of the Company's accounting for income taxes, see
"Utilization of Net Operating Loss Carryforwards" below.
Extraordinary Loss. PCI incurred an extraordinary loss in 1995 related to
the early extinguishment of a revolving credit facility. The loss resulted
from the write-off of remaining deferred financing fees associated with the
facility.
Net Loss. Net loss was $225 in 1995 compared to $2,525 in 1994. This
improvement resulted primarily from the increase in operating income and tax
benefit in 1995. Net loss in 1994 was also impacted by a charge of $525
related to an accounting change.
CAPITAL REQUIREMENTS
PCI acquired $21,240 in capital assets in 1996, compared to $30,693 in 1995.
Substantially all of the assets acquired were packaging equipment for the
manufacture of plastic containers or related support equipment. Capital
expenditure levels in both 1996 and 1995 were higher than normal due to the
addition of the Company's Atlanta facility in 1996 and plant expansions in
several locations in 1995. In contrast, capital expenditures in 1994 were
$14,989. Capital expenditures in 1997 are expected to be at a level consistent
with 1994.
The capital requirements in 1996 were met with cash generated from
operations, from existing funds and from borrowings under existing credit
facilities. It is anticipated that capital expenditures in 1997 will be funded
in the same manner.
24
<PAGE>
LIQUIDITY
The Company's primary sources of liquidity are provided through the
Revolving Credit Facility of $50,000 and cash flow from operations. At
December 31, 1996, and March 17, 1997, the Company had no borrowings
outstanding under the Revolving Credit Facility and had invested cash and cash
equivalents of approximately $12,000 and $20,000, respectively. The increase
in cash and cash equivalents is the result of cash generated from operations
and reduced levels of capital spending.
The Revolving Credit Facility has a term of seven years expiring October 31,
2002. Interest is based on the bank's prime rate or LIBOR, at the Company's
option. At December 31, 1996, and March 17, 1997, the Company had undrawn
availability under the Revolving Credit Facility of approximately $30,600 and
$30,300, respectively.
During the fourth quarter of 1996, the Company engaged in the Refinancing.
See "The Refinancing." A portion of the net proceeds from the Sale/Leaseback
and the Old Note Offering were used to make a $30,000 loan to Continental Can.
See "Use of Proceeds." The loan was used by Continental Can to purchase 34 of
the 50 PCI shares owned by Merrywood, increasing Continental Can's ownership
of PCI shares to 84%. See "The Refinancing--The Continental Can Loan" and
"Ownership of PCI." There is no obligation on the part of PCI to loan any
additional funds to Continental Can, including funds necessary for Continental
Can to purchase the remaining 16% interest in the Company on or before
December 31, 2000. In addition to providing funds to make the Continental Can
Loan, the Refinancing enabled the Company to reduce borrowing costs and
improve liquidity.
During the second quarter of 1996, tax-exempt industrial development revenue
bonds of $5,100 were issued on behalf of the Company to finance equipment
purchases in conjunction with the opening of a new manufacturing facility.
Under a capital lease arrangement, principal and interest at 5.80% is payable
monthly through April 2002.
The Company's working capital was $25,302 at December 31, 1996, compared to
$244 at December 31, 1995. The increase in working capital is the result of
improved cash flows from operations, a reduction in the level of capital
spending and net proceeds from the Refinancing. Cash generated by these
activities allowed the Company to eliminate borrowings under the Revolving
Credit Facility and provided excess cash that is available for working capital
and other purposes. Cash flows from operations were negatively impacted in
1995 as a result of a one-time pension contribution of $10,000.
Management believes the funding expected to be generated from operations and
provided by existing credit facilities will be sufficient to service its
indebtedness (including the Senior Secured Notes) and meet the Company's
working capital and capital investment needs for the foreseeable future.
UTILIZATION OF NET OPERATING LOSS CARRYFORWARDS
PCI accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires, among other things, recognition of future tax benefits, measured
by enacted tax rates, attributable to deductible temporary differences between
financial statement and income tax bases of assets and liabilities and to tax
net operating loss carryforwards ("NOLs"), to the extent that realization of
such benefits is more likely than not.
At December 31, 1996, PCI had NOLs totaling approximately $50,000, which
expire between 2007 and 2010. These NOLs were generated primarily from
increased depreciation, amortization and interest related to the Acquisition.
Prior to the Acquisition, the Continental Plastic Container Companies were
consistently profitable. Noncompete agreements related to the Acquisition with
annual amortization of approximately $3,000 became fully amortized in 1996. In
addition, certain fixed assets will also become fully depreciated within the
next two years. In assessing the utilization of the NOLs, management projects
future taxable income over the periods in which the NOLs can be utilized,
considers the scheduled reversal of deferred tax liabilities, and also
considers tax planning strategies that are available to the Company. Based
upon this assessment, management believes it is more likely than not the
Company will utilize at least $29,500 of the NOLs prior to their ultimate
expiration in the year 2010.
25
<PAGE>
INFLATION AND CHANGING PRICES
PCI's sales and costs are subject to inflation and price fluctuations.
However, since changes in the cost of plastic resin, PCI's principal raw
material, are passed through to customers, such changes have equal and
offsetting effects on sales and cost of goods sold and therefore, have no
material effect on PCI's earnings and cash flow; such changes can have a
substantial impact on PCI's sales.
BUSINESS
GENERAL
The Company is a leader in developing, manufacturing and marketing a wide
range of custom extrusion blow-molded plastic containers for food and juice,
household chemicals, automotive products and motor oil, industrial and
agricultural chemicals, and hair care products. The Company manufactures
single and multi-layer containers, primarily from HDPE and PP resins, ranging
in size from two ounces to two and one-half gallons. Management believes that,
based on revenues, the Company is among the largest U.S. manufacturers of
extrusion blow-molded plastic containers for (i) food and juice, (ii)
automotive motor oil and (iii) household chemical products.
In 1996, PCI sold over 1.5 billion containers to national consumer product
companies. The Company often is the sole supplier of a customer's container
requirements for specific product categories or for particular container
sizes. The Company has long-standing relationships with most of its customers
and has long-term contractual agreements with remaining terms of up to five
years with customers who represent approximately $215.0 million, or 80%, of
the Company's fiscal 1996 dollar sales volume. All of these contracts provide
for changes in raw material prices to be passed through to the customer.
Contracts representing approximately 22% of the Company's 1996 dollar sales
volume expire in 1997.
COMPETITIVE STRENGTHS
Management believes that the Company possesses several attributes which
contribute to its position as a leading manufacturer of plastic containers for
food and juice, household chemicals, automotive products and other products,
including:
Strong Customer Relationships and Long-Term Production Contracts. Management
believes that the Company's strong and long-standing customer relationships
are due to its nationwide manufacturing facilities, proven ability to develop
and manufacture innovative products, and competitive pricing. The Company's
five largest customers (Procter & Gamble, Coca-Cola Foods, Mobil Oil, Pennzoil
and Quaker State) have been customers of the Company for an average of
approximately 15 years.
Customer-Focused Product Development. PCI works closely with its customers
in all phases of product design and production and, since 1992, has spent
approximately $46.0 million on research, development and engineering
activities. Examples of the Company's major product innovations include
Conolene(TM) fluorine treated barrier bottles (for use in certain applications
where the contents would otherwise damage an untreated plastic container) and
Lamicon(TM) multi-layer oxygen barrier bottles (for use in certain
applications where the contents would be harmed by prolonged exposure to
oxygen). Other PCI innovations include the first plastic containers for
numerous products, such as motor oil, anti-freeze, maple syrup, edible oil,
gasoline additives and herbicides. These innovations were commercially
developed at the Company's Elk Grove, Illinois technical center, where
approximately 80 employees are engaged in research, development and
engineering activities and which management believes provides the Company with
a competitive advantage.
26
<PAGE>
State-of-the-Art Manufacturing Technologies. Management believes that PCI is
among the container industry's technology leaders and as such is able to
improve manufacturing efficiencies and lower unit costs. The Company was among
the first to develop and utilize a "wheel" manufacturing process employing
container molds mounted radially on a wheel. Many of PCI's current wheels
include proprietary improvements which permit them to operate at higher speeds
and to more efficiently manufacture containers with special features such as
multiple layers and in-mold labeling (which allows a customer's label to be
incorporated into the bottle at its formation rather than be attached with
adhesive at a later stage of the manufacturing process, thereby enhancing the
appearance of the label). As a result of these improvements, since 1991 the
Company has achieved approximately a 28% increase in productivity, as measured
by pounds of resin processed per employee. In addition, major production
advances commercially developed by PCI include the dual parison blow-molding
process, which allows up to four bottles to be made in a single mold,
automatic on-line testing equipment, robotic product handling equipment, sonic
welding (a proprietary technology to place insulated handles on microwavable
bottles), custom color matching and advanced bottle trimming techniques.
Strategically Located Facilities. The Company serves its customers through a
network of 15 plants located in the continental United States and one plant
located in Puerto Rico. In many cases, the Company's facilities are located
adjacent to or in close proximity to its largest customers' manufacturing
operations, thereby creating production and distribution efficiencies.
Management believes that the Company's national network of manufacturing
facilities is an important competitive advantage because of (i) customer
requirements for nationwide production capabilities, (ii) the significance of
transportation costs, and (iii) the importance of frequent, timely product
deliveries to its customers, many of whom have implemented "just-in-time"
inventory management techniques.
BUSINESS STRATEGY
The Company's business strategy is to leverage its core competencies in the
development, manufacture and marketing of extrusion blow-molded containers
through: (i) continued cost reduction and increased productivity; (ii) new
product development focused on the industry trend towards the conversion to
plastic packaging from glass, metal and other materials; and (iii) the
development of strategic partnerships with customers.
Continue Cost Reduction and Increase Productivity. Management continually
seeks opportunities to reduce costs and maintains several technology driven
programs which are dedicated to productivity improvements. For example, the
Company is expected to realize significant cost savings through the closing of
two production facilities. One such facility was closed in October 1996, and
the other facility is scheduled to close by the end of the first quarter of
1997. The Company incurred a one-time plant rationalization and realignment
charge of $6.5 million in 1996, and although there can be no assurance,
management anticipates that the Company will realize annual savings of
approximately $5.0 million as a result of such plant rationalization and
realignment. Management further anticipates no material loss in unit volume or
net sales from these closings, as substantially all related production volume
is being transferred to other Company facilities. The Company has also focused
on rigorous control of selling, general and administrative expenses resulting
in a reduction of such expenses to 10.8% of net sales in the year ended
December 31, 1996, from 14.5% in the year ended December 31, 1992.
Capitalize on Conversion from Glass and Metal Containers. Management
believes that PCI can capitalize on the continuing trend towards the
substitution of plastic for glass and metal containers. This trend is
primarily a function of the greater satisfaction with plastic bottles due to
their (i) lighter weight, (ii) lower susceptibility to breakage in comparison
to glass containers, (iii) special spouts and built-in handles, which increase
"pourability" for larger bottles, and (iv) superior on-shelf product
presentation, which facilitates product differentiation. The Company has
developed a number of products aimed at sectors traditionally served by glass
or metal containers, including one gallon Lamicon(TM) juice containers,
plastic replacements for large cans used in the food service industry, and
juice concentrate bottles used in dispensing machines.
27
<PAGE>
Develop Customer Partnerships. In response to customers' increasing focus on
outsourcing non-core activities, management intends to expand customer
partnerships through vendor management programs. In 1995, the Company entered
into a five-year vendor management agreement with Mobil Oil under which the
Company supplies 100% of Mobil Oil's quart containers for motor oil and
manages related packaging materials. This program provides comprehensive
packaging services to Mobil Oil, including, in addition to bottle manufacture,
the purchase and inventory management of labels, closures and cartons. The
Company also provides technical support for all packaging components to insure
a high level of quality. The Company is in discussions with other customers
regarding similar alliances.
CUSTOMERS
Substantially all of PCI's sales are made to major consumer products
companies. PCI in many cases is the sole supplier of substantially all of its
customers' container requirements for specific products or particular
container sizes.
In 1996, PCI's ten largest customers, which accounted for approximately 74%
of sales, were (in alphabetical order):
Clorox Pace Foods
Pennzoil
Coastal Unilube
Coca-Cola Foods Procter & Gamble
Colgate-Palmolive Quaker State
Mobil Oil
Solaris/Ortho
PCI often has more than one contract with a particular customer. PCI may
have individual contracts for specific products or container sizes or, in
certain instances, separate contracts with one or more operating divisions of
a single customer. As a result, PCI currently has 15 contracts with the ten
customers listed above, of which nine contracts are with its three largest
customers, Procter & Gamble, Coca-Cola Foods and Mobil Oil (which were the
only customers which accounted for more than 10% of PCI's revenues during
1996); the largest such contract accounted for $28.8 million in net sales in
1996 and expires in 1998.
PRODUCTS
PCI currently manufactures primarily HDPE containers and PP containers. In
1996, HDPE containers accounted for approximately 89% of the total number of
containers manufactured by PCI and PP containers accounted for approximately
10% of such total. PCI also manufactures at its plant in Puerto Rico a small
quantity of two-liter soda bottles made from polyethylene terephthalate
("PET").
HDPE containers are utilized for products such as laundry detergents,
dishwashing liquids, shampoo, automotive motor oil and some food products;
they may consist of a single layer of plastic or up to six layers for
specialized uses. Multi-layer containers may be required in order to include a
layer with barrier properties, to permit the inclusion of recycled materials
or to reduce cost by limiting the use of colorant to the single exterior
layer. PCI's Conolene(TM) brand of HDPE container is a two-layer container;
the inner layer has been exposed to fluorine/nitrogen gas which makes the
container suitable for storing insecticides and chemicals which would
otherwise cause a standard HDPE container to disintegrate. PP containers are
typically utilized for food products, such as maple syrup, ketchup, salad
dressing and salsa. PP containers are usually either single layer non-barrier
containers or multi-layer containers which include a barrier layer.
PCI's Lamicon(TM) brand of HDPE or PP container consists of six layers,
including a barrier layer of ethyl vinyl alcohol which renders the container
oxygen-tight and makes it suitable for use for food products which are subject
to spoiling or deterioration if exposed to oxygen.
28
<PAGE>
PRODUCT MARKETS
Plastic containers manufactured by PCI are utilized for four main product
categories. PCI's sales volume for 1996 in each of these product categories is
as follows:
<TABLE>
<CAPTION>
1996
------------------------
SALES SALES
VOLUME VOLUME
(IN MILLIONS) PERCENTAGE
<S> <C> <C>
Food and juice................................ $100.5 37.5%
Household chemicals........................... 70.9 26.5
Automotive and motor oil...................... 65.1 24.3
Other......................................... 31.3 11.7
------ -----
Total....................................... $267.8 100.0%
====== =====
</TABLE>
FOOD AND JUICE
The food and juice products for which PCI manufactures containers include
ketchup, maple syrup, edible oil, salsa and fruit juices. Certain of these
products (such as ketchup and salsa) require containers which include an
oxygen resistant barrier layer to prevent spoiling or deterioration. PCI's
food and juice products containers are approximately 62% single layer non-
barrier containers and 38% multi-layer containers with a barrier layer.
Because of the technical requirements involved in barrier packaging for food
and juice, this market is generally characterized by fewer competitors and
higher margins than PCI's other principal product markets.
The packaged food industry has been slow to convert to plastic containers
due to technical requirements relating to product quality, shelf-life and
product handling, and plastic containers currently comprise only a small
percentage of the food container market. However, multi-layer plastic
containers are increasingly accepted for many food products, and management
believes that the food product market presents a substantial opportunity for
future sales of plastic containers.
The Company's unit sales of containers for food and juice products have
grown at an annual compounded rate of 6.8% since 1992. PCI's strategy for the
food and juice market is to work with customers to convert them to plastic
containers for products which are now packaged in glass, metal, paper or
multi-material containers. PCI's marketing emphasizes its proprietary
technology such as Lamicon(TM) barrier containers and its position as the
industry's leading supplier of extrusion blow-molded food containers.
HOUSEHOLD CHEMICALS
The Company's containers for household chemicals consist almost entirely of
HDPE containers for laundry detergent, dishwashing liquid, bleach and fabric
softeners. The Company's unit sales of containers for household chemical
products have grown at an annual compounded rate of 1.7% since 1992. PCI's
strategy for the household chemicals market is to increase market share by
stressing technological advantages permitting the production of more
containers with custom features, and to lower production costs, thereby
allowing the Company to be price competitive. PCI markets specialized product
features such as in-mold labeling and "window stripe" bottles (with a see-
through stripe permitting visual measurement of the contents). In order to
reduce unit manufacturing costs, PCI employs dual parison production, a
process which allows up to four bottles to be made in a single mold, and
automated packing technology.
AUTOMOTIVE AND MOTOR OIL
Motor oil containers produced by PCI consist primarily of one-quart HDPE
bottles. Virtually all containers for automotive motor oil currently sold at
retail are plastic. The Company's unit sales of containers for automotive and
motor oil products have grown at an annual compounded rate of 8.3% since 1992.
As with the household chemicals market, PCI's strategy for the automotive and
motor oil market is to continue to increase its market share through unit-cost
advantages and by emphasizing product features such as "window stripes" and
in-mold labeling.
29
<PAGE>
OTHER PRODUCTS
Hair Care. The Company manufactures containers for shampoos and conditioners
for Procter & Gamble. Management believes that such containers represent an
attractive opportunity for the Company to utilize its advanced production
techniques, as hair care product manufacturers typically have demanding
container specifications. The Company's unit sales of containers for hair care
products have grown at an annual compounded rate of 22.3% since 1992.
Industrial and Agricultural. Containers manufactured for use by industrial
and agricultural manufacturers consist of containers for insect repellents and
high-strength cleaners packaged for commercial and industrial use. PCI's
corrosion-resistant Conolene(TM) containers are a leading product for this
market and PCI's marketing efforts stress the quality of containers produced
with PCI's proprietary Conolene(TM) technology. The Company's unit sales of
containers for industrial and agricultural products have grown at an annual
compounded rate of 4.1% since 1992.
MANUFACTURING AND PRODUCTION PROCESS
PCI serves its customers through a network of 15 plants located in the
continental United States and one plant located in Puerto Rico. See "--
Properties" below. In many cases, the Company's facilities are located
adjacent to or in close proximity to its largest customers' manufacturing
operations, thereby creating production and distribution efficiencies. Most of
PCI's products are shipped by common carrier to customers within a 250-300
mile radius of a given production site.
Five of the Company's plants are dedicated to single customers with which
PCI has long-standing relationships. The plants have between 2 and 13
production lines, and individual production lines within a plant are
frequently dedicated to a single customer. Of the 124 production lines
operated by PCI, 78 are currently dedicated to a particular customer's
products. The dedication of production lines is an important factor in
obtaining long-term contracts. PCI's plants (but not every production line
within a plant) generally operate 24 hours a day five days a week.
In the extrusion blow-molding production process, resin pellets are blended
with colorants or other necessary additives and fed into an extrusion machine,
which uses heat and pressure to form the resin into a round hollow tube of
molten plastic called a parison. Bottle molds mounted radially on a wheel
capture the parisons as they leave the extruder. Once inside the mold, air
pressure is used to blow the parison into the bottle shape of the mold. Over
60% of PCI's production lines are set up so that multiple extruders each
deposit a separate parison into a single mold, thus producing a multi-layered
bottle. In addition, over 60% of the production lines include in-mold labeling
equipment. The Company was among the first to develop and utilize a "wheel"
manufacturing technology. While certain of PCI's competitors also use wheel
technology in their production lines, PCI has developed a number of
proprietary improvements which management believes permit the Company's wheels
to operate at higher speeds and to manufacture more efficiently containers
with one or more special features, such as multiple layers and in-mold
labeling.
Management believes that capital investment to maintain and upgrade
property, plant and equipment is important to remain competitive. Total
capital expenditures for 1994, 1995 and 1996 were approximately $15.0 million,
$30.7 million and $21.2 million, respectively. Capital expenditure levels in
both 1996 and 1995 were higher than normal due to the addition of the
Company's Atlanta facility in 1996 and plant expansions in several locations
in 1995. Management estimates that the minimum annual capital expenditure
which would be required to maintain PCI's current facilities averages
approximately $5.0 million.
SOURCES AND AVAILABILITY OF RAW MATERIALS
All of the raw materials PCI uses have historically been available in
adequate supply from multiple sources. PCI's principal raw materials are HDPE
and PP resins, which are delivered to PCI in pellet form. During periods
30
<PAGE>
of tighter supply, PCI has been able to procure sufficient quantities of
resins to supply all of its customers' needs. PCI's dollar gross profit is
substantially unaffected by fluctuations in resin prices because industry
practice and PCI's contractual arrangements with its customers permit changes
in resin prices to be passed through to customers by means of corresponding
changes in product pricing.
PROPERTIES
PCI employs various owned and leased properties located throughout the
United States for its production facilities, corporate headquarters, technical
center and sales offices. Of the 22 domestic properties currently owned or
leased, 5 are owned and 17 are leased.
The following table sets forth the location and approximate current square
footage of PCI's production facilities:
<TABLE>
<CAPTION>
SIZE IN
LOCATION SQUARE FEET
<S> <C>
Lakeland, Florida........................................ 218,000
Elk Grove, Illinois...................................... 183,000(1)
Kansas City, Kansas...................................... 173,000
Baltimore, Maryland...................................... 151,000(1)(2)
Cincinnati, Ohio......................................... 130,000(1)
Lima, Ohio............................................... 123,000
New Market, New Jersey................................... 116,000(3)
DuPage, Illinois......................................... 104,000(1)
Santa Ana, California.................................... 103,000
Oil City, Pennsylvania................................... 96,000
Atlanta, Georgia......................................... 85,000(4)
Houston, Texas........................................... 80,000(1)
Fairfield, California.................................... 66,000
West Memphis, Arkansas................................... 60,000
Newell, West Virginia.................................... 50,000
Caguas, Puerto Rico...................................... 47,000
</TABLE>
- ---------------------
(1) The equipment located at this facility is included in the Sale/Leaseback.
See "The Refinancing--The Sale/Leaseback."
(2) CPC's obligations as lessee are secured by a first mortgage on the real
property at this facility. See "The Refinancing--The Sale/Leaseback."
(3) PCI's Cleveland, Ohio facility ceased production in October 1996. The
lease on this facility expires on August 31, 1997. PCI's New Market, New
Jersey facility is expected to cease production by the end of the first
quarter of 1997. The New Market lease expires on June 30, 1999.
(4) The equipment at this facility is leased, pursuant to a capital lease,
under an industrial revenue bond financing. Upon the termination of such
financing, the equipment at this facility will secure CPC's obligations
under the Sale/Leaseback. See "The Refinancing--The Sale/Leaseback."
----------------
PCI owns the facilities in Santa Ana, Fairfield, Oil City, Baltimore and
Puerto Rico; all others are leased.
PCI also leases its technical center in Elk Grove, Illinois (79,000 sq.
ft.), its corporate headquarters space in Norwalk, Connecticut (20,000 sq.
ft.), its accounting office space in Omaha, Nebraska (6,000 sq. ft.) and sales
offices in Cincinnati, Ohio (1,000 sq. ft.) and Houston, Texas (1,000 sq.
ft.).
31
<PAGE>
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering constitute an important part of PCI's
activities, both for development of new products and product enhancements and
for development of manufacturing technology. These efforts are undertaken by
approximately 80 Company employees principally at PCI's technical center
located in Elk Grove, Illinois. While PCI to a limited extent engages the
services of outside research and development consulting firms to assist on
specific projects, it develops the vast majority of its technical expertise
internally. Research, development and engineering expenditures were
approximately $8.1 million, $8.8 million and $9.0 million for 1996, 1995 and
1994, respectively. Management believes that continuing product and
manufacturing innovations are of major importance to meeting customer's needs
and lowering unit costs, thereby permitting the Company to remain competitive
in the plastic container market.
PCI has a large number of patents which relate to a variety of products and
processes, has pending a number of patent applications, and is licensed under
several patents owned by others. Management does not consider any patent or
group of patents relating to any particular product or process to be of
material importance to its business as a whole.
COMPETITION
PCI faces substantial competition throughout its product lines from a number
of well-established businesses operating nationally, and in certain limited
circumstances, from firms operating regionally. In most instances regional
competitors lack the technological capabilities to service national consumer
product companies. PCI's primary national competitors are Owens-Brockway (a
subsidiary of Owens-Illinois, Inc.), Graham Container Corporation, Plastipak,
Inc. and American National Can, Inc. Management believes that PCI's long-term
success is largely dependent on its ability to continue to develop product
innovations and improve its production technology and expertise through its
applied research and development capability. Other important competitive
factors are rapid delivery of products, production quality, and price.
MARKETING AND DISTRIBUTION
Substantially all of PCI's sales are made through the direct efforts of its
approximately 16 sales personnel. Sales activities are conducted from PCI's
corporate headquarters in Norwalk, Connecticut and from field sales offices
located in Houston, Texas; Cincinnati, Ohio; Elk Grove, Illinois; Santa Ana,
California; Fort Smith, Arkansas; Fairfield, California; and Lakeland,
Florida.
PCI's products are typically delivered to its customers by truck, at the
expense of the customer. Deliveries are generally made on a daily basis to
comply with its customers' "just-in-time" delivery requirements.
EMPLOYEES
The Company employed approximately 1,800 persons at December 31, 1996. A
majority of these employees are hourly workers covered by collective
bargaining agreements. PCI has not had any material labor disputes in the past
five years and considers its employee relations to be good.
In the fall of 1996, the Company entered into negotiations with the union
representing certain of the employees at its Lakeland, Florida production
facility with respect to wages and benefits. In November 1996, the Company
experienced a three-day strike at this facility, which did not disrupt or
delay the shipment of containers to customers. The union agreed that there
would be no further strikes or work stoppages prior to January 17, 1997. On
that date, the Company entered into a new three-year agreement with the union.
32
<PAGE>
ENVIRONMENTAL MATTERS
PCI's operations, in common with those of the industry generally, are
subject to numerous existing and proposed laws and governmental regulations
designed to protect the environment, particularly regarding plant wastes and
emissions and solid waste disposal. Although compliance with environmental
laws and regulations requires ongoing expenditures and remediation activities,
capital expenditures for property, plant and equipment for environmental
control activities and other expenditures for compliance with environmental
laws and regulations were not material in 1996 and are not expected to be
material in 1997. Management believes that PCI is in material compliance with
all federal, state and local environmental laws and regulations and is
currently not engaged in any remediation activities required by governmental
regulatory authorities.
A number of states and the federal government have considered or are
expected to consider legislation mandating certain rates of recycling and/or
the use of recycled materials. Some consumer products companies (including
certain customers of PCI), have responded to these governmental initiatives
and to perceived environmental concerns of consumers by using bottles made in
whole or in part of recycled plastic. Approximately 17% of the Company's resin
needs for HDPE containers are currently supplied from recycled containers.
LITIGATION
PCI is a party to various litigation matters arising in the ordinary course
of its business. The ultimate legal and financial liability of PCI with
respect to such litigation cannot be estimated with certainty but management
of PCI believes, based on its examination of such matters, experience to date
and discussions with counsel, that such ultimate liability will not be
material to the financial statements of PCI.
33
<PAGE>
MANAGEMENT
Set forth below are the names, ages and positions of the current directors
and executive officers of PCI, CPC and Caribbean:
<TABLE>
<CAPTION>
NAME AGE OFFICE
<C> <C> <S>
Donald J. Bainton...... 65 Chairman of the Board and Director of PCI, CPC and
Caribbean; President and Chief Executive Officer
of PCI.
Charles F. DiGiovanna.. 56 President and Chief Executive Officer of CPC and
Caribbean; Director of PCI, CPC and Caribbean.
Abdo Yazgi............. 44 Secretary, Director and Vice President of PCI, CPC
and Caribbean; Treasurer of PCI.
Jay W. Hereford........ 46 Vice President, Treasurer and Chief Financial
Officer of CPC and Caribbean; Assistant Treasurer
of PCI.
Samuel A. Nutile....... 63 Vice President--Manufacturing and Engineering of
CPC and Caribbean.
David M. Stulman....... 50 Vice President--Human Resources of CPC and
Caribbean.
John S. Roesch......... 55 Vice President--Sales and Marketing of CPC and
Caribbean.
J.A. Zubillaga......... 63 Vice President and General Manager of Caribbean.
Jose Luis Zapata....... 37 Director of PCI, CPC and Caribbean.
</TABLE>
Donald J. Bainton has served since November 1991 as Chairman of the Board
and a director of PCI, CPC and Caribbean, and as Chief Executive Officer of
PCI. Since July 1983, he has been principally employed as Chairman of the
Board and Chief Executive Officer of Continental Can. Prior thereto, Mr.
Bainton was Executive Vice President and a director of The Continental Group,
Inc. and President of Continental Packaging Co. Mr. Bainton devotes a majority
of his time to the affairs of Continental Can.
On November 15, 1995, Mr. Bainton settled a civil enforcement proceeding
commenced by the Securities and Exchange Commission in the United States
District Court for the Southern District of New York. This proceeding arose
out of the sale by a business associate of Mr. Bainton of the common stock of
Continental Can. Without admitting or denying the Commission's allegations,
Mr. Bainton agreed to pay a civil penalty of $30,000 and consented to the
entry of a final judgment permanently enjoining him from violating the federal
securities laws.
Charles F. DiGiovanna was appointed President and Chief Executive Officer of
CPC and Caribbean in March 1992 and was elected a director of PCI, CPC and
Caribbean in May 1994. Mr. DiGiovanna served as Chairman of the Board and
Chief Executive Officer of Darome Inc., an international telecommunications
company, from 1985 through 1990, when he became an independent consultant.
Commencing in June 1991, he rendered consulting services to Continental Can in
connection with the Acquisition. Mr. DiGiovanna is also a director of
Continental Can and Home Port Bancorp, Inc.
Abdo Yazgi has served as Secretary and a director of PCI, CPC and Caribbean,
and as Treasurer of PCI, since November 1991, and as Vice President of PCI,
CPC and Caribbean since February 1992. He has been principally employed as
Executive Vice President of Continental Can since May 1991, as a director of
Continental Can since August 1991, and as its Secretary and General Counsel
since 1979. Mr. Yazgi devotes a majority of his time to the affairs of
Continental Can.
Jay W. Hereford has served as Treasurer of CPC and Caribbean since November
1991, and, since May 1992, also as Vice President and Chief Financial Officer
of CPC and Caribbean and Assistant Treasurer of PCI. Mr. Hereford has been
employed by the Company and its predecessors since 1974.
Samuel A. Nutile served as General Manager--Manufacturing of CPC and
Caribbean from September 1993 until his appointment as Vice President--
Manufacturing in January 1994. He was appointed Vice President--Manufacturing
and Engineering in November 1994. He originally worked for CPC in various
manufacturing positions during the period from April 1956 through March 1984.
From March 1984 to September 1993, he served as President and Chief Operating
Officer of Four M Manufacturing Corporation (a manufacturer of corrugate
products) and as an independent consultant.
34
<PAGE>
David M. Stulman has served as Vice President-Human Resources of CPC since
February 1996. He originally worked for Continental Can in various human
resources positions from 1973-1987. Prior to joining CPC, he served as
Corporate Director of Human Resources of Amphenol Corporation (a manufacturer
of electronic connectors and coaxial cables for the cable television,
commercial and military/aerospace markets) from 1988 to June 1993, and as Vice
President-Human Resources of Pirelli Armstrong Tire Corporation from June 1993
to February 1996.
John S. Roesch has served as General Manager--Sales of CPC and Caribbean
from May 1992 until June 1993, as Vice President--Sales from June 1993 until
July 1996, and thereafter as Vice President--Sales and Marketing. Prior to May
1992, he served in numerous sales positions since joining CPC in 1975.
J.A. Zubillaga has served as Vice President and General Manager of Caribbean
since October 1981.
Jose Luis Zapata has served as a director of PCI since October 1991 and as a
director of CPC and Caribbean since November 1991. He served as President of
PCI from October 1991 through October 22, 1996. He has also served since 1989
as director of Corporate Finance of Taenza, S.A. de C.V., a holding company
which owns real estate and manufactures and sells plastic bottles, aluminum
cans, bottle caps, plastic closures and metal drums. Mr. Zapata is also a
Director of Continental Can. See "Ownership of PCI."
All directors of PCI hold office until the next annual meeting of
stockholders of PCI and until their successors are duly elected and qualified,
and all executive officers of PCI, CPC and Caribbean hold office at the
pleasure of the respective boards of directors.
MANAGEMENT COMPENSATION
The table below shows the compensation paid or credited by the Company and
its subsidiaries during the last three fiscal years to each executive officer
of the Company whose cash compensation (paid or deferred) in 1996 exceeded
$100,000 (the "named executive officers"):
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
---------------
ALL OTHER
SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(2)
--------------------------- ---- ------- ------- ------------
<S> <C> <C> <C> <C>
Charles F. DiGiovanna........................ 1996 275,028 96,250 4,500
President and Chief Executive 1995 275,028 -- 4,500
Officer of CPC and Caribbean 1994 245,028 120,000 4,440
Jay W. Hereford.............................. 1996 152,000 22,600 4,500
Vice President, Treasurer and 1995 152,000 -- 4,500
Chief Financial Officer of CPC and Caribbean 1994 145,000 106,314 4,500
Samuel A. Nutile............................. 1996 132,000 23,100 3,960
Vice President--Manufacturing 1995 132,000 -- 4,500
and Engineering of CPC and Caribbean 1994 125,004 80,196 3,900
David M. Stulman............................. 1996 130,000 21,000 3,450
Vice President--Human
Resources of CPC and Caribbean since
February 1996
John S. Roesch............................... 1996 123,500 23,100 3,375
Vice President-Sales and 1995 115,000 -- 4,500
Marketing of CPC and Caribbean 1994 110,004 70,573 3,140
</TABLE>
- ----------
(1) All of the compensation paid to or earned by the named executive officers
relates to performance for a single fiscal year. No long term compensation
was paid to any of the named executive officers for any of the past three
fiscal years.
(2) Comprised of contributions by the Company to the accounts of the named
executive officers under the Continental Can Savings Plan, a defined
contribution plan.
35
<PAGE>
COMPENSATION OF DIRECTORS
Each director of PCI receives an annual fee of $15,000 for his services as a
director for the Company and is reimbursed for any out-of-pocket expenses
incurred in attending meetings.
SALARIED PENSION PLAN
The Continental Plastic Containers, Inc. Salaried Pension Plan (the "Pension
Plan") is a defined-benefit pension plan available to all non-union salaried
employees of the Company. All contributions to the Pension Plan are made by,
and all costs of the Pension Plan are borne by, the Company.
Plan benefits are based on all years of continuous service and the
employee's average earnings during the highest five continuous years of the
last ten years of employment, minus a profit-sharing annuity. Beginning
January 1, 1994, the compensation amount used in the calculation is limited to
$150,000 per year. The profit-sharing annuity is based on the amount of
profit-sharing contributions received for 1988 through 1992.
Payments of benefits under the Pension Plan commence on such date after a
terminating employee's 55th birthday as the employee shall elect, and are made
in the form of straight life or joint and survivor annuities.
The following table sets forth estimated annual formula benefits payable
upon retirement at age 65 to persons in specified earnings and years of
service classifications, who have elected to receive payments in the form of
straight life annuities. The amounts shown do not reflect reductions which
would be made to offset the profit-sharing annuity.
<TABLE>
<CAPTION>
HIGHEST YEARS OF CONTINUOUS SERVICE AT AGE 65(2)
AVERAGE --------------------------------------------------------------------
EARNINGS(1) 10 15 20 25 30 35 40
- ----------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 $15,320 $22,980 $30,640 $38,300 $45,960 $53,620 $61,280
150,000+ 23,670 35,505 47,340 59,175 71,010 82,845 94,680
</TABLE>
- ----------
(1) Annual earnings are equal to the sum of salary and bonus shown in the
Summary Compensation Table above.
(2) Messrs. DiGiovanna, Hereford, Nutile, Stulman and Roesch were credited
with 4, 22, 31, 0 and 21 years of continuous service as of December 31,
1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no transactions with management and others, business
relationships, indebtedness of management or transactions with promoters that
occurred during 1996, nor are any currently proposed for PCI and its
subsidiaries, that are required to be reported under applicable regulations of
the Commission.
36
<PAGE>
OWNERSHIP OF PCI
PCI has outstanding an aggregate of 100 shares of Common Stock (the "PCI
Shares"); prior to December 1996, 50 PCI Shares were owned by Continental Can
and 50 PCI Shares were owned by Merrywood. As part of the Refinancing,
Continental Can purchased an additional 34 PCI Shares from Merrywood and
agreed to purchase Merrywood's remaining 16 PCI Shares not later than December
31, 2000. Jose Luis Zapata (a director of PCI), Cayo Zapata (until October 22,
1996, a director of PCI), and Paulo Zapata are brothers and each beneficially
owns one-third of Merrywood.
The Company, Continental Can, Merrywood and Plaza Limited (the record holder
of all of the outstanding Merrywood Stock) entered into an agreement dated
September 10, 1992, which, among other matters, gave Merrywood the right to
require Continental Can to purchase Merrywood's 50 PCI Shares for $30.0
million, plus interest from November 1991. On July 31, 1996, Merrywood
exercised this right to require such purchase on December 2, 1996, for $30.0
million plus approximately $15.4 million of interest. Merrywood and
Continental Can meanwhile entered into a new agreement dated as of October 22,
1996 (the "Stock Purchase Agreement"), pursuant to which, in lieu of the
foregoing purchase, Continental Can (i) purchased 34 PCI Shares from Merrywood
for $30.0 million and (ii) agreed to purchase Merrywood's remaining 16 PCI
Shares on or before December 31, 2000, for $15.4 million plus interest at a
rate of 0.75% above the nominal rate of the Senior Secured Notes (the
"Remaining PCI Shares Purchase Price"). Pursuant to the Stock Purchase
Agreement, Continental Can also issued to Plaza Limited a warrant to purchase,
at any time prior to January 1, 2001, up to 150,000 shares of the common stock
of Continental Can at a price per share equal to the lower of $20 and the per
share book value of Continental Can common stock as of December 31, 1996.
As security for the performance by Continental Can of its obligations under
the Stock Purchase Agreement, Continental Can granted Merrywood a security
interest in the 84 PCI Shares owned by Continental Can after the Refinancing.
Also, if Continental Can fails to purchase Merrywood's remaining 16 PCI Shares
on or before December 31, 2000, as an alternative to any other remedy
available to it, Merrywood would have the right to exchange those PCI Shares
for the number of shares of Continental Can common stock obtained by dividing
(x) the Remaining PCI Shares Purchase Price by (y) the lower of (i) $11.93
(the average closing price of Continental Can common stock for the 20 business
days preceding October 22, 1996) and (ii) the average closing price of the
Continental Can common stock for the 20 business days preceding December 31,
2000. If Continental Can fails to make such cash purchase, then, depending on
the market price of the Continental Can common stock at that time, and on the
number of shares of such stock then outstanding, the acquisition by Merrywood
of these shares of Continental Can common stock could result in Merrywood's
becoming the largest stockholder of Continental Can.
PCI loaned to Continental Can, out of the proceeds of the Refinancing, the
$30.0 million cash necessary to purchase the additional 34 PCI Shares from
Merrywood. The note evidencing the Continental Can Loan has been pledged as
part of the Collateral to secure the Senior Secured Notes.
37
<PAGE>
DESCRIPTION OF THE REVOLVING CREDIT FACILITY
On October 30, 1995, the Company entered into the Revolving Credit Facility
with The CIT Group/Business Credit, Inc. ("CIT"), pursuant to which CIT agreed
to make revolving loans to the Company and arrange for the issuance of up to
$10.0 million of letters of credit for the benefit of the Company, up to an
aggregate maximum at any time of the lesser of (i) $50.0 million and (ii) the
sum of (x) 85% of the amount of Eligible Accounts (as defined) of CPC and
(subject to the satisfaction of certain conditions precedent) Caribbean, plus
(y) 60% of the value of the Eligible Inventory (as defined) of CPC and
(subject to the satisfaction of certain conditions precedent) Caribbean. As of
March 17, 1997, the total amount available to the Company under the Revolving
Credit Facility was $34.2 million; as of that date the Company had no
revolving loans outstanding and $3.9 million of letters of credit issued for
its benefit.
Interest on the revolving loans is payable at the Company's option, (i) at a
specified percentage above the prime rate or (ii) a specified percentage above
LIBOR. The specified percentages used in computing the interest payable on the
Company's loan balance vary depending on the ratio of certain outstanding
indebtedness of the Company to its earnings. The Company is also required to
pay an annual line of credit fee in the amount of 0.25% of the unused portion
of the Revolving Credit Facility up to $25.0 million and 0.50% of such unused
portion in excess of $25.0 million and a collateral management fee in the
amount of $75,000 per annum.
The Company's obligations under the Revolving Credit Facility are
unconditionally guaranteed by CPC and Caribbean. As security for their
guarantees, each of CPC and Caribbean has granted to CIT a first security
interest in its accounts receivable and inventory (including raw material,
work-in-process, semi-finished goods and supplies), contract rights, documents
and instruments arising from the sale or other disposition of inventory or
rendition of services and related rights, and the bank accounts into which the
proceeds on such accounts receivable are deposited.
The Revolving Credit Facility requires that the Company comply with certain
covenants, including, but not limited to, a restriction on the incurrence of
additional indebtedness, a restriction on the creation of additional liens,
compliance with certain financial covenants, certain restrictions on
dividends, loans and investments, restrictions on mergers and sales of assets
and certain restrictions on the amount of capital expenditures.
The Revolving Credit Facility contains certain events of default, including,
without limitation: (i) the failure of the Company to pay any of its
obligations under the Revolving Credit Facility when due or within five
business days thereafter; (ii) any breach by the Company of any warranty,
representation or covenant of the Revolving Credit Facility or related
agreements beyond any applicable cure period; (iii) the occurrence of an event
of default under any other debt instrument of the Company, CPC or Caribbean
relating to borrowings in excess of $0.25 million in principal amount; (iv)
any prepayment of the Senior Secured Notes unless, at the time in question,
the Company could borrow at least an additional $10.0 million under the
Revolving Credit Facility and the Company, CPC and Caribbean are current in
the payment of their debts and obligations, in accordance with their usual
business practices; (v) certain events of bankruptcy or insolvency of the
Company, CPC or Caribbean; or (vi) Continental Can's ceasing to have the
ability to elect at least one-half of the members of the Company's board of
directors.
The term of the Revolving Credit Facility continues until October 30, 2002
and from year to year thereafter, provided that the Company or CIT may
terminate the Revolving Credit Facility as of October 30, 2002 or any
subsequent anniversary date on 60 days advance written notice.
The Senior Secured Notes rank pari passu in right of payment with
indebtedness under the Revolving Credit Facility.
On December 17, 1996, the Company and CIT entered into an amendment to the
Revolving Credit Facility permitting the consummation of the Refinancing and
amending the Revolving Credit Facility in certain other respects.
38
<PAGE>
DESCRIPTION OF SENIOR SECURED NOTES
The Old Notes were issued, and the New Notes will be issued, under an
indenture dated as of December 17, 1996 (the "Indenture") among the Company,
each of CPC and Caribbean, as guarantors, and United States Trust Company of
New York, as trustee (the "Trustee"). References below to the Senior Secured
Notes include the New Notes and the Old Notes unless the context otherwise
requires. Upon the issuance of the New Notes, if any, or the effectiveness of
a Shelf Registration Statement, the Indenture will be subject to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following
summary sets forth all material provisions of the Indenture (which is an
exhibit to the Registration Statement and may be obtained upon request to the
Secretary of the Company); however, this summary does not purport to be a
complete description of the Indenture and the Senior Secured Notes and is
subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act and to all of the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part of the
Indenture by reference to the Trust Indenture Act, as in effect on the date of
the Indenture. The definition of certain capitalized terms used in the
following summary are set forth below under "--Certain Definitions."
GENERAL
The Senior Secured Notes are issued only in registered form, without
coupons, in denominations of $1,000 and integral multiples of $1,000.
Principal of, premium and Liquidated Damages, if any, and interest on the
Senior Secured Notes will be payable, and the Senior Secured Notes will be
transferable, at the corporate trust office or agency of the Trustee in the
City of New York maintained for such purposes at 114 West 47th Street, New
York, New York. In addition, interest may be paid by wire transfer or check
mailed to the Person entitled thereto as shown on the register for the Senior
Secured Notes, provided that all payments with respect to Global Notes (as
defined) and Certificated Securities (as defined), the holders of which have
given wire transfer instructions to the Company, will be required to be made
by wire transfer of immediately available funds to the accounts specified by
the holders thereof. The Senior Secured Notes are initially represented by one
or more Global Notes (the "Global Notes") and are deposited with, or on behalf
of, DTC and registered in the name of a nominee of DTC. Except as set forth in
"--Book-Entry, Delivery and Form," owners of beneficial interests in such
Global Notes are not entitled to have Senior Secured Notes registered in their
names, will not receive or be entitled to receive physical delivery of Senior
Secured Notes in definitive form and are not considered the owners or holders
thereof under the Indenture. See "--Book-Entry, Delivery and Form." No service
charge will be made for any registration of transfer or exchange of the Senior
Secured Notes, except for any tax or other governmental charge that may be
imposed in connection therewith.
Any Old Notes that remain outstanding after the completion of the Exchange
Offer, together with the New Notes issued in connection with the Exchange
Offer, will be treated as a single class of securities under the Indenture.
MATURITY, INTEREST AND PRINCIPAL
The Senior Secured Notes are secured obligations of the Company, limited to
$125,000,000 aggregate principal amount and will mature on December 15, 2006.
Interest on the Senior Secured Notes accrues at the rate of 10% per annum and
will be payable semi-annually on each June 15 and December 15, commencing June
15, 1997, to the holders of record of Senior Secured Notes at the close of
business on June 1 and December 1 immediately preceding such interest payment
date. Interest on the Senior Secured Notes accrues from the most recent date
to which interest has been paid or, if no interest has been paid, from
December 17, 1996, the original date of issuance (the "Issue Date"). Interest
is computed on the basis of a 360-day year comprised of twelve 30-day months
and the actual number of days elapsed. Interest on overdue principal and (to
the extent permitted by law) on overdue installments of interest will accrue
at a rate equal to 11% per annum.
39
<PAGE>
REDEMPTION
Optional Redemption. The Senior Secured Notes will be redeemable, in whole
or in part, at the option of the Company, at any time on or after December 15,
2001, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest to the redemption date, if
redeemed during the 12-month period beginning on December 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2001.............................. 105.000%
2002.............................. 103.333%
2003.............................. 101.667%
2004 and thereafter............... 100.000%
</TABLE>
In addition, on or prior to December 15, 1999, the Company may, at its
option, following a Public Equity Offering (as defined below) which yields
gross proceeds (before discounts, commissions and expenses) of $15.0 million
or more in the aggregate, redeem up to $40.0 million of Senior Secured Notes
on a pro rata basis (or as nearly pro rata as practicable), at a redemption
price equal to 109% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption; provided that at least $85.0
million aggregate principal amount of Senior Secured Notes would remain
outstanding immediately after giving effect to any such redemption. In order
to effect the foregoing redemption with the net proceeds of a Public Equity
Offering, the Company shall send the redemption notice not later than 60 days
after the consummation of such Public Equity Offering.
As used in the preceding paragraph, a "Public Equity Offering" means an
underwritten public offering of Capital Stock (other than Disqualified Stock)
of the Company made on a primary basis by the Company pursuant to a
registration statement filed with and declared effective by the Commission in
accordance with the Securities Act or an underwritten offering of Capital
Stock (other than Disqualified Capital Stock) of the Company made on a primary
basis by the Company pursuant to Rule 144A under the Securities Act.
Mandatory Redemption. As described below, in the event of a Change of
Control, the Company is obligated to make an offer to purchase all outstanding
Senior Secured Notes at a redemption price of 101% of the principal amount
thereof, plus accrued interest. In addition, the Company is obligated to make
offers to purchase Senior Secured Notes at a redemption price of 100% of the
principal amount plus accrued interest with and in an amount equal to the net
cash proceeds of certain sales or other dispositions of assets. See "--Change
of Control" and "--Certain Covenants --Disposition of Proceeds of Asset Sales"
below. The Company will comply with Rule 14e-1 under the Exchange Act and any
other applicable rules and regulations of the Commission in making any such
offer to purchase Senior Secured Notes.
Selection and Notice. In the event that less than all of the Senior Secured
Notes are to be redeemed at any time, selection of Senior Secured 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 Senior
Secured Notes are listed or, if the Senior Secured Notes are not 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 Senior
Secured Notes 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 Senior Secured Notes to
be redeemed at its registered address. If any Senior Secured Note is to be
redeemed in part only, the notice of redemption that relates to such Senior
Secured Note shall state the portion of the principal amount thereof to be
redeemed. A new Senior Secured 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 Senior Secured Note. On and after the
redemption date, interest will cease to accrue on Senior Secured Notes or
portions thereof called for redemption.
40
<PAGE>
CHANGE OF CONTROL
In the event of a Change of Control (the date of such occurrence being the
"Change of Control Date"), the Company shall notify the holders in writing of
such occurrence and shall make an offer to purchase (the "Change of Control
Offer"), on a business day (the "Change of Control Payment Date") not later
than 60 days following the Change of Control Date, all Senior Secured Notes
then outstanding at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the Change of Control
Payment Date. Notice of a Change of Control Offer shall be mailed by the
Company to the holders not less than 30 days nor more than 45 days before the
Change of Control Payment Date. 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. For the definition of Change of Control,
see "--Certain Definitions--Change of Control" below. The occurrence of the
Company having to make a Change of Control Offer may cause a default under
certain financial covenants of the Revolving Credit Facility.
RANKING AND GUARANTEES
The indebtedness of the Company evidenced by the Senior Secured Notes ranks
senior in right of payment to all subordinated indebtedness of the Company and
ranks equally in right of payment with indebtedness under the Revolving Credit
Facility and all other existing or future unsubordinated indebtedness of the
Company.
The Company's obligations under the Senior Secured Notes are jointly and
severally guaranteed by CPC and Caribbean on a full and unconditional basis
(the "Guarantees"). The Guarantees rank equally in right of payment with all
existing or future unsubordinated indebtedness of each of CPC and Caribbean,
respectively. CPC's Guarantee is secured, in the manner and to the extent
summarized below under "--Security," by substantially all of CPC's assets and
properties other than inventory and accounts receivable. Caribbean's Guarantee
is secured, in the manner and to the extent summarized below under "--
Security," by substantially all of Caribbean's assets and properties other
than inventory, accounts receivable and certain equipment securing capital
lease obligations. With respect to certain risks associated with the
Guarantees, see "Risk Factors--Fraudulent Conveyance Statutes."
SECURITY
Pursuant to the Security Documents, each of CPC and Caribbean has assigned
and pledged as collateral to the Collateral Trustee for the benefit of the
Collateral Trustee and the holders of the Senior Secured Notes a security
interest in certain of its real and personal property summarized below,
whether now owned or hereafter acquired, together with the proceeds therefrom
and permanent additions and accessions thereto, but such security interest
does not extend to (i) the inventory or accounts receivable of each of CPC and
Caribbean, which are pledged to secure the obligations under the Revolving
Credit Facility, (ii) the real or personal property sold in connection with,
or pledged to secure, the obligations under the 1996 Sale/Leaseback (as
defined under "--Certain Definitions") or to any permanent additions or
accessions thereto or (iii) the Previously Leased/Financed Equipment. The
Collateral for the Senior Secured Notes represents substantially all of the
real and personal property (other than inventory, accounts receivable and
certain equipment securing capital lease obligations) of each of CPC and
Caribbean. The security interest in the Collateral is a first priority
interest (to the extent attainable by filing or possession), subject to
certain exceptions, which exceptions, in the judgment of the Company, CPC and
Caribbean, do not adversely affect the value of the Collateral.
The net book value of the Collateral (excluding the Continental Can Note and
the stock of the Guarantors) as of December 31, 1996, was approximately
$91.9 million. There can be no assurance that the proceeds of any sale of the
Collateral in whole pursuant to the Indenture and the related Security
Documents following an Event of Default would be sufficient to satisfy
payments due on the Senior Secured Notes. In addition, the ability of the
Senior Secured Noteholders to realize upon the Collateral may be subject to
certain bankruptcy law limitations in the event of a bankruptcy. See "--
Certain Bankruptcy Limitations" below.
The collateral release provisions of the Indenture permit the release of
Collateral without substitution of collateral of equal value under certain
circumstances. See "--Possession, Use and Release of Collateral." For
41
<PAGE>
example, Collateral may be released in connection with Asset Sales and new
collateral need not be substituted therefor. As described under "--Certain
Covenants--Disposition of Proceeds of Asset Sales," the Net Cash Proceeds of
such Asset Sales are required to be utilized to make an offer to purchase
Senior Secured Notes, as hereafter described. To the extent an offer to
purchase Senior Secured Notes is not subscribed to by holders thereof on the
basis described under "--Certain Covenants--Disposition of Proceeds of Assets
Sales," the unutilized Net Cash Proceeds may be retained by the Company, free
of the Lien of the Indenture and the Security Documents.
The Indenture permits the substitution of Collateral for collateral of equal
value under certain circumstances. See "--Possession, Use and Release of
Collateral."
Pursuant to the Security Documents, (i) the Company has assigned and pledged
to the Trustee, for its benefit and the benefit of the holders of the Senior
Secured Notes, the Continental Can Note, the Capital Stock of each of CPC and
Caribbean and (ii) each of CPC and Caribbean has assigned and pledged to the
Trustee, for its benefit and the benefit of the holders of the Senior Secured
Notes, each of the following assets of such entity owned by such entity on the
date the Senior Secured Notes were originally issued or acquired by such
entity thereafter (other than assets with respect to which a Lien has been
granted to a third party pursuant to clause (c) of the covenant described
under "--Limitation of Liens" below): (a) all contracts, together with all
contract rights arising thereunder; (b) all machinery and equipment; (c) all
trademarks and service marks, together with the registrations and rights to
all renewals thereof; (d) all patents and copyrights; (e) all computer
programs of such entity and all intellectual property rights therein and all
other proprietary information of such entity, including, but not limited to,
trade secrets; (f) the instruments deposited or required to be deposited in
the Cash Collateral Account upon the sale or other disposition of Collateral;
(g) interests in real properties, which as of the date of this Prospectus
consist of the owned facilities described under "Business--Properties" above,
excluding the Company's Baltimore facility, which is pledged to secure the
1996 Sale/Leaseback (the "Real Property Collateral"); (h) the Continental Can
Note; and (i) all proceeds and products of any and all of the foregoing.
Notwithstanding the foregoing, the Senior Secured Notes are not secured by
inventory and accounts receivable (which are pledged to secure the Revolving
Credit Facility), certain contract rights, leasehold interests in real
property, motor vehicles, cash (except in certain instances), the equipment,
machinery and other property to be sold in connection with the 1996
Sale/Leaseback or any permanent additions or accessories to such equipment,
machinery and other property and the Previously Leased/Financed Equipment;
provided that the Previously Leased/Financed Equipment shall constitute
Collateral at such time as the 1996 Sale/Leaseback terminates. In addition to
securing the obligations of the Company under the Senior Secured Notes, the
pledge of Collateral by CPC and Caribbean also secures the obligations of such
guarantor under its Guarantee.
The personal and intellectual property Collateral is pledged pursuant to
pledge and security agreements among CPC, Caribbean and the Trustee and, with
respect to Caribbean, pursuant to a personal property note pledge agreement, a
personal property mortgage and affidavit and a personal property mortgage note
between Caribbean and the Trustee (collectively, the "Security Agreements")
and, in the case of the intellectual property Collateral, the pledge has been
confirmed pursuant to a separate notice of security interest among the same
parties (the "Notice of Security Interest"). The Real Property Collateral of
CPC is pledged pursuant to mortgages or deeds of trust (the "U.S. Mortgages")
and the Real Property Collateral of Caribbean is pledged pursuant to a real
property mortgage note pledge agreement, a real property mortgage and
affidavit and a real property mortgage note (collectively, the "Puerto Rico
Mortgage"; together with the U.S. Mortgages, the "Mortgages"). The Capital
Stock of CPC and Caribbean and the Continental Can Note are pledged pursuant
to a stock pledge agreement among the Company and the Trustee (the "Stock
Pledge Agreement"). The lessors under the 1996 Sale/Leaseback have a
subordinated security interest in the Continental Can Note.
If an Event of Default occurs under the Indenture, the Trustee, on behalf of
the holders of the Senior Secured Notes, in addition to any rights or remedies
available to it under the Indenture, may take such action as it deems
advisable to protect and enforce its rights in the Collateral, including the
institution of foreclosure proceedings. The proceeds received by the Trustee
from any foreclosure will be applied by the Trustee first to pay the
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expenses of such foreclosure and fees and other amounts then payable to the
Trustee under the Indenture, and thereafter to pay the principal of, premium,
if any, and interest on the Senior Secured Notes.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Trustee to repossess and dispose of the Collateral upon the
occurrence of an Event of Default is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be commenced by
or against the Company, CPC or Caribbean prior to the Trustee having
repossessed and disposed
of the Collateral. Under the Bankruptcy Code, a secured creditor such as the
Trustee is prohibited from repossessing its security from a debtor in a
bankruptcy case, or from disposing of security repossessed from such debtor,
without bankruptcy court approval. Moreover, the Bankruptcy Code permits the
debtor to continue to 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, for any diminution in
the value of the 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 Senior Secured
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 Senior Secured Notes would be compensated for any
delay in payment or loss of value of the Collateral through the requirement of
"adequate protection."
CERTAIN COVENANTS
Set forth below are certain covenants which are contained in the Indenture.
Limitation on Additional Company Indebtedness. The Company shall not create,
incur, assume, guarantee or in any manner become liable for the payment of
("incur"), any Indebtedness (including any Acquired Indebtedness) except for
(each of which shall be given independent effect):
(a) Indebtedness under the Senior Secured Notes and the Indenture;
(b) Indebtedness which, when aggregated with any Indebtedness of CPC or
Caribbean incurred pursuant to clause (g) of the covenant described under
"--Limitation on Additional Subsidiary Indebtedness," does not exceed the
greater of (i) Indebtedness outstanding from time to time pursuant to the
commitments, advance rates and the definitions of "Eligible Receivables"
and "Eligible Inventory" in effect from time to time under the Revolving
Credit Facility and (ii) $25.0 million;
(c) Indebtedness of the Company outstanding on the date on which the
Senior Secured Notes were originally issued and included in the Company's
consolidated financial statements contained elsewhere in this Prospectus;
(d) Indebtedness if, immediately after giving pro forma effect to the
incurrence thereof, the Consolidated Interest Coverage Ratio of the Company
would be greater than or equal to 2.25:1.00 on or prior to December 31,
1999 and 2.50:1.00 thereafter;
(e) Indebtedness incurred in connection with or arising out of
Capitalized Lease Obligations or secured by Liens of the type permitted
under clause (c) of the covenant described under "--Limitation of Liens"
below in an aggregate amount at any time outstanding which, when aggregated
with any Indebtedness incurred pursuant to clause (d) of the covenant
described under "--Limitation on Additional Subsidiary Indebtedness" below,
does not exceed $10.0 million, provided such Indebtedness arising out of
Capitalized Lease Obligations is incurred in accordance with the covenant
described under "--Limitation on Liens" below;
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(f) Interest Rate Protection Obligations of the Company covering
Indebtedness of the Company (which Indebtedness (i) bears interest at
fluctuating interest rates and (ii) is otherwise permitted to be incurred
under this covenant) to the extent the notional principal amount of such
Interest Rate Protection Obligations does not exceed the principal amount
of the Indebtedness to which such Interest Rate Protection Obligations
relate;
(g) Indebtedness arising under any appeal and reimbursement obligation
entered into with respect to any judgment;
(h) Indebtedness in the nature of or in connection with (i) any Sale-
Leaseback Transaction permitted under the covenant described under "--
Limitation on Sale-Leaseback Transactions" below, (ii) a guarantee of the
1996 Sale/Leaseback, or (iii) a refinancing or replacement of the 1996
Sale/Leaseback, so long as any such Indebtedness incurred pursuant to
clause (i) or (iii) is incurred pursuant to the Consolidated Interest
Coverage Ratio test set forth in paragraph (d) of this covenant;
(i) any replacements, renewals, refinancings and extensions of
Indebtedness incurred under clauses (a), (b), (c) and (d) above, provided
that any such replacement, renewal, refinancing and extension (x) shall not
provide for any mandatory redemption, amortization or sinking fund
requirement in an amount greater than or at a time prior to the amounts and
times specified in the Indebtedness being replaced, renewed, refinanced or
extended and (y) shall not exceed the principal amount (plus accrued
interest) of the Indebtedness being replaced, renewed, refinanced or
extended; and
(j) Indebtedness under any guarantees by the Company of any obligations
of CPC or Caribbean outstanding from time to time under the Revolving
Credit Facility.
Limitation on Additional Subsidiary Indebtedness. The Company shall not
cause or permit any Subsidiary to incur any Indebtedness (including any
Acquired Indebtedness) except for (each of which shall be given independent
effect):
(a) Indebtedness under the Guarantees;
(b) Indebtedness issued to and held by the Company or a Wholly-Owned
Subsidiary of the Company;
(c) Indebtedness of Subsidiaries outstanding on the date on which the
Senior Secured Notes were originally issued and included in the Company's
consolidated financial statements included elsewhere in this Prospectus;
(d) Indebtedness incurred in connection with or arising out of
Capitalized Lease Obligations or secured by Liens of the type permitted
under clause (c) of the covenant described under "--Limitation on Liens"
below in an aggregate amount which, when aggregated with any Indebtedness
incurred pursuant to clause (e) of the covenant described under "--
Limitation on Additional Company Indebtedness" above, does not exceed $10.0
million at any time outstanding, provided such Indebtedness arising out of
Capitalized Lease Obligations is incurred in accordance with the covenant
described under "--Limitation on Liens" below;
(e) Indebtedness in the nature of or in connection with any Sale-
Leaseback Transaction permitted under the covenant described under "--
Limitation on Sale-Leaseback Transactions" below or in connection with a
refinancing or replacement of the 1996 Sale/Leaseback, so long as any such
Indebtedness is incurred pursuant to the Consolidated Interest Coverage
Ratio test set forth in paragraph (d) of the covenant entitled "--
Limitation on Additional Company Indebtedness";
(f) Indebtedness under any guarantees by CPC and Caribbean of the
obligations of the Company outstanding from time to time under the
Revolving Credit Facility; and
(g) Indebtedness which, when aggregated with any Indebtedness of the
Company incurred pursuant to clause (b) of the covenant described under "--
Limitation on Additional Company Indebtedness," does not exceed the greater
of (i) Indebtedness outstanding from time to time pursuant to the
commitments, advance rates and the definitions of "Eligible Receivables"
and "Eligible Inventory" in effect from time to time under the Revolving
Credit Facility, and (ii) $25.0 million.
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Limitation on Investments, Loans and Advances. The Company shall not make
and shall not permit any of its Subsidiaries to make any capital
contributions, advances or loans to, or investments or purchases of Capital
Stock in, any Person (collectively, "Investments"), except: (i) Investments by
the Company in or to any Wholly-Owned Subsidiary and Investments or loans in
or to the Company or a Wholly-Owned Subsidiary by any Subsidiary; (ii)
Investments represented by accounts receivable created or acquired in the
ordinary course of business; (iii) advances to employees in the ordinary
course of business; (iv) Investments under or pursuant to interest rate
protection agreements; (v) Investments, not exceeding $5.0 million in the
aggregate, in joint ventures, partnerships or Persons that are not Wholly-
Owned Subsidiaries, provided that such Investments are made solely for the
purpose of acquiring businesses related to the Company's business; (vi)
Restricted Payments permitted by the covenant "--Limitation on Restricted
Payments"; and (vii) Permitted Investments. Investments other than those
permitted by the foregoing provisions are referred to herein as "Prohibited
Investments."
Limitation on Restricted Payments. The Company shall not make, and shall not
permit any of its Subsidiaries to, directly or indirectly, make any Restricted
Payment, unless:
(a) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Restricted Payment;
(b) the Company is able to incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Interest Coverage Ratio test set
forth in paragraph (d) of the covenant entitled "--Limitation on Additional
Company Indebtedness"; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the date on
which the Senior Secured Notes are originally issued does not exceed the
sum of (1) 75% of the Company's Consolidated Net Income (or in the event
such Consolidated Net Income shall be a deficit, minus 100% of such
deficit) from January 1, 1997, (2) 100% of the aggregate net cash proceeds
and the Fair Market Value of marketable securities received by the Company
from the issue or sale, after the date on which the Senior Secured Notes
are originally issued, of Capital Stock (other than Disqualified Stock) of
the Company or any Indebtedness or other securities of the Company
convertible into or exercisable for Capital Stock (other than Disqualified
Stock) of the Company which has been so converted or exercised, as the case
may be, plus (3) solely to the extent such Restricted Payment is made to
provide Continental Can with the funds necessary to purchase PCI Shares
pursuant to the Merrywood Agreement, $7.5 million, provided that at the
time of such Restricted Payment made pursuant to this clause (3), the
Consolidated Interest Coverage Ratio computed on a pro forma basis is
greater than 2.75:1.00. For purposes of determining under clause (2) above
the amount expended for Restricted Payments, cash distributed shall be
valued at the face amount thereof and property other than cash shall be
valued at its Fair Market Value.
The provisions of this covenant do not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at such date
of declaration such payment would comply with the provisions of the Indenture,
(ii) the retirement of any shares of Capital Stock of the Company in exchange
for, or out of, the Net Proceeds of the substantially concurrent sale (other
than to a Subsidiary of the Company) of other shares of Capital Stock of the
Company (other than Disqualified Stock) and, (iii) the redemption or
retirement of subordinated Indebtedness of the Company in exchange for, by
conversion into, or out of the Net Proceeds of, a substantially concurrent (x)
sale or issuance of Capital Stock of the Company or (y) incurrence of
subordinated Indebtedness of the Company that is contractually subordinated in
right of payment to the Senior Secured Notes and that is permitted to be
incurred in accordance with the covenant described under "--Limitation on
Additional Company Indebtedness" above.
In determining the amount of Restricted Payments permissible under clause
(c) above, amounts expended pursuant to clauses (i)-(iii) above shall be
included as Restricted Payments.
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Limitation on Liens. The Company shall not, and shall not permit, cause or
suffer any of its Subsidiaries to, create, incur, assume or suffer to exist
any Lien of any kind upon any of its property or assets now owned or hereafter
acquired by it, except for:
(a) Liens existing as of the Issue Date and disclosed in the Security
Documents on the Issue Date and Liens created by the Senior Secured Notes,
the Indenture and the Security Documents;
(b) Permitted Liens on property and assets not constituting Collateral
and certain Liens on the Collateral to the extent permitted by the Security
Documents;
(c) Liens to secure the payment of all or a part of the purchase price of
assets or property acquired or constructed in the ordinary course of
business after the date on which the Senior Secured Notes are originally
issued, provided that (i) the aggregate principal amount of Indebtedness
secured by such Liens shall not exceed the lesser of cost or Fair Market
Value of the assets or property so acquired or constructed and shall not,
in any event, exceed $15.0 million, provided, however, that for the purpose
of calculating the amount of Indebtedness permitted under clause (i) of
this paragraph (c), Indebtedness incurred to refinance or replace the 1996
Sale/Leaseback and secured by such Liens shall not be included, (ii) the
Indebtedness secured by such Liens shall have otherwise been permitted to
be incurred under the Indenture and (iii) such Liens shall not encumber any
other assets or property of the Company or any of its Subsidiaries and
shall attach to such assets or property within 60 days of the construction
or acquisition of such assets or property;
(d) Liens on the assets or property of a Subsidiary of the Company
existing at the time such Subsidiary became a Subsidiary of the Company and
not incurred as a result of (or in connection with or in anticipation of)
such Subsidiary becoming a Subsidiary of the Company, provided such Liens
do not extend to or cover any property or assets of the Company or any of
its Subsidiaries (other than the property or assets so acquired);
(e) Liens on the inventory and accounts receivable of the Company, CPC
and Caribbean securing the obligations under the Revolving Credit Facility;
(f) any Lien pursuant to Capitalized Lease Obligations not to exceed
$10.0 million in the aggregate, provided such Liens do not extend to or
cover any property or assets of the Company or any of its Subsidiaries
(other than the property or assets subject to such Capitalized Lease
Obligations);
(g) leases and subleases of real property which do not interfere with the
ordinary conduct of the business of the Company or any of its Subsidiaries,
and which are made on customary and usual terms applicable to similar
properties;
(h) Liens securing (i) Indebtedness which is incurred to replace or
refinance the 1996 Sale/Leaseback or (ii) Indebtedness which has been
secured by a Lien permitted under the Indenture and is permitted to be
refinanced under the Indenture, provided that none of such Liens extend to
or cover any property or assets of the Company or any of its Subsidiaries
not securing the 1996 Sale/Leaseback or Indebtedness so replaced or
refinanced, as the case may be;
(i) Liens securing the 1996 Sale/Leaseback and Previously Leased/Financed
Equipment, including Liens on such assets which may in the future secure
the 1996 Sale/Leaseback; and
(j) in addition to Liens permitted under clauses (a)-(i) above, Liens
securing an aggregate of $5.0 million of Indebtedness or other obligations.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company shall not, and shall not permit any Subsidiary of
the Company to, directly or indirectly, create or otherwise cause or suffer to
exist or enter into any agreement with any Person that would cause, any
consensual encumbrance or restriction of any kind on the ability of any
Subsidiary of the Company to (a) pay dividends, in cash or otherwise, or make
any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits owned by, or pay any
Indebtedness owed to, the Company or a Subsidiary of the Company, (b) make any
loans
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or advances to the Company or any Subsidiary of the Company or (c) transfer
any of its properties or assets to the Company or to any Subsidiary of the
Company, except, in each case, for such encumbrances or restrictions existing
under or contemplated by or by reason of (i) restrictions imposed by
applicable law, (ii) customary non-assignment provisions of any contract or
any lease governing a leasehold interest of the Company or any Subsidiary of
the Company, (iii) the Senior Secured Notes, the Indenture and the Security
Documents, (iv) any restrictions existing under or contemplated by agreements
in effect on the Issue Date, including, without limitation, restrictions under
the Revolving Credit Facility and the 1996 Sale/Leaseback, as both are in
effect on the Issue Date, (v) any restrictions, with respect to a Subsidiary
of the Company that is not a Subsidiary of the Company on the Issue Date, in
existence at the time such Person becomes a Subsidiary of the Company (but not
created in contemplation of such Person becoming a Subsidiary) and (vi) any
restrictions existing under any agreement that refinances or replaces an
agreement containing a restriction permitted by clause (i) through (v), above;
provided that the terms and conditions of any such restrictions are not
materially less favorable to the holders of the Senior Secured Notes than
those under or pursuant to the agreement being replaced or the agreement
evidencing the Indebtedness refinanced. Nothing contained in this covenant
shall prevent the Company or any of its Subsidiaries from entering into any
agreement (a) permitted under the covenant described under "--Limitation on
Liens" above or (b) restricting the sale or other disposition of assets or
property securing Indebtedness evidenced by such agreement so long as the
Company complies with the covenant described under "--Disposition of Proceeds
of Asset Sales" below.
Limitation on Sale-Leaseback Transactions. The Company shall not, and shall
not permit any of its Subsidiaries to, enter into any Sale-Leaseback
Transaction other than the 1996 Sale/Leaseback. Notwithstanding the foregoing,
the Company and its Subsidiaries may (a) enter into Sale-Leaseback
Transactions if (i) after giving effect to any such Sale-Leaseback
Transaction, the Company shall be in compliance with clause (d) of the
covenant described under "--Limitation on Additional Company Indebtedness"
above or in compliance with clause (e) of the covenant described under "--
Limitation on Additional Subsidiary Indebtedness," and (ii) the net proceeds
of such Sale-Leaseback Transaction are at least equal to the Fair Market Value
of such property (determined by the Company's Board of Directors), and the
Company or such Subsidiary shall apply the Net Cash Proceeds of the sale as
provided under "--Disposition of Proceeds of Asset Sales" below.
Disposition of Proceeds of Asset Sales. The Company shall not, and shall not
permit any of its Subsidiaries to, make any Asset Sale unless (i) such Asset
Sale is for Fair Market Value, (ii) the proceeds therefrom consist of at least
85% cash and/or Cash Equivalents, (iii) if such Asset Sale involves Collateral
it shall be in compliance with the provisions described under "--Possession,
Use and Release of Collateral" below and (iv) the Company shall commit to
apply the Net Cash Proceeds of such Asset Sale within 270 days of receipt
thereof, and shall apply such Net Cash Proceeds within 360 days of receipt
thereof, as follows:
(i) first, to the extent such Net Cash Proceeds are received from an
Asset Sale involving the sale, transfer or disposition of inventory or
accounts receivable ("Working Capital Proceeds"), to satisfy all mandatory
repayment obligations arising by reason of such Asset Sale, and
(ii) second, any Working Capital Proceeds remaining after application
pursuant to the preceding paragraph (i), together with any Net Cash
Proceeds not involving the sale, transfer or disposition of inventory or
accounts receivable (the "Available Amount"), the Company shall make an
offer to purchase (the "Asset Sale Offer") from all holders of Senior
Secured Notes, up to a maximum principal amount (expressed as a multiple of
$1,000) of Senior Secured Notes equal to the Available 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, provided, however, that
the Company will not be required to apply pursuant to this paragraph (ii)
Net Cash Proceeds received from any Asset Sale if, and only to the extent
that, such Net Cash Proceeds are committed in writing to be applied to
acquire property or assets in lines of business related to the Company's
and its Subsidiaries' business at such time (a "Permitted Related
Acquisition") within 270 days of such Asset Sale, and are so applied within
360 days of such Asset Sale, and the property and assets so acquired are
made subject to the Lien of the Indenture and the applicable Security
Documents pursuant to the provisions described under "--Possession, Use and
Release of Collateral" below; and
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provided, further, that the Company may defer the Asset Sale Offer until
there is an aggregate unutilized Available Amount equal to or in excess of
$5.0 million resulting from one or more Asset Sales (at which time, the
entire unutilized Available Amount, and not just the amount in excess of
$5.0 million, shall be applied as required pursuant to this paragraph). The
Asset Sale Offer shall remain open for a period of at least 20 business
days. To the extent the Asset Sale Offer is not fully subscribed to by the
Senior Secured Noteholders, the Company may retain such unutilized portion
of the Available Amount free and clear of the Lien of the Security
Documents.
Notwithstanding the foregoing, the sale or other disposition of assets
subject to the 1996 Sale/Leaseback (including any Previously Leased/Financed
Equipment which becomes subject to the 1996 Sale/Leaseback) in connection with
a refinancing or replacement thereof shall not be deemed to be an Asset Sale
so long as such sale or disposition is committed to in writing within 270 days
of the termination of the 1996 Sale/Leaseback as originally executed and such
proceeds are so applied within 360 days of the date of such termination.
Whenever Net Cash Proceeds in excess of $1.0 million from any Asset Sale are
received by the Company and such Net Cash Proceeds may, through the passage of
time or otherwise, be required to be applied to the purchase of Senior Secured
Notes pursuant to this covenant, the Company shall deposit such Net Cash
Proceeds with the Trustee as Trust Moneys subject to disposition as provided
in this covenant or as provided under the "--Possession, Use and Release of
Collateral--Release of Collateral" and "--Use of Trust Moneys" provisions
described below and such Net Cash Proceeds shall be set aside by the Trustee
pending application to either the purchase of Senior Secured Notes or its
other permitted applications. At the direction of the Company, such Net Cash
Proceeds shall be required to be invested by the Trustee in Permitted
Investments. The Company or its relevant Subsidiary, as applicable, shall be
entitled to any interest or dividends accrued, earned or paid on such
investments.
Ownership of Stock of Wholly-Owned Subsidiaries. The Company shall at all
times maintain, or cause each Subsidiary to maintain, ownership of 100% of
each class of voting securities of, and all other equity securities in, each
Subsidiary of the Company, except any Subsidiary that shall be disposed of in
its entirety or consolidated or merged with or into the Company or another
Subsidiary, in each case in accordance with the provisions described under "--
Consolidation, Merger, Conveyance, Transfer or Lease" below and "--Disposition
of Proceeds of Asset Sales" above.
Limitation on Transactions with Affiliates. The Company shall not, and the
Company shall not permit, cause, or suffer any Subsidiary of the Company to,
conduct any business or enter into any transaction or series of transactions
with or for the benefit of any of their respective Affiliates (each an
"Affiliate Transaction"), except in good faith and on terms that are no less
favorable to the Company or such 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 Subsidiary. All
Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other market value in excess of $500,000 shall be approved by the Board of
Directors of the Company, such approval to be evidenced by a Board Resolution
stating that such Board of Directors has determined that such transaction
complies with the foregoing provisions. If the Company or any Subsidiary of
the Company enters into an Affiliate Transaction (or a series of related
Affiliate Transactions which are similar or part of a common plan) involving
aggregate payments or other market value in excess of $5.0 million, the
Company or such Subsidiary, as the case may be, shall, prior to the
consummation thereof, obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to the Company or the relevant
Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Trustee.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions between the Company and any of its wholly-
owned Subsidiaries or among wholly-owned Subsidiaries of the Company, (ii)
Restricted Payments permitted by the Indenture and (iii) customary directors'
fees, indemnification and similar arrangements, consulting fees, employee
salaries (including the reimbursement of Continental Can for a pro rata
portion of the salaries and fringe benefit expenses of Messrs. Bainton and
Yazgi and other officers of Continental Can based on the actual time devoted
by them to Company matters) and bonuses or legal fees.
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Impairment of Security Interest. The Company shall not, and shall not permit
any of its Subsidiaries to, take or knowingly or negligently omit to take any
action which action or omission might or would have the result of materially
impairing the security interest in favor of the Trustee and the holders of the
Senior Secured Notes, with respect to the Collateral, and the Company shall
not grant to any Person (other than the Trustee and the holders of the Senior
Secured Notes) any interest whatsoever in the Collateral other than Liens
permitted by the Indenture and the Security Documents.
Conflicting Agreements. The Company shall not, and shall not permit any of
its Subsidiaries to, enter into any agreement or instrument that by its terms
expressly (i) prohibits the Company from making any payments on or in respect
of the Senior Secured Notes in accordance with the terms thereof and of the
Indenture, as in effect from time to time or (ii) requires that the proceeds
received from the sale of any Collateral be applied to repay, redeem or
otherwise retire any Indebtedness of any Person other than the Indebtedness
represented by the Senior Secured Notes, except as expressly permitted by the
Indenture or the Security Documents (other than the Revolving Credit Facility,
which may provide for repayment of obligations owing thereunder to the extent
of any unutilized portion of any Available Amount in the event of an Asset
Sale Offer that is not fully subscribed to by the Senior Secured Noteholders
as provided in the covenant described under "--Disposition of Proceeds of
Asset Sales" above).
Special Covenants of the Guarantors. Each Guarantor has covenanted to comply
with each of the covenants contained in the Indenture that impose restrictions
or obligations on such Guarantor (by virtue of being a Guarantor or otherwise)
notwithstanding that the text of such covenant is worded as a restriction on
or obligation of the Company with respect to such Guarantor.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Neither the Company nor any Guarantor shall consolidate with or merge with
or into or sell, assign, convey, lease or transfer all or substantially all of
its properties and assets as an entirety to any Person or group of affiliated
Persons in a single transaction or through a series of transactions, unless:
(a) the Company or the Guarantor, as the case may be, shall be the continuing
Person or the resulting, surviving or transferee Person (the "surviving
entity") shall be a corporation organized and existing under the laws of the
United States or any State thereof or the District of Columbia; (b) the
surviving entity shall expressly assume, by a supplemental indenture executed
and delivered to the Trustee, in form and substance reasonably satisfactory to
the Trustee, in the case of a transaction involving the Company, all of the
obligations of the Company under the Senior Secured Notes, the Indenture and
the Security Documents, or in the case of a transaction involving a Guarantor,
all of the obligations of such Guarantor under the Senior Secured Notes, the
Indenture, such Guarantor's Guarantee and the Security Documents; (c)
immediately before and immediately after giving effect to such transaction, or
series of transactions (including, without limitation, any Indebtedness
incurred or anticipated to be incurred in connection with or in respect of
such transaction or series of transactions), no Default or Event of Default
shall have occurred and be continuing; (d) the Company or the surviving entity
(if the transaction or series of transactions involves the Company) shall
immediately before and after giving effect to such transaction or series of
transactions (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of the transaction
or series of transactions) have a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of the Company immediately prior to such
transaction or series of transactions; (e) immediately after giving effect to
such transaction or series of transactions on a pro forma basis, the Company
or the surviving entity (if the transaction or series of transactions involves
the Company) would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Interest Coverage Ratio test set
forth in paragraph (d) of the covenant entitled "--Limitation on Additional
Company Indebtedness"; (f) the Company or the surviving entity shall have
delivered to the Trustee an Officers' Certificate stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction or series of
transactions, such supplemental indenture complies with this covenant and that
all conditions precedent in the respective Indenture relating to the
transaction or series of transactions have been satisfied; (g) the Guarantors
shall, by supplemental indenture, confirm that their Guarantee shall apply to
the surviving entity's obligations under the Senior Secured Notes and the
Indenture, as modified by such
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supplemental indenture, and confirm the due and punctual performance of the
Guarantee and every covenant in the Indenture on the part of the Guarantors to
be performed or observed; and (h) neither the Company nor any Subsidiary would
thereupon become obligated with respect to any Indebtedness, nor any of its
property subject to any Lien, unless the Company or such Subsidiary could
incur such Indebtedness or create such Lien under the Indenture.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
(i) the default in the payment of any interest on (or Liquidated Damages,
if any, with respect to) the Senior Secured Notes when it becomes due and
payable and continuance of any such default for a period of 30 days; or
(ii) the default in the payment of the principal of (or premium, if any,
on) the Senior Secured Notes when due and payable, at maturity, upon
acceleration, redemption or otherwise (including the failure to make a
payment to purchase Senior Secured Notes tendered pursuant to a Change of
Control Offer or a Net Proceeds Offer); or
(iii) default in the performance of or compliance with, or breach of, any
term, covenant, condition, or provision of the Security Documents, which
default or breach shall continue unremedied for 30 days after written
notice to the Company by the Trustee or to the Company and the Trustee by
holders of at least 25% in aggregate principal amount of the outstanding
Senior Secured Notes; or
(iv) default in the performance, or breach, of any covenant in the
Indenture (other than defaults specified in clause (i) or (ii) above), and
continuance of such default or breach for a period of 30 days after written
notice to the Company by the Trustee or to the Company and the Trustee by
the holders of at least 25% in aggregate principal amount of the
outstanding Senior Secured Notes; or
(v) failure by the Company or any Subsidiary (a) to make any payment when
due with respect to any other Indebtedness in an aggregate principal amount
of $2.5 million or more; or (b) to perform any term, covenant, condition,
or provision of one or more classes or issues of other Indebtedness in an
aggregate principal amount of $2.5 million or more, which failure, in the
case of clause (b), results in an acceleration of the maturity thereof; or
(vi) one or more judgments, orders or decrees for the payment of money in
excess of $2.5 million, either individually or in an aggregate amount,
shall be entered against the Company or any of its Subsidiaries or any of
their respective properties and shall not be discharged and there shall
have been a period of 60 days during which a stay of enforcement of such
judgment or order, by reason of pending appeal or otherwise, shall not be
in effect; or
(vii) certain events of bankruptcy or insolvency with respect to the
Company, CPC or Caribbean shall have occurred; or
(viii) either of the Guarantees or any of the Security Documents ceases
to be in full force and effect or any of the Security Documents ceases to
give the Trustee, in any material respect, the Liens purported to be
created thereby (including, without limitation, a perfected security
interest in, and Lien on, all of the Collateral to the extent provided for
in the Indenture or in such Security Documents) in favor of the Trustee for
the benefit of the Holders subject to no other Liens (in each case, except
as permitted by the Indenture and by the Security Documents).
If an Event of Default (other than an Event of Default specified in clause
(vii) above) occurs and is continuing, then the holders of at least 25% in
principal amount of the outstanding Senior Secured Notes may, by written
notice, and the Trustee upon the request of the holders of not less than 25%
in principal amount of the outstanding Senior Secured Notes shall, declare the
principal of and accrued interest on, all the Senior Secured Notes to be due
and payable immediately. Upon any such declaration such amounts shall become
due and payable immediately. If an Event of Default specified in clause (vii)
occurs and is continuing, then the
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principal of and accrued interest on, all the Senior Secured Notes shall ipso
facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holder.
After a declaration of acceleration, the holders of a majority in aggregate
principal amount of outstanding Senior Secured Notes may, by notice to the
Trustee, rescind such declaration of acceleration if all existing Events of
Default have been cured or waived, other than nonpayment of principal of and
accrued interest on the Senior Secured Notes that has become due solely as a
result of such acceleration and if the rescission of acceleration would not
conflict with any judgment or decree. The holders of a majority in principal
amount of the outstanding Senior Secured Notes also have the right to waive
past defaults under the Indenture except a default in the payment of the
principal of or interest on any Senior Secured Note, or in respect of a
covenant or a provision which cannot be modified or amended without the
consent of all holders.
No holder of any of the Senior Secured Notes has any right to institute any
proceeding with respect to the Indenture or any remedy thereunder, unless the
holders of at least 25% in principal amount of the outstanding Senior Secured
Notes have made written request, and offered reasonable indemnity, to the
Trustee to institute such proceeding as Trustee, the Trustee has failed to
institute such proceeding within 15 days after receipt of such notice and the
Trustee has not within such 15-day period received directions inconsistent
with such written request by holders of a majority in principal amount of the
outstanding Senior Secured Notes. Such limitations do not apply, however, to a
suit instituted by a holder of a Senior Secured Note for the enforcement of
the payment of the principal of, premium, if any, or accrued interest on, such
Senior Secured Note on or after the respective due dates expressed in such
Senior Secured Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent Person
would exercise under the circumstances in the conduct of such Person's own
affairs. Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee is not under any obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the holders unless
such holders shall have offered to such Trustee reasonable security or
indemnity. Subject to certain provisions concerning the rights of the Trustee,
the holders of a majority in principal amount of the outstanding Senior
Secured 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.
DEFEASANCE
The Company may at any time terminate all of its obligations with respect to
the Senior Secured Notes ("defeasance"), except for certain obligations,
including those regarding any trust established for a defeasance and
obligations to register the transfer or exchange of the Senior Secured Notes,
to replace mutilated, destroyed, lost or stolen Senior Secured Notes and to
maintain agencies in respect of Senior Secured Notes. The Company may at any
time terminate its obligations under certain covenants set forth in the
Indenture, some of which are described under "--Certain Covenants" above, and
any omission to comply with such obligations shall not constitute a Default or
an Event of Default with respect to the Senior Secured Notes issued under the
Indenture ("covenant defeasance"). In order to exercise either defeasance or
covenant defeasance, the Company must irrevocably deposit in trust, for the
benefit of the holders of the Senior Secured Notes, with the Trustee money or
U.S. government obligations, or a combination thereof, in such amounts as will
be sufficient to pay the principal of and interest on the Senior Secured Notes
to redemption or maturity and comply with certain other conditions, including
the delivery of an opinion as to certain tax matters.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of
Senior Secured Notes) as to all outstanding Senior Secured Notes when either
(a) all such Senior Secured Notes theretofore authenticated and delivered
(except lost, stolen or destroyed
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Senior Secured Notes which have been replaced or paid and Senior Secured 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)(i) all such Senior Secured Notes not theretofore
delivered to the Trustee for cancellation have or will (upon the mailing of a
notice or notices deposited with the Trustee together with irrevocable
instructions to mail such notice or notices to holders of the Senior Secured
Notes) become due and payable and the Company has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in the trust for the
purpose an amount of money sufficient to pay and discharge the entire
indebtedness on the Senior Secured Notes not theretofore delivered to the
Trustee for cancellation, for principal, premium, if any, and accrued interest
to the date of such deposit; (ii) the Company has paid all sums payable by it
under the Indenture; and (iii) the Company has delivered irrevocable
instructions to the Trustee to apply the deposited money toward the payment of
the Senior Secured Notes at maturity or the redemption date, as the case may
be. In addition, the Company must deliver an Officers' Certificate and an
Opinion of Counsel stating that all conditions precedent to satisfaction and
discharge have been complied with.
AMENDMENTS AND WAIVERS
From time to time the Company and the Guarantors, when authorized by
resolutions of their Boards of Directors, and the Trustee may, without the
consent of the holders of the Senior Secured Notes, amend, waive or supplement
the Indenture, the Security Documents or the Senior Secured Notes for certain
specified purposes, including, among other things, curing ambiguities, defects
or inconsistencies, maintaining the qualification of the Indenture under the
Trust Indenture Act, making any change that does not adversely affect the
rights of any holder or mortgaging, pledging or granting a security interest
in favor of the Trustee as additional security for the payment and performance
of the obligations under the Indenture, in any property or assets, including
any which is required to be mortgaged, pledged or hypothecated, or in which a
security interest is required to be granted, to the Trustee pursuant to any
Security Document or otherwise. Other amendments and modifications of the
Indenture, the Senior Secured Notes or the Security Documents may be made by
the Company, the Guarantors and the Trustee with the consent of the holders of
not less than a majority of the aggregate principal amount of the outstanding
Senior Secured Notes; provided, however, that no such modification or
amendment may, without the consent of the holder of each outstanding Senior
Secured Note affected thereby, (i) reduce the principal amount outstanding of,
extend the maturity of, or alter the redemption provisions of, the Senior
Secured Notes, (ii) change the currency in which any Senior Secured Notes or
any premium or the accrued interest thereon is payable, (iii) reduce the
percentage in principal amount outstanding of Senior Secured Notes, who must
consent to an amendment, supplement or waiver or consent to take any action
under the Indenture, the Senior Secured Notes or the Security Documents, (iv)
impair the right to institute suit for the enforcement of any payment on or
with respect to the Senior Secured Notes, (v) waive a default in payment with
respect to the Senior Secured Notes, (vi) reduce the rate or extend the time
for payment of interest on the Senior Secured Notes, (vii) affect the ranking
or security of the Senior Secured Notes or (viii) release any Guarantor from
any of its obligations under its Guarantee or the Indenture (other than, in
the case of this clause (viii), a merger of one of the Guarantors with or into
the other Guarantor or the Company or with another wholly-owned Subsidiary of
the Company that assumes all of such Guarantor's obligations under the
Guarantee and the Indenture and the Security Documents) unless in each case
the holders of the particular Senior Secured Notes to be affected consent with
respect thereto.
POSSESSION, USE AND RELEASE OF COLLATERAL
Unless an Event of Default shall have occurred and be continuing, the
Company and the Guarantors will have the right to remain in possession and
retain exclusive control of the Collateral securing the Senior Secured Notes
(other than any cash, securities, obligations and Cash Equivalents
constituting part of the Collateral and deposited with the Trustee and other
than as set forth in the Security Documents), to freely operate the Collateral
and to collect, invest and dispose of any income thereon.
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Release of Collateral. The Company or the relevant Guarantor, as the case
may be, will have the right to sell, exchange or otherwise dispose of any of
the Collateral (other than Trust Moneys constituting Net Cash Proceeds from an
Asset Sale, which are subject to release from the Lien of the Security
Documents as provided under "--Use of Trust Moneys" below) (a "Release
Transaction"), upon compliance with the requirements and conditions of the
provisions described below, and the Trustee shall release the same from the
Lien of the Security Documents upon receipt by the Trustee (other than in the
case of paragraph (d) below) of a notice requesting such release and
describing the property to be so released, together with delivery of the
following, among other matters:
(a) If the property to be released has a book value of at least $5.0
million, a Board Resolution of the Company or the relevant Guarantor, as
the case may be, requesting such release and authorizing an application to
the Trustee therefor.
(b) An officers' certificate of the Company or the relevant Guarantor, as
the case may be, dated not more than 30 days prior to the date of the
application for such release, and signed also, in the case of the following
clauses (ii) and (iv), by an Independent Appraiser or, if such property
consists of securities, by a Financial Advisor, in each case stating in
substance as to certain matters, including the following:
(i) that, in the opinion of the signers, the security afforded by the
Security Documents will not be impaired by such release in
contravention of the provisions of the Indenture, and that either (1)
the Collateral to be released is not being replaced by comparable
property, has a book value of less than $250,000 and is not necessary
for the efficient operation of the Company's and its Subsidiaries'
remaining property or in the conduct of the business of the Company and
its Subsidiaries as conducted immediately prior thereto or (2) the
Collateral to be released is being released in connection with an Asset
Sale of such Collateral and the net proceeds (as defined in paragraph
(d) below) from such Asset Sale are being delivered to the Trustee (if
required by the covenant "--Disposition of Proceeds of Asset Sales") in
accordance with, and to the extent required by, the provisions of
paragraph (d) below;
(ii) that the Company or the relevant Guarantor has either disposed
of or will dispose of the Collateral so to be released in compliance
with all applicable terms of the Indenture and for a consideration
representing, in the opinion of the signers, its fair value, which
consideration may, subject to any other provisions of the Indenture,
consist of any one or more of the following: (A) cash or Cash
Equivalents, (B) obligations secured by a purchase money Lien upon the
property so to be released and (C) any other property or assets that,
upon acquisition thereof by the Company or the relevant Guarantor would
be subject to the Lien of the Security Documents (except as provided in
paragraph (d) below), and subject to no Lien other than certain Liens
which, under the applicable provisions of the Security Documents
relating thereto, are permitted to be superior to the Lien of the
Trustee therein, all of such consideration to be briefly described in
the certificate;
(iii) that no Event of Default has occurred and is continuing;
(iv) the fair value, in the opinion of the signers, of the property
to be released at the date of such application for release; provided
that it shall not be necessary under this clause (iv) to state the fair
value of any property whose fair value is certified in a certificate of
an Independent Appraiser or Independent Financial Advisor under
paragraph (c) below; and
(v) that all conditions precedent in the Indenture and the Security
Documents relating to the release of the Collateral in question have
been complied with.
(c) If (i) the fair value of the property to be released and of all other
property released from the Lien of the Security Documents since the
commencement of the then current calendar year is 10 percent or more of the
aggregate principal amount of the Senior Secured Notes outstanding on the
date of the application and (ii) the fair value of the Collateral to be so
released is at least $25,000 and at least 1 percent of the aggregate
principal amount of the Senior Secured Notes outstanding on the date of the
application, a
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certificate of an Independent Appraiser, or if such property consists of
securities, a certificate of an Independent Financial Advisor stating (1)
the then fair value, in the opinion of the signer, of the property to be
released; and (2) that such release, in the opinion of the signer, will not
impair the security interests under any of the Security Documents in
contravention of their terms.
(d) The net proceeds (excluding any Net Cash Proceeds from any Asset Sale
which are not required, or cannot be required through the passage of time
or otherwise, to be used to purchase or redeem Senior Secured Notes under
the covenant described under "--Disposition of Proceeds of Asset Sales"
above) or if the Collateral so to be released is subject to a prior Lien
permitted under the Security Documents, a certificate of the trustee,
mortgagee or other holder of such prior Lien that it has received such net
proceeds and has been irrevocably authorized by the Company or the relevant
Guarantor to pay over to the Trustee any balance of such net proceeds
remaining after the discharge of such Indebtedness secured by such prior
Lien; and, if any property other than cash, Cash Equivalents or obligations
is included in such net proceeds, such instruments of conveyance,
assignment and transfer, if any, as may be necessary, in the Opinion of
Counsel, to subject to the Lien of the Security Documents all the right,
title and interest of the Company or the relevant Guarantor in and to such
property. For purposes of this paragraph (d), "net proceeds" shall mean any
cash, Cash Equivalents, obligations or other property received on the sale,
transfer, exchange or other disposition of Collateral to be released, less
a proportionate share of (i) brokerage commissions and other reasonable
fees and expenses related to such transaction and (ii) any provision for
Federal, state or local taxes payable as a result of such sale, transfer,
exchange or other disposition.
(e) One or more Opinions of Counsel which, when considered collectively,
shall be substantially to the effect (i) that any obligation included in
the consideration for any property so to be released and to be received by
the Trustee pursuant to paragraph (d) above is a valid and binding
obligation enforceable in accordance with its terms, subject to such
customary exceptions regarding equitable principles, creditors' rights
generally and bankruptcy as shall be reasonably acceptable to the Trustee
in its sole judgment, and is effectively pledged under the Security
Documents, (ii) that any Lien granted by a purchaser to secure a purchase
money obligation is a fully perfected first priority Lien to the extent
obtainable by filing or possession and such instrument granting such Lien
is enforceable in accordance with its terms, (iii) either (x) that such
instruments of conveyance, assignment and transfer as have been or are then
delivered to the Trustee are sufficient to subject to the Lien of the
Security Documents all the right, title and interest of the Company or the
relevant Guarantor in and to any property, other than cash, Cash
Equivalents and obligations, that is included in the consideration for the
Collateral so to be released and to be received by the Trustee pursuant to
paragraph (d) above, subject to no Lien other than Liens permitted on
Collateral by the covenant described under "--Limitation on Liens" above,
or (y) that no instruments of conveyance, assignment or transfer are
necessary for such purpose, (iv) that the Company or the relevant Guarantor
has corporate power to own all property included in the consideration for
such release, (v) in case any part of the money or obligations referred to
in paragraph (d) above has been deposited with a trustee or other holder of
any prior Lien permitted by the Security Documents, that the Collateral to
be released, or a specified portion thereof, is or immediately before such
release was subject to such prior Lien and that such deposit is required by
such prior Lien and (vi) that all conditions precedent provided in the
Indenture and the Security Documents relating to the release of the
Collateral have been complied with.
Notwithstanding the foregoing, the Company or the Guarantors may obtain a
release of Available Amounts required to purchase Senior Secured Notes
pursuant to an Asset Sale Offer on an Asset Sale Payment Date by directing
the Trustee in writing to cause to be applied such Available Amounts to
such purchase in accordance with the covenant described under "--
Disposition of Proceeds of Asset Sales" above.
In case an Event of Default shall have occurred and be continuing, the
Company or the relevant Guarantor, while in possession of the Collateral
(other than cash, Cash Equivalents and other personal property held by, or
required to be deposited or pledged with, the Trustee under the Indenture or
under any Security Document or with the trustee, mortgagee or other holder of
a prior Lien permitted under the Security Documents), may do any
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of the things enumerated in these "--Release of Collateral" provisions only if
the Trustee, in its discretion, or the holders of a majority in aggregate
principal amount of the outstanding Senior Secured Notes shall consent to such
action, in which event any certificate filed under these "--Release of
Collateral" provisions, shall omit the statement to the effect that no Event
of Default has occurred and is continuing.
All cash or Cash Equivalents received by the Trustee pursuant to the
provisions described under "Release of Collateral" will be held by the Trustee
as Trust Moneys under the Indenture subject to application as provided in "--
Release of Collateral" (in the case of any Net Cash Proceeds from Asset Sales)
or in "--Use of Trust Moneys" below. All purchase money and other obligations
received by the Trustee pursuant to these "--Release of Collateral" provisions
shall be held by the Trustee.
Any releases of Collateral made in strict compliance with these "--Release
of Collateral" provisions shall be deemed not to impair the security interests
created by the Security Documents in favor of the Trustee for the benefit of
the Senior Secured Noteholders, in contravention of the provisions of the
Indenture.
Disposition of Collateral Without Release. Notwithstanding the provisions of
"--Release of Collateral" above, so long as no Event of Default shall have
occurred and be continuing, the Company and the Guarantors may, without any
release or consent by the Trustee, do any number of ordinary course
activities, in limited dollar amounts specified by the Trust Indenture Act of
1939, upon satisfaction of certain conditions. For example, among other
things, subject to such dollar limitations and conditions, the Company and the
Guarantors would be permitted to sell or otherwise dispose of any machinery,
equipment, furniture, tools, materials or supplies or other similar property
subject to the Lien of any of the Security Documents, which may have become
worn out or obsolete; grant rights-of-way and easements over or in respect of
any Real Property; abandon, terminate, cancel, release or make alterations in
or substitutions of any leases, contracts or rights-of-way subject to the Lien
of any of the Security Documents; surrender or modify any franchise, license
or permit subject to the Lien of 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 plants, structures, machinery, systems,
equipment, fixtures and appurtenances; and demolish, dismantle, tear down or
scrap any Collateral or abandon any thereof other than land or interests in
land (other than leases); grant a non-exclusive license of any Intellectual
Property (as defined in the Intellectual Property Security Document); and
abandon Intellectual Property under certain circumstances and grant leases in
respect of any Real Property under certain circumstances.
SUBSTITUTE COLLATERAL
The Company or any Guarantor may, at its option, obtain a release of any of
the Collateral constituting Equipment by subjecting to the Lien of any
Security Document or a similar instrument, in exchange for the Collateral to
be released, other Equipment used or to be used in the business of the Company
or the relevant Guarantor and having a fair value equal to or greater than the
Collateral to be released ("Substitute Collateral"), upon presentation to the
Trustee of the following documents:
(a) an application of the Company or the relevant Guarantor requesting
such substitution of Substitute Collateral and describing the property to
be so released and the property to be substituted therefor;
(b) certain resolutions, certificates, opinions and other statements
required by the Indenture in respect of any of the Collateral to be
released;
(c) a certificate, signed by an Independent Appraiser, stating in
substance the Fair Market Value, in the opinion of the signers, of the
Substitute Collateral and the Collateral to be released;
(d) an officers' certificate of the Company or the relevant Guarantor
stating that (i) any specific exceptions to such Lien are Liens of the
character which were permitted to be Prior Liens under the Security
Documents with respect to the Collateral being replaced by such Substitute
Collateral and (ii) the Fair Market Value of all Collateral released
pursuant to the provisions of this section during the then current calendar
year does not exceed in the aggregate $10.0 million; and
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(e) evidence of payment or a closing statement indicating payments to be
made by the Company or the relevant Guarantor of all filing fees, recording
charges, transfer taxes and other costs and expenses, including reasonable
legal fees and disbursements of counsel for the Trustee (and any local
counsel) that may be incurred to validly and effectively subject such
Substitute Collateral to the Lien of any applicable Security Document and
to perfect such Liens.
USE OF TRUST MONEYS
All Trust Moneys (including, without limitation, all Net Cash Proceeds
required to be deposited with the Trustee) shall be held by the Trustee as a
part of the Collateral securing the Senior Secured Notes and, so long as no
Event of Default shall have occurred and be continuing, may either (i) be
released in accordance with "--Possession, Use and Release of Collateral--
Release of Collateral" above if such Trust Moneys represent Net Cash Proceeds
from an Asset Sale or (ii) at the direction of the Company be applied by the
Trustee from time to time to the payment of the principal of, premium, if any,
and interest on any Senior Secured Notes at maturity or upon redemption or to
the purchase of Senior Secured Notes upon tender or in the open market or at
private sale or upon any exchange or in any one or more of such ways, in each
case in accordance with the terms of the Indenture. The Company may also
withdraw Trust Moneys constituting the proceeds of insurance upon any part of
the Collateral or an award for any Collateral taken by eminent domain to
reimburse the Company for repair or replacement of such Collateral, subject to
certain conditions.
REGARDING THE TRUSTEE
United States Trust Company of New York serves as Trustee under the
Indenture and acts as collateral agent or the mortgagee, as applicable, under
the Security Documents.
CERTAIN DEFINITIONS
Set forth below is a summary of certain 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 capitalized terms used herein for which no definition is
provided.
"1996 Sale/Leaseback" means the Sale/Leaseback having substantially the
terms described herein under "The Refinancing--The Sale/Leaseback," between
General Electric Capital Corporation and certain other financial institutions,
as lessors, CPC as lessee and the Company as guarantor, as the same may be
amended or restated, and any Sale-Leaseback Transaction used to refinance or
replace the 1996 Sale/Leaseback in an amount not to exceed the purchase price
at the time of the termination thereof.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Subsidiary of the Company or assumed in connection with
an Asset Acquisition by such Person, including, without limitation,
Indebtedness incurred in connection with, or in anticipation of, such Person
becoming a Subsidiary of the Company or such acquisition.
"Affiliate" of any specified Person means any other Person which, directly
or indirectly, controls, is controlled by or is under direct or indirect
common control with, such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by the contract or
otherwise, and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Appraiser" means a Person who is in the course of its business appraises
property and, where Real Property is involved, who is a member in good
standing of the American Institute of Real Estate Appraisers, recognized and
licensed to do business in the jurisdiction where the applicable Real Property
is situated, and who may be employed by the Company or a Guarantor.
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"Asset Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise), or purchase or
acquisition of Capital Stock, by the Company or any of its Subsidiaries in any
other Person, in either case pursuant to which such Person shall become a
Subsidiary of the Company or any of its Subsidiaries or shall be merged with
or into the Company or any of its Subsidiaries or (ii) any acquisition by the
Company or any of its Subsidiaries of the assets of any Person which
constitute substantially all of an operating unit or business of such Person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
or other disposition to any Person other than the Company or a Subsidiary of
the Company, in one transaction or a series of related transactions, of (i)
any Capital Stock of any Subsidiary of the Company or (ii) any other property
or asset of the Company or any Subsidiary of the Company, in each case, other
than inventory in the ordinary course of business and other than such isolated
transactions which do not exceed $250,000 individually. For the purposes of
this definition, the term "Asset Sale" shall not include sales of (i)
receivables not a part of a sale of the business from which they arose or any
disposition of properties and assets of the Company or any Subsidiary that is
governed under and complies with the requirements set forth in "Consolidation,
Merger, Conveyance, Transfer or Lease" above or (ii) the assets securing the
Previously Leased/Financed Equipment so long as such assets do not constitute
Collateral.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company or a Guarantor, as appropriate, to
have been duly adopted by the Board of Directors of the Company or a
Guarantor, as appropriate, and to be in full force and effect on the date of
such certification, and delivered to the Trustee.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock, whether
outstanding on the date on which the Senior Secured Notes are originally
issued or issued after such date, and any and all rights, warrants or options
exchangeable for or convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP, and, for the
purpose of the Indenture, the amount of such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with
GAAP.
"Cash Equivalents" means, at any time (i) any evidence of Indebtedness with
a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality
thereof (provided that the full faith and credit of the United States of
America is pledged in support thereof); (ii) certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500.0 million; (iii)
commercial paper with a maturity of 180 days or less issued by a corporation
(except an Affiliate of the Company) organized under the laws of any state of
the United States or the District of Columbia and having the highest rating
obtainable from Standard & Poor's Ratings Service, a division of The McGraw-
Hill Companies, Inc. or Moody's Investors Service, Inc.; and (iv) repurchase
obligations for a term of not more than seven days for underlying securities
of the types described in clause (i) above entered into with any bank meeting
the qualifications specified in clause (ii) above.
"Change of Control" means (i) the direct or indirect, sale, lease, exchange
or other transfer of all or substantially all of the assets of the Company to
any Person or entity or group of Persons or entities acting in concert as a
partnership or other group (a "Group of Persons") other than an Affiliate of
the Company, (ii) the merger or consolidation of the Company with or into
another corporation with the effect that the then existing shareholders of the
Company hold less than 50% of the combined voting power of the then
outstanding securities of the surviving corporation of such merger or the
corporation resulting from such consolidation ordinarily (and
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apart from rights arising under special circumstances) having the right to
vote in the election of directors, (iii) the replacement of a majority of the
Board of Directors of the Company, over a two-year period, from the directors
who constituted the Board of Directors at the beginning of such period, and
such replacement shall not have been approved by the Board of Directors as
constituted at the beginning of such period or (iv) a Person or Group of
Persons (other than Continental Can or any of its Affiliates) shall, as a
result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, have become the beneficial owner (within
the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company
or Continental Can representing 50% or more of the combined voting power of
the then outstanding securities of the Company or Continental Can ordinarily
(and apart from rights accruing under special circumstances) having the right
to vote in the election of directors.
"Collateral" means, collectively, all of the property and assets (including,
without limitation, Trust Moneys) that are from time to time subject to the
Pledge and Security Agreements, the Patent and Trademark Security Assignment,
the Stock Pledge Agreement and the Mortgages.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period increased (to the
extent deducted in determining Consolidated Net Income) by the sum of: (i) all
income taxes of such Person paid or accrued according to GAAP for such period
(other than income taxes attributable to extraordinary, unusual or non-
recurring gains or losses); (ii) all interest expense of such Person paid or
accrued in accordance with GAAP (net of any interest income) for such period
(including amortization of original issue discount and the interest portion of
deferred payment obligations); (iii) depreciation; (iv) amortization
including, without limitation, amortization of capitalized debt issuance
costs; and (v) any other non-cash charges to the extent deducted from
Consolidated Net Income (including the non-cash portion of any rental expense
and non-cash expenses recognized in accordance with Financial Accounting
Standards Bulletin Number 106) except for non-cash charges which require an
accrual of or a reserve for any future period, and decreased by the amount of
any non-cash items increasing Consolidated Net Income for such period.
"Consolidated Interest Coverage Ratio" means, with respect to any Person,
the ratio of (i) Consolidated Cash Flow of such Person for the four full
fiscal quarters for which financial statements are available that immediately
precede the date of the transaction or other circumstances giving rise to the
need to calculate the Consolidated Interest Coverage Ratio (the "Transaction
Date") to (ii) all cash and non-cash interest expense (including capitalized
interest) of such Person and its Subsidiaries determined in accordance with
GAAP (net of any interest income to the extent received in cash by such Person
and its Subsidiaries and exclusive of deferred financing fees of such Person
and its Subsidiaries) and the product of (x) the amount of all dividends
declared, paid or accrued on Capital Stock (other than Common Stock) of such
Person 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, local and foreign tax rate (expressed as a
decimal number between 1 and 0) of such Person during such period (as
reflected in the audited consolidated financial statements of such Person for
the most recently completed fiscal year). For purposes of this definition, if
the Transaction Date occurs prior to the date on which the Company's
consolidated financial statements for the four full fiscal quarters subsequent
to the date on which the Senior Secured Notes are originally issued are first
available, "Consolidated Cash Flow" and the items referred to in the preceding
clause (ii) shall be calculated, in the case of the Company, after giving
effect on a pro forma basis as if the Senior Secured Notes outstanding on the
Transaction Date were issued on the first day of such four full fiscal quarter
period. In addition to and without limitation of the foregoing, for purposes
of this definition, "Consolidated Cash Flow" and the items referred to in the
preceding clause (ii) shall be calculated after giving effect on a pro forma
basis for the period of such calculation to (i) the incurrence of any
Indebtedness of such Person or any of its Subsidiaries at any time during the
period (the "Reference Period") (A) commencing on the first day of the four
full fiscal quarter period for which financial statements are available that
precedes the Transaction Date and (B) ending on and including the Transaction
Date, including, without limitation, the incurrence of the Indebtedness giving
rise to the need to make such calculation, as if such incurrence occurred on
the first day of the Reference Period; provided, that if such Person or any of
its
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Subsidiaries directly or indirectly guarantees Indebtedness of a third Person,
the above clause shall give effect to the incurrence of such guaranteed
Indebtedness as if such Person or Subsidiary had directly incurred such
guaranteed Indebtedness and (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 the Company or any of its Subsidiaries
(including any Person who becomes a Subsidiary as a result of the Asset
Acquisition) incurring Acquired Indebtedness) occurring during the Reference
Period and any retirement of Indebtedness in connection with such Asset
Acquisitions, as if such Asset Sale or Asset Acquisition and/or retirement
occurred on the first day of the Reference Period. Furthermore, in calculating
the denominator (but not the numerator) of this "Consolidated Interest
Coverage Ratio," (1) subject to clause (3) below, interest on Indebtedness
determined on a fluctuating basis as of the Transaction Date and which will
continue to be so determined thereafter shall be deemed to accrue at a fixed
rate per annum equal to the rate of interest on such Indebtedness in effect on
the Transaction Date; (2) if interest on any Indebtedness actually incurred on
the Transaction Date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate based upon a factor of a prime or
similar rate shall be deemed to have been in effect; and (3) notwithstanding
clause (1) above, interest on Indebtedness determined on a fluctuating basis,
to the extent such interest is covered by agreements relating to Interest Rate
Protection Obligations, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP (which, in
the case of the Company, shall include any cash interest payment received by
the Company in respect of the Continental Can Note); provided, however, that
(i) the Net Income of any Person (the "other Person") in which the Person in
question or any of its Subsidiaries has a joint interest with a third party
(which interest does not cause the net income of such other Person to be
consolidated into the net income of the Person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid, in cash, to the Person in question or the Subsidiary, (b)
the net income of any Subsidiary of the Person in question that is subject to
any restriction or limitation on the payment of dividends or the making of
other distributions shall be excluded to the extent of such restriction or
limitation, (c)(i) the net income (or loss) of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded and (ii) any net gain or loss resulting from an
Asset Sale by the Person in question or any of its Subsidiaries other than in
the ordinary course of business shall be excluded.
"Consolidated Net Worth" means, with respect to any Person at any date of
determination, the consolidated equity of the common stockholders of such
Person and its subsidiaries at such date, as determined on a consolidated
basis in accordance with GAAP.
"Continental Can Note" means the note having substantially the terms
described herein under "The Refinancing--The Continental Can Loan," evidencing
Indebtedness of Continental Can to the Company.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
maturity date of the Senior Secured Notes.
"Equipment" shall have the meaning assigned to such term in the Pledge and
Security Agreement.
"Fair Market Value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length free market
transaction, for cash, between a willing seller and a willing buyer, neither
of whom is under undue pressure or compulsion to complete the transaction.
Fair Market Value shall be determined by the Board of Directors acting in good
faith and shall be evidenced by a Board Resolution delivered
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to the Trustee except (x) any determination of Fair Market Value made with
respect to any parcel of Real Property shall be made by an Appraiser and (y)
any determination of Fair Market Value of any asset or assets which would
reasonably be expected to have a Fair Market Value of $5 million or more made
with respect to the covenant "--Limitation on Transactions with Affiliates"
shall be made by an Independent Financial Advisor or Independent Appraiser.
"Financial Advisor" means an investment banking firm of national reputation
which (except as otherwise expressly provided in the Indenture) may be
employed by the Company.
"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 the
Indenture.
"Guarantee" means the guarantee of the Company's obligations under the
Senior Secured Notes on a joint and several basis by the Guarantors.
"Guarantor" means each of CPC and Caribbean and their respective successors.
"Indebtedness" means, with respect to any Person, without duplication, (i)
any liability, contingent or otherwise, of such Person (A) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such Person or only to a portion thereof), (B) evidenced by a note, debenture
or similar instrument or letters of credit (including a purchase money
obligation) or (C) for the payment of money relating to a Capitalized Lease
Obligation or other obligation relating to the deferred purchase price of
property; (ii) any liability of others of the kind described in the preceding
clause (i) which the Person has guaranteed or which is otherwise its legal
liability; (iii) any obligation secured by a Lien to which the property or
assets of such Person are subject, whether or not the obligations secured
thereby shall have been assumed by or shall otherwise be such Person's legal
liability; and (iv) any and all deferrals, renewals, extensions and refundings
of, or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (i), (ii) or (iii).
"Independent" when used with respect to any specified Person means such 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 in any
Guarantor or in any Affiliate of the Company or any Guarantor and (c) is not
an officer, employee, promoter, underwriter, trustee, partner, director or
Person performing similar functions for the Company or any Guarantor. 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 and approved by the Trustee 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.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time
periodic payments calculated by applying either a floating or a fixed rate of
interest on a stated notional amount in exchange for periodic payments made by
such Person calculated by applying a fixed or a floating rate of interest on
the same notional amount and shall include without limitation, interest rate
swaps, caps, floors, collars and similar agreements.
"Issue Date" means the date on which the Senior Secured Notes were initially
issued (December 17, 1996).
"Lien" means any mortgage, Lien (statutory or other), pledge, security
interest, encumbrance, claim, hypothecation, assignment for security, deposit
arrangement or preference or other security agreement of any kind or nature
whatsoever. For purposes of the Indenture, a Person shall be deemed to own
subject to a Lien any property which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such Person.
"Liquidated Damages" means all liquidated damages owing pursuant to the
Registration Rights Agreement. See "Registration Rights."
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"Maturity Date," when used with respect to any Senior Secured Note, means
December 15, 2006, the date on which the principal of such Senior Secured Note
is due and payable.
"Merrywood Agreement" means the Stock Purchase Agreement dated as of October
22, 1996 by and among the Company, Continental Can, Merrywood, Inc. and Plaza
Limited.
"Mortgage" means (i) in the case of CPC, a mortgage instrument (or deed of
trust) and assignment of leases and rents, substantially in the form attached
to the Indenture (including such changes to such form as may be necessary or
desirable to conform such form to local laws or customs applicable to property
in the jurisdiction where such instrument is to be recorded), as the same may
be amended, supplemented or otherwise modified from time to time in accordance
with the terms thereof, the terms of the Indenture and the terms of any other
Security Document and (ii) in the case of Caribbean, (x) a Pledge Agreement
substantially in the form attached to the Indenture, (y) a Deed of Mortgage
substantially in the form attached to the Indenture and (z) a Mortgage Note
substantially in the form attached to the Indenture, in each case including
such changes to such forms as may be necessary or desirable to conform such
form to local laws or customs applicable to property in the jurisdiction where
such instrument is to be recorded, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"Net Cash Proceeds" means, with respect to any Asset Sale the proceeds
thereof in the form of cash or cash equivalents, including payments in respect
of deferred payment obligations when received in the form of cash or cash
equivalents (except to the extent that such obligations with respect to
Indebtedness are financed or sold with recourse to the Company or any of its
Subsidiaries) net of (i) brokerage commissions and other reasonable fees and
expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale; (ii) provisions for all taxes payable as a result
of such Asset Sale; (iii) payments made to retire Indebtedness secured by the
current assets subject to such Asset Sale (including retirements of
Indebtedness under the Revolving Credit Facility) to the extent required
pursuant to the terms of such Indebtedness; and (iv) appropriate amounts to be
provided by the Company or any of its Subsidiaries, as the case may be, as a
reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale and retained by the Company or any of its Subsidiaries, as the case
may be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by the
Company, the aggregate net proceeds received by the Company, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the Fair Market Value
thereof, as determined in good faith by the Board of Directors, at the time of
receipt) and (b) in the case of any exchange, exercise, conversion or
surrender of outstanding securities of any kind for or into shares of Capital
Stock of the Company which is not Disqualified Stock, the net book value of
such outstanding securities on the date of such exchange, exercise, conversion
or surrender (plus any additional amount required to be paid by the holder to
the Company upon such exchange, exercise, conversion or surrender, less any
and all payments made to the holders, e.g., on account of fractional shares
and less all expenses incurred by the Company in connection therewith).
"Notice of Security Interest" means a Notice of Security Interest relating
to intellectual property, substantially in the form attached to the Indenture,
as such may be amended, supplemented or otherwise modified from time to time
in accordance with the terms thereof.
"Permitted Investments" means (i) obligations of the U.S. government due
within one year; (ii) certificates of deposits or Eurodollar deposits due
within one year with a commercial bank having capital funds of at least $500.0
million or more; and (iii) A-1, P-1 commercial paper.
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"Permitted Liens" means, with respect to any Person, any Lien arising by
reason of (a) any judgment, decree or order of any court, so long as such Lien
is being contested in good faith and is adequately bonded, any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment, decree or
order shall not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired; (b) taxes not yet
delinquent or which are being contested in good faith; (c) security for
payment of workers' compensation or other insurance; (d) security for the
performance of tenders, contracts (other than contracts for the payment of
money) or leases; (e) deposits to secure public or statutory obligations, or
to secure permitted contracts for the purchase or sale of any currency entered
into in the ordinary course of business; (f) Liens imposed by operation of law
in favor of carriers, warehousemen, landlords, mechanics, materialmen,
laborers, employees or suppliers, incurred in the ordinary course of business
for sums which are not yet delinquent or are being contested in good faith by
negotiations or by appropriate proceedings which suspend the collection
thereof; (g) security for surety or appeal bonds; and (h) easements, rights-
of-way, zoning and similar covenants and restrictions and other similar
encumbrances or title defects which, in the aggregate, are not substantial in
amount, and which do not in any case materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of the Company or any of its Subsidiaries.
"Previously Leased/Financed Equipment" means the equipment and machinery
listed on a schedule attached to the Indenture representing certain equipment
and machinery currently the subject of certain operating and capital leases
and any additions or accessories thereto.
"Prior Liens" has the meaning set forth in the Security Documents.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Company or any Subsidiary of the Company or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Company
or any Subsidiary of the Company (other than (x) dividends or distributions
payable solely in Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase Capital Stock (other than Disqualified
Stock), and (y) in the case of Subsidiaries of the Company, dividends or
distributions payable to the Company or to a Subsidiary of the Company), (ii)
the purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company or any of its Subsidiaries, (iii) the making of
any principal payment on, or the purchase, defeasance, repurchase, redemption
or other acquisition or retirement for value, prior to any scheduled maturity,
scheduled repayment or scheduled sinking fund payment, of any Indebtedness
which is subordinated in right of payment to the Senior Secured Notes (other
than Indebtedness acquired in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within
one year of the date of acquisition) and (iv) the making of any Prohibited
Investment or guarantee of any Prohibited Investment in any Person.
"Revolving Credit Facility" means the credit agreement between the Company
and The CIT Group/Business Credit, Inc. as lender, providing for working
capital and other financing, as the same may at any time be amended, amended
and restated, supplemented or otherwise modified, including any refinancing,
refunding, replacement or extension thereof by the Company or the Guarantors
with the same or any other lender or group of lenders.
"Sale-Leaseback Transaction" means any arrangement with any Person providing
for the leasing by the Company or any Subsidiary of the Company of any real or
tangible personal property, which property has been or is to be sold or
transferred by the Company or such Subsidiary to such Person in contemplation
of such leasing.
"Security Documents" means, collectively, (i) the Stock Pledge Agreement,
(ii) the Pledge and Security Agreements, (iii) the Mortgages and (iv) the
Notice of Security Interest.
"Subsidiary" means, with respect to any Person, (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 shall at the time be owned, directly
or indirectly, by such Person, or (ii) any other Person of which at least a
majority of voting interest is at the time, directly or indirectly, owned by
such Person.
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"Trust Moneys" means all cash or Cash Equivalents received by the Trustee:
(a) upon the release of property from the Lien of any of the Security
Documents, including all moneys received in respect of the principal of all
purchase money, governmental and other obligations; or (b) as compensation
for, or proceeds of the sale of all or any part of the Collateral taken by
eminent domain or purchased by, or sold pursuant to an order of, a
governmental authority or otherwise disposed of; or (c) as proceeds of
insurance upon any, all or part of the Collateral (other than any liability
insurance proceeds payable to the Trustee for any loss, liability or expense
incurred by it); or (d) pursuant to certain provisions of the Mortgages; or
(e) as proceeds of any other sale or other disposition of all or any part of
the Collateral by or on behalf of the Trustee or any collection, recovery,
receipt, appropriation or other realization of or from all or any part of the
Collateral pursuant to the Security Documents or otherwise; or (f) for
application under the Indenture as provided in the Indenture or any Security
Document, or whose disposition is not otherwise specifically provided for in
the Indenture or in any Security Document; provided, however, that Trust
Moneys shall in no event include any property deposited with the Trustee for
any Change of Control Offer or redemption or defeasance of any Senior Secured
Notes.
BOOK-ENTRY, DELIVERY AND FORM
The Old Notes were offered and sold in reliance on Rule 144A to "qualified
institutional buyers" as defined therein ("Rule 144A Notes"), and to
institutional "accredited investors" (as defined in Regulation D under the
Securities Act) in transactions exempt from registration under the Securities
Act not made in reliance on Rule 144A or Regulation S ("Other Notes").
Rule 144A Notes and Other Notes initially are represented by one or more
temporary global certificates in registered form without interest coupons
(collectively, the "Global Notes"). The Global Notes were deposited upon
issuance with the Trustee, as custodian for DTC, in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant as described below.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for Old
Notes in certificated form ("Certificated Notes"), except in the limited
circumstances described below.
Global Notes (including beneficial interests therein) are subject to certain
restrictions on transfer and bear a restrictive legend. In addition, transfer
of beneficial interests in the Global Notes are subject to the applicable
rules and procedures of DTC and its direct or indirect participants, which may
change from time to time.
A Global Note is exchangeable for definitive Senior Secured Notes in
registered certificated form if (i) DTC (x) notifies the Company that it is
unwilling or unable to continue as depositary for the Global Notes and the
Company thereupon fails to appoint a successor depositary or (y) has ceased to
be a clearing agency registered under the Exchange Act, (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause the
issuance of the Old Notes in certificated form or (iii) there shall have
occurred and be continuing a Default or an Event of Default with respect to
the Senior Secured Notes. In addition, beneficial interests in a Global Note
may be exchanged for Certificated Notes upon request but only upon at least 20
days prior written notice given to the Trustee by or on behalf of DTC in
accordance with its customary procedures. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests therein will
be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures) and will bear a restrictive legend unless the Company determines
otherwise in compliance with applicable law.
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REGISTRATION RIGHTS
The Company, the Guarantors and the Initial Purchasers, for the benefit of
the Noteholders, have entered into the Registration Rights Agreement, pursuant
to which the Company filed with the Commission the Registration Statement with
respect to the Exchange Offer. If any holder of Transfer Restricted Securities
(as defined below) notifies the Company, within 20 business days following the
consummation of the Exchange Offer, that (A) such holder was prohibited by law
or Commission policy from participating in the Exchange Offer, or (B) such
holder may not resell the New Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus, and this Prospectus is not
appropriate or available for such resales by such holder, the Company will
file with the Commission a shelf registration statement (the "Shelf
Registration Statement") to cover resales of the Senior Secured Notes by the
Noteholders thereof who satisfy certain conditions relating to the provision
of information in connection with the Shelf Registration Statement. The
Company will use its best efforts to cause the Shelf Registration Statement to
be declared effective as promptly as possible by the Commission. For purposes
of the foregoing, "Transfer Restricted Securities" means each Senior Secured
Note until the earliest to occur of (i) the date on which it is exchanged in
the Exchange Offer for a New Note which may be resold to the public by the
holder thereof without complying with the prospectus delivery requirements of
the Securities Act, (ii) the date on which such Senior Secured Note has been
sold or otherwise disposed of in accordance with the Shelf Registration
Statement, (iii) the date on which such Senior Secured Note is disposed of by
a broker-dealer as contemplated by the Registration Statement (including
delivery of this Prospectus) and (iv) the date on which such Senior Secured
Note is distributed to the public pursuant to Rule 144 under the Securities
Act.
The Registration Rights Agreement provides that the Company will use its
best efforts to issue New Notes in exchange for all Transfer Restricted
Securities tendered prior thereto in the Exchange Offer, and that, if
obligated to file the Shelf Registration Statement, the Company and the
Guarantors will file the Shelf Registration Statement with the Commission on
or prior to 35 days after such filing obligation arises and use their
respective best efforts to cause the Shelf Registration Statement to be
declared effective by the Commission on or prior to 130 days after such
obligation arises; provided that if the Company has not consummated the
Exchange Offer on or prior to June 16, 1997, then the Company and the
Guarantors will file the Shelf Registration Statement with the Commission on
or prior to that date. The Company shall use its best efforts to keep such
Shelf Registration Statement continuously effective, supplemented and amended
until December 17, 1999, or such shorter period that will terminate when all
the Senior Secured Notes covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement or are eligible for sale
under pursuant to Rule 144(k) under the Securities Act. If (a) the Company
fails to file the Shelf Registration Statement on or before the date specified
for such filing, (b) the Shelf Registration Statement is not declared
effective by the Commission on or prior to the date specified above for such
effectiveness (the "Effectiveness Target Date"), (c) the Company fails to
consummate the Exchange Offer on or prior to June 9, 1997, or (d) the Shelf
Registration Statement or the Registration Statement is declared effective but
thereafter, subject to certain exceptions, ceases to be effective for a period
of one Business Day or (e) at any time when a prospectus is required by the
Act to be delivered in connection with sales of Transfer Restricted
Securities, the Company shall conclude, or the holders of a majority in
principal amount of the affected Transfer Restricted Securities shall
reasonably conclude, based on advice of their counsel, and shall give notice
to the Company, that either (A) any event shall occur or fact exist as a
result of which it is necessary to amend or supplement this Prospectus, or a
prospectus included in the Shelf Registration Statement, in order that it will
not include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading, or (B) it shall be
necessary to amend or supplement the Registration Statement, the Shelf
Registration Statement, this Prospectus, or a prospectus included in the Shelf
Registration Statement, in order to comply with the requirements of the Act or
the rules of the Commission thereunder, and in the case of clause (A) or (B),
such Registration Statement is not appropriately amended by an effective post-
effective amendment, or the prospectus is not amended or supplemented, in a
manner reasonably satisfactory to the holders of Transfer Restricted
Securities within one Business Day after the Company shall so conclude or
shall receive the above-mentioned notice from Holders of Transfer Restricted
Securities (each such event referred to in clauses (a) through (e) above a
"Registration Default"), then the Company will pay liquidated damages
("Liquidated
64
<PAGE>
Damages") to each holder of Transfer Restricted Securities affected by the
Registration Default, with respect to the first 90-day period immediately
following the occurrence of such Registration Default, in an amount equal to
$.05 per week per $1,000 principal amount of Transfer Restricted Securities
held by such holder. The amount of the Liquidated Damages will increase by an
additional $.05 per week per $1,000 principal amount of Transfer Restricted
Securities with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $.50 per week per $1,000 principal amount of Notes. All accrued
Liquidated Damages will be paid by the Company to the registered holders of
the Global Notes by wire transfer of immediately available funds or by federal
funds check and to holders of Certificated Notes by mailing checks to their
registered addresses. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
Noteholders will be required to make certain representations to the Company
(as described herein under the caption "The Exchange Offer--Procedures for
Tendering") in order to participate in the Exchange Offer and will be required
to deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within
the time periods set forth in the Registration Rights Agreement, in order to
have their Senior Secured Notes included in the Shelf Registration Statement
and benefit from the provisions regarding Liquidated Damages set forth above.
The foregoing description of the Registration Rights Agreement is a summary
of its material terms but does not purport to be complete and is qualified in
its entirety by reference to the complete text of the Registration Rights
Agreement, which is an exhibit to the Registration Statement and may be
obtained upon request to the Secretary of the Company.
A Noteholder who sells Senior Secured Notes pursuant to the Shelf
Registration Statement will generally be required to be named as a selling
securityholder in the related prospectuses 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 a
Noteholder (including certain indemnification obligations).
CERTAIN TAX CONSEQUENCES
In the opinion of Carter, Ledyard & Milburn, counsel to the Company and the
Guarantors, the exchange of an Old Note for a New Note pursuant to the
Exchange Offer should not be treated as an exchange for United States federal
income tax purposes. Therefore, a New Note should be treated as a continuation
of the corresponding Old Note and, as a result, an exchanging beneficial owner
should not recognize any gain or loss on the exchange, his holding period for
the New Note would include his holding period for the Old Note and his basis
in the New Note would be the same as his basis in the Old Note.
PLAN OF DISTRIBUTION
Any broker-dealer that resells New Notes received by it in the Exchange
Offer may be deemed to be an "underwriter" as defined in section 2(11) of the
Securities Act and subject to restrictions thereunder as such. However,
management believes, based on an interpretive letter of the Commission staff
addressed to Shearman & Sterling (July 2, 1993), that a broker-dealer which
acquired Old Notes for its own account and as a result of market-making
activities or other trading activities may, if it is able to make the
representations set forth in the second paragraph under the caption "The
Exchange Offer--Procedures for Tendering," obtain New Notes in the Exchange
Offer and may resell such New Notes without registration under the Securities
Act, provided that such broker-dealer delivers to the purchaser of such New
Notes a copy of a prospectus relating to such resale, which may be this
Prospectus as supplemented or amended from time to time. Such broker-dealer
may offer the New Notes for sale from time to time in negotiated transactions
or otherwise, at market prices prevailing at the time of sale, at prices
related to such market prices or at negotiated prices. The Letter of
Transmittal requires
65
<PAGE>
such broker-dealer to acknowledge that the broker-dealer will deliver such a
prospectus, but states that by so acknowledging and by delivering a
prospectus, such broker-dealer will not be deemed to be admitting that it is
an "underwriter" within the meaning of the Securities Act.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers or any other persons.
LEGAL MATTERS
Certain legal matters regarding the Senior Secured Notes offered hereby are
being passed upon for PCI and the Guarantors by Carter, Ledyard & Milburn, New
York, New York.
EXPERTS
The consolidated financial statements of the Company included in this
Prospectus as of December 31, 1996 and 1995, and for each of the years in the
three year period ended December 31, 1996, and the related financial statement
schedule included in the Registration Statement, have been so included in
reliance on the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and in the Registration Statement, and
upon the authority of said firm as experts in auditing and accounting. The
report of KPMG Peat Marwick LLP refers to a change in accounting for
postemployment benefits in 1994.
66
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report of KPMG Peat Marwick LLP..................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995.............. F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994...................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended Decem-
ber 31, 1996,
1995 and 1994............................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Plastic Containers, Inc.:
We have audited the accompanying consolidated balance sheets of Plastic
Containers, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Plastic
Containers, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 13 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No.112, "Employers' Accounting for
Postemployment Benefits," in 1994.
KPMG Peat Marwick LLP
Omaha, Nebraska
February 7, 1997
F-2
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 12,178 $ 1,428
Investment securities..................................... 1,210 285
Accounts receivable (note 7):
Trade................................................... 27,549 30,463
Other................................................... 1,691 4,107
-------- --------
29,240 34,570
Less allowance for doubtful accounts and accrued rebates.. 1,538 1,502
-------- --------
Net accounts receivable............................... 27,702 33,068
-------- --------
Inventories (notes 4 and 7)............................... 19,402 19,987
Deferred income taxes (note 12)........................... 3,515 2,152
Prepaid expenses.......................................... 546 804
-------- --------
Total current assets.................................. 64,553 57,724
-------- --------
Property, plant and equipment (note 7):
Land, building and building improvements.................. 22,634 20,430
Manufacturing machinery and equipment..................... 142,107 186,398
Construction in progress.................................. 6,884 18,322
-------- --------
171,625 225,150
Less accumulated depreciation and amortization............ 69,380 83,936
-------- --------
Net property, plant and equipment..................... 102,245 141,214
-------- --------
Goodwill and other intangible assets (note 5)............... 27,078 9,976
Other assets (note 6)....................................... 11,774 10,698
-------- --------
$205,650 $219,612
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank (note 7)............................ $ -- $ 17,018
Accounts payable--trade................................... 19,267 24,898
Current portion of long-term obligations (note 9)......... 980 141
Other current liabilities (note 8)........................ 19,004 15,423
-------- --------
Total current liabilities............................. 39,251 57,480
Long-term obligations, excluding
current portion (note 9)................................... 129,002 105,212
Other liabilities (note 11)................................. 23,183 19,450
Stockholders' equity:
Common stock, $l par value. Authorized 1,000 shares;
100 shares issued and outstanding........................ -- --
Additional paid-in capital................................ 77,722 60,000
Deficit................................................... (33,434) (22,530)
-------- --------
44,288 37,470
Less note receivable from stockholder (note 2)............ 30,074 --
-------- --------
Total stockholders' equity............................ 14,214 37,470
-------- --------
Commitments and contingencies (notes 7, 10, 13 and 17)......
-------- --------
$205,650 $219,612
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net sales (note 14)............................ $ 267,793 $277,061 $230,480
Cost of goods sold............................. 224,789 237,668 192,580
--------- -------- --------
Gross profit............................... 43,004 39,393 37,900
Selling, general and administrative expenses... (28,829) (30,059) (28,480)
Plant rationalization and realignment (note
3)............................................. (6,500) 98 (855)
--------- -------- --------
Operating income........................... 7,675 9,432 8,565
--------- -------- --------
Other income (expenses):
Interest income.............................. 102 221 202
Interest expense............................. (12,886) (11,807) (11,831)
Loss on disposal of assets................... (366) (346) (350)
--------- -------- --------
(13,150) (11,932) (11,979)
--------- -------- --------
Loss before income taxes, extraordinary
item and
cumulative effect of accounting change.... (5,475) (2,500) (3,414)
Income tax benefit (note 12)................... 1,876 2,505 1,631
--------- -------- --------
Income (loss) before extraordinary item and
cumulative effect of accounting change.... (3,599) 5 (1,783)
Extraordinary item--loss on early
extinguishment of debt (notes 2 and 16)........ (7,305) (230) (217)
--------- -------- --------
Loss before cumulative effect of accounting
change..................................... (10,904) (225) (2,000)
Cumulative effect of accounting change (note
13)............................................ -- -- (525)
--------- -------- --------
Net loss................................... $ (10,904) $ (225) $ (2,525)
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PLASTIC NOTE
CONTAINERS, ADDITIONAL RECEIVABLE TOTAL
INC. COMMON PAID-IN FROM STOCKHOLDERS'
STOCK CAPITAL DEFICIT STOCKHOLDER EQUITY
<S> <C> <C> <C> <C> <C>
Balances at December 31,
1993................... $ -- $60,000 $(19,780) $ -- $ 40,220
Net loss................ -- -- (2,525) -- (2,525)
----- ------- -------- -------- --------
Balances at December 31,
1994................... -- 60,000 (22,305) -- 37,695
Net loss................ -- -- (225) -- (225)
----- ------- -------- -------- --------
Balances at December 31,
1995................... -- 60,000 (22,530) -- 37,470
Push-down accounting ad-
justment (note 2)...... -- 17,648 -- -- 17,648
Loan to stockholder
(note 2)............... -- -- -- (30,000) (30,000)
Accrued interest on note
receivable from stock-
holder (note 2)........ -- 74 -- (74) --
Net loss................ -- -- (10,904) -- (10,904)
----- ------- -------- -------- --------
Balances at December 31,
1996................... $ -- $77,722 $(33,434) $(30,074) $ 14,214
===== ======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (10,904) $ (225) $(2,525)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.................. 21,309 24,033 25,057
Loss on disposal of assets..................... 366 346 350
Deferred income taxes.......................... (1,896) (2,732) (1,764)
Extraordinary item--loss on early
extinguishment of debt........................ 7,305 230 217
Changes in assets and liabilities:
Accounts receivable, net...................... 5,366 1,114 (8,153)
Inventories................................... 585 3,474 (6,228)
Prepaid expenses.............................. 258 667 (761)
Other assets.................................. (725) (463) (207)
Pension asset/liability....................... 182 (11,377) (2,740)
Accounts payable.............................. (3,725) (426) 10,313
Other current liabilities..................... 3,581 (1,678) 2,419
Other liabilities............................. 2,844 (468) 1,614
--------- ------- -------
Net cash provided by operating activities... 24,546 12,495 17,592
--------- ------- -------
Cash flows from investing activities:
Proceeds from maturity of investment
securities..................................... 75 7 25
Purchase of investment securities............... (1,000) -- --
Proceeds from disposal of assets................ 41,654 341 66
Purchase of property, plant and equipment....... (21,240) (30,693) (14,989)
Loan to stockholder............................. (30,000) -- --
--------- ------- -------
Net cash used in investing activities....... (10,511) (30,345) (14,898)
--------- ------- -------
Cash flows from financing activities:
Net borrowings (repayments) on notes payable to
bank........................................... (17,018) 17,018 --
Proceeds from long-term obligations............. 130,100 -- --
Repayment of long-term obligations.............. (105,471) (130) (5,480)
Premium on repurchase of bonds.................. (5,382) -- --
Financing fees paid............................. (5,514) (355) --
--------- ------- -------
Net cash provided by (used in) financing
activities................................. (3,285) 16,533 (5,480)
--------- ------- -------
Net increase (decrease) in cash and cash
equivalents...................................... 10,750 (1,317) (2,786)
Cash and cash equivalents--beginning.............. 1,428 2,745 5,531
--------- ------- -------
Cash and cash equivalents--ending................. $ 12,178 $ 1,428 $ 2,745
========= ======= =======
Supplemental disclosures of cash flow information:
Interest paid................................... $ 15,240 $11,683 $11,977
Income taxes paid............................... 20 210 36
========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
(IN THOUSANDS)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements include Plastic Containers, Inc. and
its wholly-owned subsidiaries, Continental Plastic Containers, Inc. ("CPC")
and Continental Caribbean Containers, Inc. ("Caribbean"), on a consolidated
basis. All significant intercompany transactions have been eliminated in the
consolidated financial statements. The consolidated entities are referred to
as Plastic Containers, Inc. ("PCI" or "the Company") in the notes to
consolidated financial statements. References to the "Continental Plastic
Container Companies" refer jointly to the Company's subsidiaries.
Separate financial statements of CPC and Caribbean are not included herein
because (i) CPC and Caribbean constitute all of PCI's direct and indirect
subsidiaries, (ii) CPC and Caribbean have fully and unconditionally guaranteed
on a joint and several basis the Senior Secured Notes issued by PCI (see note
9), (iii) the issued and outstanding stock of CPC and Caribbean, which is
pledged as security for the Senior Secured Notes, does not constitute a
substantial portion of the collateral for the Senior Secured Notes, (iv) PCI
has no operations or assets separate from its investment in CPC and Caribbean,
and (v) management accordingly has determined that separate financial
statements of CPC and Caribbean are not material.
PCI develops, manufactures and markets a wide range of custom extrusion
blow-molded plastic containers for food and juice, automotive products and
motor oil, household chemicals, industrial and agricultural chemicals and hair
care products.
PCI is a subsidiary of Continental Can Company, Inc. ("Continental Can").
CASH EQUIVALENTS
Marketable securities that are highly liquid and have maturities of three
months or less at date of purchase are classified as cash equivalents.
INVESTMENT SECURITIES
Investment securities at December 31, 1996 consist of held-to-maturity
government agency securities and certificates of deposit. Investment
securities are stated at amortized cost, which approximates market value.
INVENTORIES
CPC's manufacturing inventories are stated at cost using the last-in, first-
out (LIFO) method, which is not in excess of market. All repair parts,
supplies inventories and Caribbean's inventories are stated at the lower of
cost, applied on the first-in, first-out (FIFO) method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed
principally on a straight-line basis over estimated useful lives of the assets
which range from three to thirty-five years. Plant and equipment held under
capital leases and leasehold improvements are amortized straight-line over the
shorter of the lease term or estimated useful life of the asset.
INSURANCE
PCI purchases commercial insurance policies, but remains self-insured in
certain states for the purposes of providing workers' compensation, general
liability and property and casualty insurance coverages up to varying
deductible amounts. Self-insurance liabilities are based on claims filed and
estimates for claims incurred but not reported and are included in other
liabilities on the consolidated balance sheets. Costs charged to operations
for self-insurance for the years ended December 31, 1996, 1995 and 1994 were
$2,629, $2,200 and $2,066, respectively.
F-7
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
RESEARCH, DEVELOPMENT AND ENGINEERING
Expenditures for research, development and engineering are expensed as
incurred. Costs charged to operations for research, development and
engineering for the years ended December 31, 1996, 1995 and 1994 were $8,059,
$8,777 and $9,013, respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets are stated on the basis of cost.
Goodwill is being amortized on a straight-line basis over 40 years. Customer
contracts are being amortized on a straight-line basis over 10 years.
Additionally, finance costs are being amortized using the effective interest
method over periods ranging from 6 to 10 years. PCI assesses the
recoverability of goodwill and other intangible assets and measures impairment
by determining whether the amortization of the balance over its remaining life
can be recovered through undiscounted future operating cash flows of the
Company's operations.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Although these estimates are based on
management's knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
RECLASSIFICATIONS
Certain amounts have been reclassified to conform to the current year's
presentation.
(2) REFINANCING
During the fourth quarter of 1996, the Company engaged in a series of
related transactions, comprised of (a) a new offering of senior secured notes,
(b) the purchase and redemption of existing senior secured notes, (c) a
sale/leaseback financing, and (d) a loan to Continental Can, as part of a
refinancing plan.
NEW OFFERING OF SENIOR SECURED NOTES
On December 17, 1996, the Company completed an offering of 10% senior
secured notes ("10% Notes") in an aggregate principal amount of $125,000. The
10% Notes mature on December 15, 2006.
PURCHASE AND REDEMPTION OF EXISTING SENIOR SECURED NOTES
On October 24, 1996, the Company commenced a tender offer to purchase any or
all, but not less than two-thirds in aggregate principal amount, of its $104.7
million aggregate principal amount of outstanding 10.75% senior secured notes
("10.75% Notes"). The tender offer, which expired on December 9, 1996,
included the
F-8
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
solicitation of consents to a proposed amendment to the discharge provisions
of the indenture relating to the 10.75% Notes. The Company received tenders
and consents representing $101.7 million of the aggregate principal amount of
the outstanding 10.75% Notes.
Since the Company purchased less than 100% of the outstanding 10.75% Notes
pursuant to the tender offer, on December 17, 1996, the Company effected a
discharge of its obligations under the 10.75% Note indenture. Concurrently
with and as part of the discharge, the Company deposited with the trustee
under the 10.75% Note indenture cash sufficient to effect the redemption, on
April 1, 1997, of all the 10.75% Notes not purchased pursuant to the tender
offer, at a redemption price of 100% of the principal amount, together with
accrued and unpaid interest to such date.
The purchase and redemption of existing senior secured notes resulted in an
extraordinary loss of $7,305, representing the premium paid to purchase the
notes and the write-off of the related unamortized deferred financing fees.
SALE/LEASEBACK FINANCING
On December 17, 1996, CPC completed a sale to General Electric Capital
Corporation and certain other financial institutions, and the leaseback to
CPC, of certain equipment located in five of its facilities. The proceeds to
the Company from the sale/leaseback were $40,566, which approximated the book
value of the equipment. The terms of the leases range from 88 months to 109
months, subject to options of CPC to repurchase the equipment after 78 months
and 83 months at a pre-established fair market value.
LOAN TO CONTINENTAL CAN
On December 17, 1996, the Company loaned Continental Can $30,000. The loan
matures June 15, 2007 and accrues interest, payable at maturity, at an annual
rate of 6.9%, compounded semiannually. The loan receivable and accrued
interest thereon have been presented as a reduction of stockholders' equity.
Proceeds from the loan were used by Continental Can to acquire an additional
34 shares of the Company's common stock from another stockholder. The
acquisition increased Continental Can's ownership to 84% of the Company's
outstanding common stock. The acquisition was accounted for by Continental Can
under the purchase method of accounting. The acquisition of a controlling
interest in PCI by Continental Can resulted in the "push down" of goodwill and
additional paid-in capital of $17,648 in the accompanying consolidated
financial statements of PCI.
(3) PLANT RATIONALIZATION AND REALIGNMENT
In the third and fourth quarters of 1996, PCI recorded charges amounting to
$6,500 for plant rationalization and realignment in connection with a plan to
consolidate certain manufacturing operations. The Company closed one plant in
1996 and will close another plant by the end of the first quarter of 1997.
Production from these plants will be transferred to other existing facilities.
The components of the $6,500 charge include approximately $1,400 for employee
severance costs, approximately $1,600 for an impairment loss related to fixed
assets, and approximately $3,500 for noncancellable lease obligations and
related facility closing costs. Employee severance costs relate to
approximately 185 employees, including production, supervisory and
administrative personnel located at the closing plants. The impairment loss
relates primarily to the write-off of the remaining value of leasehold
improvements and capitalized equipment installation costs. The Company remains
obligated under noncancellable operating leases at one plant through August
1997 and at the other plant through June 1999. As of December 31, 1996,
approximately 90 employees' employment had been terminated and severance
benefits paid were approximately $590. In addition, payments of approximately
$714 had been made against other accrued charges as of December 31, 1996.
Included in other current liabilities in 1996 is $4,096 representing the
unpaid portion of severance benefits and other accrued charges.
F-9
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For the years ended December 31, 1995 and 1994, the Company recorded a
credit of $98 and a charge of $855, respectively, related to prior plant
consolidations.
(4) INVENTORIES
Major classes of inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Raw materials........................................... $10,327 $ 8,992
Finished goods.......................................... 11,331 10,866
------- -------
21,658 19,858
LIFO reserve............................................ (4,247) (2,025)
------- -------
17,411 17,833
Continental Caribbean Containers, Inc................... 655 670
Repair parts and supplies............................... 1,336 1,484
------- -------
$19,402 $19,987
======= =======
</TABLE>
During 1996 and 1995, LIFO inventory layers were reduced. This reduction
resulted in charging lower inventory costs prevailing in previous years to
cost of goods sold in 1996 and 1995, thus reducing cost of goods sold by
approximately $80 and $700, respectively, below the amount that would have
resulted from liquidating inventory recorded at December 31, 1995 and 1994
prices.
(5) INTANGIBLE ASSETS
Intangible assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Goodwill................................................ $17,648 $ --
Noncompete agreements................................... -- 15,000
Customer contracts...................................... 7,630 7,630
Financing and acquisition costs......................... 5,861 6,058
------- -------
31,139 28,688
Less accumulated amortization........................... 4,061 18,712
------- -------
$27,078 $ 9,976
======= =======
</TABLE>
(6) OTHER ASSETS
Other assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred income taxes.................................... $ 5,359 $ 4,826
Prefunded pension asset.................................. 4,971 5,153
Other.................................................... 1,444 719
------- -------
$11,774 $10,698
======= =======
</TABLE>
(7) NOTES PAYABLE TO BANK
PCI has a $50,000 revolving credit facility with a commercial bank with
interest on individual borrowings based on the bank's prime rate or LIBOR, at
the Company's option. Borrowings are secured by accounts receivable and
inventories. At December 31, 1996, there were no borrowings outstanding under
this facility. The Company is required to pay an annual commitment fee of 1/4%
on the unused facility up to $25,000 and 1/2% on the unused amount in excess
of $25,000. Commitment fees for the years ended December 31, 1996 and 1995
were $104 and $23, respectively.
F-10
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The facility contains certain restrictive covenants, including the
maintenance of minimum levels of net worth, fixed charge coverage and interest
coverage, limitations on capital expenditures and additional indebtedness, and
restrictions on the payment of dividends. At December 31, 1996, the Company
was in compliance with these covenants.
The facility also provides for the issuance of letters of credit by the bank
on the Company's behalf. At December 31, 1996, letters of credit amounting to
$3,586 had been issued to guarantee obligations carried on the consolidated
balance sheet.
(8) OTHER CURRENT LIABILITIES
Other current liabilities at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accrual for open credits................................ $ 1,595 $ 1,311
Employee compensation and benefits...................... 6,711 5,928
Accrued interest........................................ 593 2,947
Accrued real estate and personal property taxes......... 1,532 1,313
Plant rationalization reserve........................... 4,096 500
Other................................................... 4,477 3,424
------- -------
$19,004 $15,423
======= =======
</TABLE>
(9) LONG-TERM OBLIGATIONS
Long-term obligations at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Senior Secured Notes, due 2006, interest at 10%,
payable semiannually on June 15 and December 15
secured by all the issued and outstanding stock of
Continental Plastic Container Companies and
substantially all of the assets and properties owned
by PCI other than inventories, accounts receivable
and certain equipment securing capital lease
obligations.......................................... $125,000 $ --
Senior Secured Notes, due 2001, interest at 10.75%,
payable semiannually on April 1 and October 1,
redeemed December 17, 1996........................... -- 104,700
Capital lease obligations............................. 4,982 653
-------- --------
Total long-term obligations......................... 129,982 105,353
Less current portion.................................. 980 141
-------- --------
Long-term obligations, excluding current portion.... $129,002 $105,212
======== ========
</TABLE>
The Senior Secured Notes are not redeemable by PCI prior to December 15,
2001. On or after that date the notes are redeemable, in whole or in part, at
the option of PCI at an initial price of 105% of par declining ratably per
annum, to par on December 15, 2004.
In the event of a change of control as defined in the indenture, PCI is
obligated to offer to purchase all outstanding Senior Secured Notes at a
redemption price of 101% of the principal amount thereof plus accrued
interest. In addition, PCI is obligated in certain instances to offer to
purchase Senior Secured Notes at a redemption price of 100% of the principal
amount thereof plus accrued interest with the net cash proceeds of certain
sales or dispositions of assets.
F-11
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The indenture places certain restrictions on payment of dividends,
additional liens, disposition of the proceeds from asset sales, sale-leaseback
transactions and additional borrowings. At December 31, 1996, PCI was in
compliance with these restrictions.
The Company is obligated under capital leases for a manufacturing facility
and certain machinery and equipment. The manufacturing facility has a cost of
$1,152 and accumulated amortization of $658 and $535 at December 31, 1996 and
1995, respectively. The facility lease agreement expires on December 31, 1999
and has an interest rate of 9.364%.
The equipment lease arrangement commenced on April 1, 1996 in connection
with the issuance of tax-exempt industrial development revenue bonds bearing
interest at 5.8%. Principal and interest are payable monthly through April
2002. The equipment has a cost of $5,100 and has accumulated depreciation of
$630 at December 31, 1996. Future minimum lease payments under the capital
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1997............................................................. $1,268
1998............................................................. 1,220
1999............................................................. 1,172
2000............................................................. 919
2001 and beyond.................................................. 1,220
------
Total future minimum lease payments............................ 5,799
Less portion representing interest............................... 817
------
Net minimum lease payments..................................... $4,982
======
</TABLE>
(10) LEASES
PCI rents certain property and equipment used in connection with its
operations. Rental expense under these operating leases was $8,054, $6,152 and
$4,802 for the years ended December 31, 1996, 1995 and 1994, respectively.
Substantially all operating leases require PCI to pay taxes, maintenance,
insurance and certain operating expenses applicable to the lease. The Company
plans to renew or replace many of these leases as they expire. PCI subleases a
warehouse facility for $144 annually through June 1999.
Future minimum lease payments under noncancellable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
1997............................................................. $13,780
<S> <C>
1998............................................................. 12,189
1999............................................................. 11,280
2000............................................................. 10,798
2001............................................................. 9,934
Thereafter....................................................... 28,479
-------
Total future minimum lease payments............................ $86,460
=======
</TABLE>
F-12
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) OTHER LIABILITIES
Other liabilities at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Insurance reserves...................................... $ 9,638 $ 8,956
Postretirement benefits accrued......................... 6,298 5,972
Other................................................... 7,247 4,522
------- -------
$23,183 $19,450
======= =======
</TABLE>
(12) INCOME TAXES
Total income tax benefit (expense) attributable to income from continuing
operations for the years ended December 31, 1996, 1995 and 1994 consists of
the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- ---------------------- ---------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL FEDERAL STATE TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current...... $ -- $(20) $ (20) $ (145) $(82) $ (227) $ (145) $ 12 $ (133)
Deferred..... 1,746 150 1,896 2,569 163 2,732 1,559 205 1,764
------- ---- ------ ------ ---- ------ ------ ---- ------
$ 1,746 $130 $1,876 $2,424 $ 81 $2,505 $1,414 $217 $1,631
======= ==== ====== ====== ==== ====== ====== ==== ======
</TABLE>
The income tax benefit for the years ended December 31, 1996, 1995 and 1994
differed from the "expected" income tax benefit computed by applying the
Federal income tax rate to loss before income taxes, extraordinary item and
cumulative effect of accounting changes as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Computed "expected" income tax benefit........... $1,862 $ 850 $1,161
Increase (reduction) in benefit resulting from:
Change in valuation allowance allocated to
continuing operations......................... (243) 1,303 (80)
State and local income taxes, net of Federal
income tax benefit............................ 86 53 143
Other.......................................... 171 299 407
------ ------ ------
Income tax benefit........................... $1,876 $2,505 $1,631
====== ====== ======
</TABLE>
The significant components of deferred income tax benefit attributable to
loss from continuing operations for the years ended December 31, 1996, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Deferred tax benefit (expense) (exclusive of
the effects of other components listed
below)...................................... $ 9,065 $(4,168) $ 840
Increase (decrease) in operating loss carry
forward..................................... (4,262) 5,087 859
Research and experimentation credits......... (23) 365 --
Alternative minimum tax credit carry
forward..................................... (158) 145 145
Decrease (increase) in valuation allowance
for deferred tax assets..................... (2,726) 1,303 (80)
------- ------- ------
$ 1,896 $ 2,732 $1,764
======= ======= ======
</TABLE>
F-13
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards...................... $18,811 $23,073
Vacation and incentive pay reserves.................... 1,016 1,004
Self-insurance reserves................................ 4,012 3,753
Plant rationalization reserve.......................... 2,437 463
Postretirement benefit reserves........................ 2,602 2,472
Other.................................................. 2,719 2,938
------- -------
Total gross deferred tax assets...................... 31,597 33,703
Less valuation allowance............................... 7,794 5,068
------- -------
Net deferred tax assets.............................. 23,803 28,635
------- -------
Deferred tax liabilities:
Book over tax basis of principally fixed assets........ 13,045 19,598
Prefunded pension...................................... 1,884 1,958
Other.................................................. -- 101
------- -------
Total gross deferred tax liabilities................. 14,929 21,657
------- -------
Net deferred tax assets.............................. $ 8,874 $ 6,978
======= =======
</TABLE>
Net deferred tax assets are classified in the accompanying consolidated
balance sheets as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current--deferred income taxes............................ $ 3,515 $2,152
Long-term--other assets................................... 5,359 4,826
------- ------
$ 8,874 $6,978
======= ======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1995 was
$6,371. The net change in the total valuation allowance for the years ended
December 31, 1996 and 1995 was an increase of $2,726 and a decrease of $1,303,
respectively. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers projected future taxable income, the
scheduled reversal of deferred tax liabilities, and tax planning strategies in
making this assessment. Based upon this assessment, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences, net of the existing valuation allowance at December 31, 1996.
At December 31, 1996, PCI has operating loss carry forwards for Federal
income tax purposes of approximately $50,000, which are available to offset
future Federal taxable income through 2010. In addition, the Company has
alternative minimum tax credit carry forwards of approximately $132 which are
available to reduce future Federal regular income taxes over an indefinite
period and research and experimentation credits of approximately $342
available to reduce future Federal income taxes through 2010.
(13) EMPLOYEE BENEFITS
PENSION PLANS
PCI maintains a defined benefit pension plan for substantially all salaried
employees. Plan benefits are based on all years of continuous service and the
employee's compensation during the highest five continuous years of the last
ten years of employment, minus a profit-sharing annuity. The profit-sharing
annuity is based on the
F-14
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amount of profit-sharing contributions received for 1988 through 1992. Any
employee who terminated employment prior to August 31, 1993 is governed by the
terms of the plan in effect at the time the termination occurred.
PCI maintains a noncontributory defined benefit pension plan for
substantially all hourly workers who have attained 21 years of age. Plan
benefits are variable by location/contract but are based primarily on years of
service and the employee's highest wage classification for twelve consecutive
months in the five years prior to retirement. "Normal" retirement is at age
65, with at least five years of continuous service. However, employees may
retire as early as age 55 and receive reduced benefits.
Subject to the limitation on deductibility imposed by Federal income tax
laws, PCI's policy has been to contribute funds to the plans annually in
amounts required to maintain sufficient plan assets to provide for accrued
benefits. Plan assets are held in a master trust and are comprised primarily
of common stock, corporate bonds and U.S. Government and government agency
obligations.
The following table sets forth the plans' funded status at December 31, 1996
and 1995 based primarily on January 1, 1996 participant data and plan assets:
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
SALARIED HOURLY TOTAL SALARIED HOURLY TOTAL
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value
of benefit obligation,
including vested
benefits of $30,280 and
$20,372 in 1996 and
$29,078 and $18,644 in
1995 for the salaried
and hourly plans,
respectively........... $(31,903) $(22,595) $(54,478) $(30,921) $(21,877) $(52,798)
======== ======== ======== ======== ======== ========
Projected benefit
obligation (PBO)....... $(33,988) $(22,594) $(56,582) $(33,110) $(21,877) $(54,987)
Plan assets, at fair
value.................. 34,285 24,613 58,898 31,082 22,068 53,150
Unrecognized net (gain)
loss................... 3,056 (236) 2,820 5,206 1,926 7,132
Prior service cost not
yet recognized in net
periodic pension cost.. (489) 324 (165) (556) 414 (142)
-------- -------- -------- -------- -------- --------
Prefunded pension
asset................ $ 2,864 $ 2,107 $ 4,971 $ 2,622 $ 2,531 $ 5,153
======== ======== ======== ======== ======== ========
</TABLE>
Net periodic pension costs included the following components for the years
ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost.................................. $ 1,362 $ 992 $ 1,161
Interest cost................................. 4,001 4,002 3,715
Return on plan assets......................... (8,505) (6,292) 1,916
Net amortization and deferral................. 3,897 2,922 (5,613)
------- ------- -------
Net periodic pension costs.................. $ 755 $ 1,624 $ 1,179
======= ======= =======
PCI contributions to the plans for the years ended December 31, 1996, 1995
and 1994 were $573, $12,800 and $2,585, respectively.
Assumptions used in the accounting were:
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1996 1995 1994
<S> <C> <C> <C>
Discount rates................................ 7.75% 7.50% 9.00%
Rates of increase in compensation levels...... 5.00% 5.00% 5.00%
Expected long-term rate of return on assets... 9.50% 9.50% 9.50%
</TABLE>
F-15
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
RETIREMENT THRIFT PLAN
PCI maintains a defined contribution plan which covers substantially all
hourly employees who meet eligibility requirements. Provisions regarding
employee and employer contributions and the benefits provided under the plan
vary between PCI's manufacturing facilities. PCI's defined contribution plan's
expense was $303, $292 and $272 for the years ended December 31, 1996, 1995
and 1994, respectively.
SAVINGS PLAN
PCI maintains a contributory defined contribution 401(k) savings plan which
covers substantially all nonorganized salaried employees. Employees may
contribute up to 12% and 8% of pay on a pretax and after-tax basis,
respectively. However, the total employee contribution rate may not exceed 15%
of pay. PCI matches up to 3% of employees' pretax contributions. Employees
vest in PCI's contributions at 25% per year, becoming fully vested after four
years of employment. Employees may make withdrawals from the plan prior to
attaining age 59 1/2, subject to certain penalties. PCI's savings plan expense
was $553, $518 and $450 for the years ended December 31, 1996, 1995 and 1994,
respectively.
UNION BENEFIT PLANS
PCI contributes to various union pension plans pursuant to its labor
agreements. Union benefit plan expense was $1,083, $1,080 and $896 for the
years ended December 31, 1996, 1995 and 1994, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
PCI provides certain health care and life insurance benefits for retired PCI
employees. Certain of PCI's hourly and salaried employees became eligible for
these benefits when they became eligible for an immediate pension under a
formal company pension plan. In 1993, the plan was amended to eliminate health
care benefits for employees hired after January 1, 1993.
PCI's policy is to fund the cost of medical benefits in amounts determined
at the discretion of management. Summary information on PCI's plan at December
31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................... $2,895 $3,449
Fully eligible, active plan participants............... 740 1,219
Other active plan participants......................... 1,472 1,486
------ ------
5,107 6,154
Unrecognized net gain/(loss) from experience and
changes in assumptions................................ 793 (614)
Prior service cost in net periodic postretirement
benefit cost.......................................... 398 432
------ ------
Accrued postretirement benefit obligation............ $6,298 $5,972
====== ======
</TABLE>
The components of net periodic postretirement benefit cost at December 31,
1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost........................................... $ 87 $ 52 $ 73
Interest cost.......................................... 447 480 431
Net amortization and deferral.......................... (34) (34) (57)
---- ---- ----
Net periodic postretirement benefit cost............. $500 $498 $447
==== ==== ====
</TABLE>
F-16
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For measurement purposes, a 9.05% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed for
1996; the rate was assumed to decrease gradually to 5.0% by the year 2001 and
remain at that level thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of
December 31, 1996 by $408 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended
December 31, 1996 by $46.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% and 7.5% at December 31, 1996 and
1995, respectively.
POSTEMPLOYMENT BENEFITS
PCI provides certain postemployment benefits to former and inactive
employees, their beneficiaries and covered dependents. These benefits include
disability related benefits, continuation of health care benefits and life
insurance coverage.
In 1994, PCI adopted the provisions of the Financial Accounting Standards
Board's Statement No. 112, Employers' Accounting for Postemployment Benefits,
which requires employers to recognize the obligation to provide postemployment
benefits and an allocation of the cost of those benefits to the periods the
employees render service. The cumulative effect of this change in accounting
principle of $525 was determined as of January 1, 1994 and is reported
separately in the consolidated statement of operations for the year ended
December 31, 1994. Additional costs charged to operations for postemployment
benefits in 1996, 1995 and 1994 were $38, $24 and $29, respectively.
(14) MAJOR CUSTOMERS
Sales to one customer represented approximately 29%, 27% and 23% of net
sales for the years ended December 31, 1996, 1995 and 1994, respectively.
Included in accounts receivable are receivables from this customer of $8,564
and $6,947 at December 31, 1996 and 1995, respectively. A second customer
represented approximately 13%, 11% and 12% of net sales for each of the years
ended December 31, 1996, 1995 and 1994, respectively, and $4,339 and $4,293 of
receivables from this customer are included in accounts receivable at December
31, 1996 and 1995, respectively. A third customer represented approximately
10% of net sales for the year ended December 31, 1996, and $906 of receivables
from this customer are included in accounts receivable at December 31, 1996.
(15) RELATED PARTY TRANSACTIONS
PCI is charged for certain services provided to it by Continental Can. These
costs amounted to $600, $600 and $490 for the years ended December 31, 1996,
1995 and 1994, respectively. At December 31, 1996 and 1995, the amount payable
to Continental Can for these costs was $26 and $352, respectively, and is
included in other current liabilities in the accompanying consolidated balance
sheets.
(16) EXTRAORDINARY ITEM
See note 2 for an explanation of the 1996 extraordinary item.
In 1995, PCI incurred an extraordinary loss of $230 related to the early
extinguishment of a revolving credit facility.
In 1994, PCI incurred an extraordinary loss of $217 related to the early
extinguishment of a portion of the 10.75% Notes.
F-17
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(17) CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management and legal counsel,
the ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial statements.
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board's Statement No. 107, Disclosures about
Fair Value of Financial Instruments, defines fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties. At December 31, 1996 and 1995,
the carrying amount approximates fair value for financial instruments included
in the accompanying consolidated balance sheets.
The carrying amounts of cash and cash equivalents, accounts receivable,
notes payable to bank, accounts payable--trade and other current liabilities
approximate fair value because of the short maturity of those instruments. The
fair value of investment securities are based on the quoted market prices at
the reporting date for those or similar investments. The fair value of long-
term debt is estimated based on rates currently offered to PCI for debt of the
same remaining maturities, as advised by PCI's bankers.
F-18
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PLASTIC CONTAINERS, INC. HAS NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. ACCORD-
INGLY, YOU SHOULD RELY ONLY ON INFORMATION OR REPRESENTATIONS CONTAINED IN
THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SO-
LICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPEC-
TUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUB-
SEQUENT TO THE DATE OF THIS PROSPECTUS.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information.................................................... 2
Summary.................................................................. 3
Risk Factors............................................................. 10
The Refinancing.......................................................... 12
Use of Proceeds.......................................................... 13
The Exchange Offer....................................................... 14
Unaudited Pro Forma Data................................................. 20
Selected Historical and Pro Forma Financial Data......................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 26
Management............................................................... 34
Management Compensation.................................................. 35
Ownership of PCI......................................................... 37
Description of the Revolving Credit Facility............................. 38
Description of Senior Secured Notes...................................... 39
Registration Rights...................................................... 64
Certain Tax Consequences................................................. 65
Plan of Distribution..................................................... 65
Legal Matters............................................................ 66
Experts.................................................................. 66
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$125,000,000
[LOGO]
PLASTIC CONTAINERS, INC.
10% SENIOR SECURED NOTES DUE 2006, SERIES B
-----------------------------
EXCHANGE OFFER
-----------------------------
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
The index to exhibits appears immediately following the signature pages of
this Registration Statement.
(B) FINANCIAL STATEMENT SCHEDULES
The report of KPMG Peat Marwick LLP on the following financial statement
schedule is included in its consent being filed as Exhibit 23.1 to this
Registration Statement.
SCHEDULE II
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(000'S OMITTED)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
----------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1994:
LIFO reserve...................... $ (175) 4,099(2) -- $3,924
======= ===== ===== ======
492(3)
Allowance for doubtful accounts
and accrued rebates.............. $ 522 2,288(5) 30(4) $2,288
======= ===== ===== ======
December 31, 1995: 704(1)
LIFO reserve...................... $ 3,924 -- 1,195(2) $2,025
======= ===== ===== ======
771(3)
Allowance for doubtful accounts
and accrued rebates.............. $ 2,288 213(5) 228(4) $1,502
======= ===== ===== ======
December 31, 1996:
LIFO reserve...................... $ 2,025 2,298(2) 76(1) $4,247
======= ===== ===== ======
725(3)
Allowance for doubtful accounts
and accrued rebates.............. $ 1,502 1,664(5) 903(4) $1,538
======= ===== ===== ======
</TABLE>
- ---------------------
(1) Credited to cost of sales--reduction in inventory quantities.
(2) Charged/credited to costs--inventory repricing.
(3) Payments to customers.
(4) Specific write-off of receivable or recovery of previously doubtful
receivable.
(5) Charged to expense--accruals for customer rebates and doubtful receivables.
(C) REPORT, OPINION OR APPRAISAL
None.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Syosset,
State of New York, on the 21st day of March, 1997.
Plastic Containers, Inc.
/s/ Abdo Yazgi
By:__________________________________
ABDO YAZGI
VICE PRESIDENT, SECRETARY AND
TREASURER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed on March 21, 1997, by the following
persons in the capacities indicated.
SIGNATURES TITLE
Chairman of the Board,
* President and Chief
------------------------------------- Executive Officer
DONALD J. BAINTON (Principal Executive
Officer) and Director
Vice President,
/s/ Abdo Yazgi Secretary and
------------------------------------- Treasurer (Principal
ABDO YAZGI Financial and
Accounting Officer)
and Director
Director
-------------------------------------
JOSE LUIS ZAPATA
* Director
-------------------------------------
CHARLES F. DIGIOVANNA
/s/ Abdo Yazgi
* By:___________________________
ABDO YAZGI
ATTORNEY-IN-FACT
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Norwalk,
State of Connecticut, on the 21st day of March, 1997.
CONTINENTAL PLASTIC CONTAINERS, INC.
/s/ Abdo Yazgi
By: _________________________________
ABDO YAZGI
VICE PRESIDENT AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed on March 21, 1997, by the following
persons in the capacities indicated.
SIGNATURES TITLE
President and Chief
* Executive Officer
------------------------------------- (Principal Executive
CHARLES F. DIGIOVANNA Officer) and Director
Vice President, Treasurer
* and Chief Financial Officer
------------------------------------- (Principal Financial and
JAY W. HEREFORD Accounting Officer)
Chairman of the Board and
* Director
-------------------------------------
DONALD J. BAINTON
Director
/s/ Abdo Yazgi
-------------------------------------
ABDO YAZGI
Director
-------------------------------------
JOSE LUIS ZAPATA
/s/ Abdo Yazgi
* By: __________________________
ABDO YAZGI
ATTORNEY-IN-FACT
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Norwalk,
State of Connecticut, on the 21st day of March, 1997.
CONTINENTAL CARIBBEAN CONTAINERS, INC.
/s/ Abdo Yazgi
By ____________________________________
ABDO YAZGI
VICE PRESIDENT AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed on March 21, 1997, by the following
persons in the capacities indicated.
SIGNATURES TITLE
President and Chief
* Executive Officer
- ------------------------------------- (Principal Executive
CHARLES F. DIGIOVANNA Officer) and Director
Vice President,
* Treasurer and Chief
- ------------------------------------- Financial Officer
JAY W. HEREFORD (Principal Financial
and Accounting Officer)
Chairman of the Board
* and Director
- -------------------------------------
DONALD J. BAINTON
Director
/s/ Abdo Yazgi
- -------------------------------------
ABDO YAZGI
Director
- -------------------------------------
JOSE LUIS ZAPATA
/s/ Abdo Yazgi
* By: __________________________
ABDO YAZGI
ATTORNEY-IN-FACT
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
3.1(a) --Amended and Restated Certificate of Incorporation of PCI, filed
as Exhibit 3.1 to the Registrant's Registration Statement on Form
S-1, Registration No. 33-45879 (the "S-1 Registration Statement"),
and incorporated herein by reference.
3.1(b) --Certificate of Incorporation of CPC, filed as Exhibit 3.3 to the
S-1 Registration Statement and incorporated herein by reference.
3.1(c) --Certificate of Incorporation of Caribbean, filed as Exhibit 3.5
to the S-1 Registration Statement and incorporated herein by
reference.
3.2(a) --Amended and Restated By-Laws of PCI, filed as Exhibit 3.2 to the
S-1 Registration Statement and incorporated herein by reference.
3.2(b) --Amended and Restated By-Laws of CPC, filed as Exhibit 3.4 to the
S-1 Registration Statement and incorporated herein by reference.
3.2(c) --Amended and Restated By-Laws of Caribbean, filed as Exhibit 3.6
to the S-1 Registration Statement and incorporated herein by
reference.
4.1* --Indenture dated as of December 17, 1996, among PCI, as Issuer,
CPC and Caribbean, as Guarantors, and United States Trust Company
of New York, as Trustee, providing for 10%
Senior Secured Notes due 2006, Series A and Series B (including
the definitive forms of the Notes).
4.2* --Registration Rights Agreement dated as of December 17, 1996, by
and among PCI, CPC and Caribbean, and Donaldson, Lufkin & Jenrette
Securities Corporation, Lehman Brothers Inc. and Societe Generale
Securities Corporation.
--Note: The Registrants hereby agree to provide the Commission,
upon request, copies of such instruments defining the rights of
holders of long-term debt of the Registrants and their
subsidiaries as are specified in Item 601(b)(4)(iii)(A) of
Regulation S-K.
5 * --Opinion of Carter, Ledyard & Milburn with respect to the
securities being registered hereunder.
8 * --Opinion of Carter, Ledyard & Milburn with respect to the
description of certain Federal income tax matters in the
Prospectus included herein.
10.1* --Amended and Restated Financing Agreement dated December 17, 1996,
between The CIT Group/Business Credit, Inc. (as Lender) and PCI
(as Borrower).
10.2* --Master Lease Agreement, dated as of May 20, 1994, between General
Electric Capital Corporation and CPC.
10.3* --Schedules A-1 through A-6, each dated December 17, 1986, to the
Master Lease Agreement (Exhibit 10.2).
10.4* --Corporate Guaranty dated May 20, 1994, from PCI to General
Electric Capital Corporation, and Amendments Nos. 1 and 2 thereto,
both made as of December 17, 1996.
10.5* --Stock Purchase Agreement dated as of October 22, 1996, by and
among Continental Can Company, Inc., PCI, Merrywood, Inc. and
Plaza Limited.
12 --Statement regarding computation of ratios of earnings to fixed
charges.
21 * --Subsidiaries of the Registrants.
23.1 --Consent of KPMG Peat Marwick LLP and report on financial
statement schedule.
23.2* --Consent of Carter, Ledyard & Milburn (included in Exhibits 5 and
8).
24 * --Powers of Attorney.
25 * --Form T-1 Statement of Eligibility of United States Trust Company
of New York under the Trust Indenture Act of 1939.
</TABLE>
- ---------------------
*Previously filed with this Registration Statement.
1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
99.1 --Form of Letter of Transmittal.
99.2* --Form of Letter to Securities Brokers and Dealers, Commercial
Banks, Trust Companies and Other Nominees.
99.3* --Form of Letter to Clients.
</TABLE>
- ---------------------
* Previously filed with this Registration Statement
2
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(in thousands)
<TABLE>
<CAPTION>
Historical
Year Ended December 31,
---------------------------------------------------------- Pro forma
1992 1993 1994 1995 1996 1996
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss) before income taxes
and extraordinary loss.................... $ (8,947) $ (8,182) $ (3,414) $ (2,500) $ (5,475) $ (6,269)
Add: fixed charges as defined
One-third of rents(a).................... 1,471 1,476 1,585 2,030 2,658 4,577
Interest expense......................... 11,623 12,250 11,831 11,807 12,886 12,969
Amortization of financing fees........... 598 628 615 801 514 566
-------- -------- -------- ------- -------- --------
Total fixed charges........................ $ 13,692 $ 14,354 $ 14,031 $ 14,638 $ 16,058 $ 18,112
-------- -------- -------- ------- -------- --------
Total earnings before fixed
charges................................ $ 4,745 $ 6,172 $ 10,617 $ 12,138 $ 10,583 $ 11,843
======== ======== ======== ======== ======== ========
Ratios of earnings to fixed charges........ - (b) - (b) - (b) - (b) - (b) - (c)
======== ======== ======== ======== ======== ========
</TABLE>
- ----------
(a) Estimated by management as being representative of the interest factor
relating to rental expense.
(b) Earnings were insufficient to cover fixed charges for the years ended
December 31, 1992, 1993, 1994, 1995 and 1996 by $8,947, $8,182, $3,414,
$2,500, and $5,475, respectively.
(c) On a pro forma basis, earnings were insufficient to cover fixed charges by
$6,269 for the year ended December 31, 1996.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND
REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
Plastic Containers, Inc.
The audits referred to in our report dated February 7, 1997 (page F-2 of the
prospectus in this Registration Statement) included the consolidated financial
statement Schedule II for each of the years in the three-year period ended
December 31, 1996, included in this Registration Statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
We consent to the inclusion in this Registration Statement of the above
report and our report dated February 7, 1997, and to the reference to our firm
under the heading "Experts" in the prospectus included herein. Such report
refers to a change in accounting for postemployment benefits in 1994.
KPMG Peat Marwick LLP
Omaha, Nebraska
March 21, 1997
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER 10% SENIOR SECURED NOTES DUE 2006, SERIES A
IN EXCHANGE FOR 10% SENIOR SECURED NOTES DUE 2006, SERIES B
OF
PLASTIC CONTAINERS, INC.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997,
UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF 10% SENIOR SECURED
NOTES DUE 2006, SERIES A (THE "OLD NOTES") MAY BE WITHDRAWN AT ANY TIME
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent for the Offer is
UNITED STATES TRUST COMPANY OF NEW YORK
By Facsimile
By Mail: Transmission: By Hand:
United States Trust (212) 420-6152 United States Trust
Company Company
of New York Confirm by telephone: of New York
P.O. Box 844 111 Broadway
Cooper Station (800) 548-6565 Lower Level
New York, New York Corporate Trust Window
10276-0844 New York, New York
By Overnight Courier:
United States Trust Company
of New York
770 Broadway
New York, New York 10003
Attention: Corporate Trust
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR FACSIMILE NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
ALL CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN SHALL HAVE THE MEANINGS
GIVEN TO THEM IN THE PROSPECTUS DATED , 1997, RELATING TO THIS OFFER
(THE "PROSPECTUS").
<PAGE>
This Letter of Transmittal is to be used by Holders of Old Notes if
certificates representing Old Notes are to be physically delivered to the
Depositary herewith by such Holders. This Letter of Transmittal will also be
deemed to have been executed and delivered with respect to all Old Notes
tendered in the Offer pursuant to the Automated Tender Offer Program of The
Depository Trust Company ("DTC"). Delivery of documents to DTC does not
constitute delivery to the Exchange Agent.
Your bank or broker can assist you in completing this Letter of Transmittal.
The instructions included herein must be followed. Questions and requests for
assistance may be directed to the Exchange Agent at its address and telephone
number given in Instruction 9 to this Letter of Transmittal. Requests for
copies of the Prospectus, this Letter of Transmittal or other documents may be
directed to the Exchange Agent, and copies will be furnished promptly at the
expense of Plastic Containers, Inc.
List below the Old Notes to which this Letter of Transmittal relates. If the
space provided below is inadequate, list the certificate numbers and principal
amounts on a separately executed schedule and affix the schedule to this
Letter of Transmittal. Tenders of Old Notes will be accepted only in principal
amounts equal to $1,000 or an integral multiple thereof.
DESCRIPTION OF NOTES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND
ADDRESS(ES)
OF
HOLDER(S) AGGREGATE
(PLEASE PRINCIPAL PRINCIPAL
FILL IN IF CERTIFICATE AMOUNT AMOUNT
BLANK) NUMBERS* REPRESENTED** TENDERED
- ------------------------------------------------------
------------
------------
------------
------------
<S> <C> <C> <C>
TOTAL PRINCI-
PAL AMOUNT OF
NOTES
</TABLE>
- -------------------------------------------------------------------------------
* Need not be completed by holders tendering by book-entry transfer (see
below).
** Unless otherwise indicated in the column labeled "Principal Amount
Tendered," and subject to the terms and conditions of the Prospectus, a
holder will be deemed to have tendered the entire aggregate principal
amount represented by the Old Notes indicated in the column labeled
"Aggregate Principal Amount Represented." See Instruction 2.
2
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
By execution hereof, the undersigned acknowledges receipt of the Prospectus
dated , 1997 (the "Prospectus") of Plastic Containers, Inc., a Delaware
corporation (the "Company"), (which Prospectus, together with this Letter of
Transmittal and the instructions hereto, constitutes the "Offer") offering to
exchange $1,000 principal amount of the Company's 10% Senior Secured Notes due
2006, Series B (the "New Notes") for each $1,000 principal amount of the
Company's 10% Senior Secured Notes due 2006, Series A (the "Old Notes"). Upon
the terms and subject to the conditions of the Offer, the undersigned hereby
tenders to the Company the principal amount of Old Notes indicated in the box
above.
Subject to and effective upon the acceptance for exchange of Old Notes
tendered hereby, by executing and delivering this Letter of Transmittal, the
undersigned (i) irrevocably sells, assigns and transfers to or upon the order
of the Company all rights, title and interest in and to all the Old Notes
tendered hereby, and (ii) irrevocably constitutes and appoints the Exchange
Agent the true and lawful agent and attorney-in-fact of the undersigned (with
full knowledge that the Exchange Agent also acts as agent of the Company) with
respect to such tendered Old Notes, with full power of substitution and
resubstitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) to (a) deliver certificates representing such Old
Notes, or transfer ownership of such Old Notes on the account books maintained
by DTC, together, in any such case, with all accompanying evidences of
transfer and authenticity, to or upon the order of the Company, (b) present
such Old Notes for transfer on the register for the Old Notes, and (c) receive
all benefits or otherwise exercise all rights of beneficial ownership of such
Old Notes, all in accordance with the terms of the Offer.
The Company will be deemed to have accepted for exchange all validly
tendered Old Notes (or defectively tendered Old Notes with respect to which
the Company has waived such defect) if, as and when the Company gives oral or
written notice thereof to the Exchange Agent.
Tenders of Old Notes may be withdrawn by written notice of withdrawal
received by the Exchange Agent at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. See Instruction 1 to this Letter of Transmittal.
In the event of a termination of the Offer, the Old Notes tendered pursuant to
the Offer will be returned to the tendering Holder promptly. Tenders of Old
Notes may also be withdrawn if the Offer is terminated without any Old Notes
being purchased thereunder or as otherwise provided in the Prospectus. In the
event of a termination of the Offer, the Old Notes tendered pursuant to the
Offer will be returned to the tendering Holder promptly.
The Offer is being made in accordance with the interpretive advice given by
the staff of the Securities and Exchange Commission (the "SEC") in connection
with transactions similar to the Offer, so that the New Notes issued pursuant
to the Offer in exchange for the Old Notes may in general be offered for
resale, resold and otherwise transferred by holders thereof without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution of such New Notes. See, e.g., Morgan Stanley &
Co. Incorporated (SEC Interpretive Letter, June 5, 1991), Exxon Capital
Holdings Corporation (SEC Interpretive Letter, April 13, 1988), and Shearman &
Sterling (SEC Interpretive Letter, July 2, 1993). If the undersigned were to
be participating in the Offer for the purposes of distributing securities in a
manner not permitted by the interpretive advice described in the preceding
sentence, the undersigned would be required to comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
a secondary resale transaction. The Company has not requested and does not
expect to request an SEC interpretive letter with respect to the Offer.
3
<PAGE>
The undersigned agrees that the Company reserves the right not to accept
tendered Old Notes from any tendering holder if the Company determines, in its
sole and absolute discretion, that such acceptance could result in a violation
of applicable securities laws.
The undersigned represents that (i) the New Notes acquired pursuant to the
Offer are being obtained in the ordinary course of business of the persons
receiving New Notes (which shall be the undersigned unless otherwise indicated
in the box entitled "Special Issuance Instructions" below) (the "Recipient"),
(ii) neither the undersigned nor the Recipient (if different) is engaged in,
intends to engage in, or has any arrangement or understanding with any person
to participate in, the distribution of such New Notes, and (iii) neither the
undersigned nor the Recipient (if different) is an "affiliate" of the Company
as defined in Rule 405 under the Securities Act. If the undersigned is a
broker-dealer, the undersigned further (x) represents that it acquired Old
Notes for the undersigned's own account as a result of market-making
activities or other trading activities, (y) represents that it has not entered
into any arrangement or understanding with the Company or any "affiliate" of
the Company (within the meaning of Rule 405 under the Securities Act) to
distribute the New Notes to be received in the Offer, and (z) acknowledges
that it will deliver a prospectus meeting the requirements of the Securities
Act (for which purposes delivery of the Prospectus, as the same may be
hereafter supplemented or amended, shall be sufficient) in connection with the
resale of New Notes received in the Offer. Such a broker-dealer will not be
deemed, solely by reason of such acknowledgment and prospectus delivery, to be
admitting that it is an "underwriter" within the meaning of the Securities
Act.
The Company reserves the right in its sole discretion to purchase or make
offers for any Old Notes that remain outstanding subsequent to the Expiration
Date or, as set forth in the Prospectus under the caption "The Exchange
Offer--Condition to the Exchange Offer," to terminate the Offer and, to the
extent permitted by applicable law, purchase Old Notes in the open market, in
privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned accepts
the terms and conditions of the Offer and has full power and authority to
tender, exchange, assign and transfer the Old Notes tendered hereby, and that
when the same are accepted for exchange by the Company, the Company will
acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim or
right. The undersigned 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 sale, assignment and transfer of Old Notes tendered
hereby.
The undersigned agrees that all authority conferred or agreed to be
conferred by this Letter of Transmittal and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned.
Tenders of the Old Notes pursuant to any one of the procedures described in
the Prospectus under the caption "The Exchange Offer--Procedures for
Tendering" and in the instructions hereto will constitute a binding agreement
between the undersigned and the Company in accordance with the terms and
subject to the conditions of the Offer.
The first interest payment following the Expiration Date will include
interest on the Old Notes accrued through the Expiration Date, which will be
the date of issuance of the New Notes.
Under certain circumstances set forth in the Prospectus, the Company may not
be required to accept for purchase any of the Old Notes tendered (including
any Old Notes tendered after the Expiration Date). Any Old Notes not accepted
for purchase will be returned promptly to the undersigned at the address set
forth above, unless otherwise indicated herein under "Special Delivery
Instructions" below.
4
<PAGE>
Delivery and surrender of the Notes will not be effective, and the risk of
loss of the Old Notes does not pass to the Exchange Agent, until receipt by
the Exchange Agent of this Letter of Transmittal, or a facsimile hereof,
properly completed and duly executed, together with all accompanying evidences
of authority, the certificates evidencing the Old Notes being delivered (if
any), and any other required documents in form satisfactory to the Company.
All questions as to form of all documents and the validity (including time of
receipt) and acceptance of tenders and withdrawals of Old Notes will be
determined by the Company in its sole discretion, which determination shall be
final and binding.
Unless otherwise indicated herein under "Special Issuance Instructions," the
undersigned hereby requests that any New Notes issued to the undersigned in
the Offer, and any Old Notes representing principal amounts not tendered or
not accepted for exchange, be issued in the name(s) of the undersigned.
Similarly, unless otherwise indicated herein under "Special Delivery
Instructions," the undersigned hereby requests that any New Notes issued to
the undersigned in the Offer, and any Old Notes representing principal amounts
not tendered or not accepted for purchase, be delivered to the undersigned at
the address(es) shown above. The Company has no obligation pursuant to the
"Special Issuance Instructions" box or "Special Delivery Instructions" box to
transfer any Old Notes from the name of the holder(s) thereof if the Company
does not accept for exchange any of the principal amount of such Old Notes so
tendered.
5
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF OLD NOTES)
This Letter of Transmittal must be signed by the Holder(s) of Old Notes
tendered herewith exactly as their name(s) appear(s) on certificate(s) for
such Old Notes, or by person(s) authorized to become Holder(s) by
endorsements and documents transmitted with this Letter of Transmittal. If
signature is by a trustee, executor, administrator, guardian, attorney-in-
fact, officer or other person acting in a fiduciary or representative
capacity, such person must set forth his or her full title below under
"Capacity" and submit evidence satisfactory to the Company of such person's
authority so to act. See Instruction 3 below.
If the signature appearing below is not of the Holder(s) of the Notes,
then this Letter of Transmittal must be delivered with a valid proxy of the
Holder(s).
X............................................................................
X............................................................................
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATORY
Date: ................................................................ , 1997
Name(s): ....................................................................
(PLEASE TYPE OR PRINT)
Capacity: ...................................................................
Address: ....................................................................
.............................................................................
(INCLUDING ZIP CODE)
Area Code and Telephone No.: ................................................
MEDALLION SIGNATURE GUARANTEE (SEE INSTRUCTION 4 BELOW)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
.............................................................................
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
.............................................................................
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF
INSTITUTION FIRM)
.............................................................................
(AUTHORIZED SIGNATURE)
.............................................................................
(PRINTED NAME)
.............................................................................
(TITLE)
Dated: ............................................................... , 1997
6
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 2, 3, 4 AND 5) (SEE INSTRUCTIONS 2, 3, 4 AND 5)
To be completed ONLY if certifi- To be completed ONLY if certifi-
cates for New Notes, or for Old cates for New Notes, or for Old
Notes in a principal amount not Notes in a principal amount not
tendered or not accepted for ex- tendered or not accepted for ex-
change, are to be issued in the change, are to be sent to someone
name of someone other than the per- other than the person or persons
son or persons whose signature(s) whose signature(s) appear(s) on
appear(s) on this Letter of Trans- this Letter of Transmittal, or to
mittal. an address different from that
shown in the box entitled "Descrip-
tion of Notes" in this Letter of
Transmittal.
Issue: [_] New Notes to:
[_] Old Notes to:
(check as applicable)
Deliver: [_] New Notes to:
Name: ______________________________ [_] Old Notes to:
(PLEASE TYPE OR PRINT) (check as applicable)
_______________________________ Name: ______________________________
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
Address: ___________________________ Address: ___________________________
____________________________________ ____________________________________
(ZIP CODE) (ZIP CODE)
____________________________________
(TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER)
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR OLD NOTES;
BOOK-ENTRY CONFIRMATIONS; WITHDRAWAL OF TENDERS. For a holder validly to
tender Old Notes pursuant to the Offer, a confirmation of any book-entry
transfer into the Exchange Agent's account with DTC of Notes tendered
electronically, or physical delivery of certificates for Old Notes, as well as
a properly completed and duly executed copy or facsimile of this Letter of
Transmittal, together with any signature guarantees, and any other documents
required by this Letter of Transmittal, must be received by the Exchange
Agent, at one of its addresses set forth at the head of this Letter of
Transmittal, prior to 5:00 p.m., New York City time, on the Expiration Date.
Tenders of Old Notes pursuant to the Offer will be accepted prior to the time
and in the manner described in the preceding sentence and otherwise in
compliance with this Letter of Transmittal. No provision has been made for the
delayed guaranteed delivery of Old Note certificates. The method of delivery
of this Letter of Transmittal, certificates representing Old Notes and all
other required documents to the Exchange Agent is at the election and risk of
holders. If such delivery is by mail, it is suggested that holders use
properly insured registered mail, return receipt requested, and that the
mailing be made sufficiently in advance of the expiration of the Offer to
permit delivery to the Exchange Agent prior thereto. Except as otherwise
provided below, the delivery will be deemed made when actually received or
confirmed by the Exchange Agent. This Letter of Transmittal and Old Notes
should be sent only to the Exchange Agent, not to the Company.
Tenders of Old Notes may be withdrawn by written notice of withdrawal
received by the Exchange Agent by mail, hand delivery or facsimile
transmission. Notice of withdrawal of tendered Old Notes, to be effective,
must (i) be received by the Exchange Agent, at one of its addresses set forth
at the head of this Letter of Transmittal, prior to 5:00 p.m., New York City
time, on the Expiration Date, (ii) specify the name of the holder of the Old
Notes to be withdrawn, (iii) contain a description of the Old Notes to be
withdrawn, the certificate numbers shown on the particular certificates
representing such Old Notes, and the aggregate principal amounts
7
<PAGE>
represented by such Old Notes, and (iv) be signed by the holder of such Old
Notes in the same manner as the original signature on the Letter of
Transmittal (including any required signature guarantees), or be accompanied
by documents of transfer sufficient to have the Trustee register the transfer
of the Old Notes into the name of the persons withdrawing such Old Notes. The
signature(s) on the notice of withdrawal of any tendered Old Notes must be
guaranteed by an Eligible Institution unless such Old Notes were tendered for
the account of an Eligible Institution. If the Old Notes to be withdrawn have
been delivered or otherwise identified to the Exchange Agent, a signed notice
of withdrawal is effective immediately upon receipt by the Exchange Agent of
written or facsimile transmission of the notice of withdrawal even if physical
release is not yet effected.
2. PARTIAL TENDERS AND CONSENTS. Tenders of Old Notes pursuant to the Offer
will be accepted only in principal amounts equal to $1,000 or an integral
multiple thereof. If less than the entire principal amount of any Old Notes
evidenced by a submitted certificate is tendered, the tendering Holder must
fill in the principal amount tendered in the last column of the box entitled
"Description of Notes" herein. The entire principal amount represented by the
certificates for all Old Notes delivered to the Exchange Agent will be deemed
to have been tendered unless otherwise indicated. The entire principal amount
of all Old Notes not tendered or not accepted for purchase will be sent to the
person(s) signing this Letter of Transmittal unless otherwise provided in the
appropriate box on this Letter of Transmittal (see Instruction 4), promptly
after the Old Notes are accepted for purchase.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. The signature(s) of the holder(s) on this Letter of
Transmittal must correspond with the name(s) as written on the face of the
certificate(s) without alteration, enlargement or any change whatsoever. If
this Letter of Transmittal is signed by a participant in the DTC system whose
name is shown as the owner of the Old Notes tendered hereby, the signature
must correspond with the name shown on the security position listing as the
owner of the Old Notes.
IF THIS LETTER OF TRANSMITTAL IS EXECUTED BY A PERSON OR ENTITY WHO IS NOT
THE REGISTERED HOLDER, THEN THE REGISTERED HOLDER MUST SIGN A VALID BOND POWER
AND PROXY, WITH THE SIGNATURE OF SUCH REGISTERED HOLDER MEDALLION GUARANTEED
BY A RECOGNIZED MEMBER OF THE MEDALLION SIGNATURE GUARANTEE PROGRAM OR OTHER
SIMILAR PROGRAM HEREIN REFERRED TO AS AN "ELIGIBLE INSTITUTION."
If any of the Old Notes tendered hereby are registered in the name of two or
more holders, all such holders must sign this Letter of Transmittal. If any
tendered Old Notes are registered in different names on several certificates,
it will be necessary to complete, sign and submit as many separate copies of
this Letter of Transmittal and any necessary accompanying documents as there
are different names in which certificates are held.
If this Letter of Transmittal is signed by a registered holder of Old Notes,
and certificates for any principal amount of New Notes, or Old Notes not
tendered or not accepted for exchange, are to be issued, reissued or returned
to such holder, then the holder need not endorse any certificates for tendered
Old Notes nor provide a separate bond power. In any other case (including if
this Letter of Transmittal is not signed by a registered holder), the
registered holder(s) must either properly endorse the certificates for Old
Notes tendered or transmit a separate properly completed bond power with this
Letter of Transmittal (in either case, executed exactly as the name(s) of the
holder(s) appear(s) on such Old Notes) with the signature on the endorsement
or bond power guaranteed by an Eligible Institution, unless such certificates
or bond powers are executed by an Eligible Institution.
If this Letter of Transmittal or any certificates for Old Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
proper evidence satisfactory to the Company of their authority so to act must
be submitted with this Letter of Transmittal.
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Endorsements on certificates for Old Notes, and signatures on bond powers,
proxies and Consents provided in accordance with this Instruction 3 by holders
not executing this Letter of Transmittal, must be guaranteed by an Eligible
Institution.
Signatures on this Letter of Transmittal need not be guaranteed if the Old
Notes tendered thereby are tendered (i) by the registered holder thereof,
unless such holder has completed the box entitled "Special Delivery
Instructions" in this Letter of Transmittal, or (ii) for the account of an
Eligible Institution that is a participant in the Security Transfer Agents
Medallion Program or the Stock Exchange Medallion Program (generally a member
of a registered national securities exchange, a member of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office in the United States). In all other cases, all signatures on
these Letters of Transmittal accompanying Old Notes must be guaranteed by an
Eligible Institution.
4. SPECIAL ISSUANCE AND SPECIAL DELIVERY INSTRUCTIONS. Tendering Holders
should indicate in the applicable box or boxes the name and address to which
New Notes, or Old Notes in principal amounts not tendered or not accepted for
exchange, are to be issued or sent, if different from the name and address of
the holder signing this Letter of Transmittal. In the case of issuance in a
different name, the taxpayer identification number of the person named must
also be indicated. If no instructions are given, Old Notes not tendered or not
accepted for exchange will be returned to the Holder of the Old Notes
tendered. Any such Old Notes tendered by book-entry transfer and not accepted
for purchase will be returned by crediting the account at DTC of such holder.
5. TRANSFER TAXES. The Company will pay all transfer taxes applicable to the
exchange and transfer of Old Notes for New Notes pursuant to the Offer, unless
the box entitled "Special Issuance Instructions" above has been completed.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter of
Transmittal.
6. IRREGULARITIES. All questions as to the form of all documents and the
validity (including time of receipt) and acceptance of tenders and withdrawals
of Old Notes will be determined by the Company in its sole discretion, which
determination shall be final and binding. The Company reserves the absolute
right to reject any or all tenders of Old Notes that are not in proper form or
the acceptance of which would, in the Company's opinion, be unlawful. The
Company also reserves the right to waive any defects, irregularities or
conditions of tender as to particular Old Notes. The Company's interpretation
of the terms and conditions of the Offer (including the instructions in this
Letter of Transmittal) will be final and binding. Any defect or irregularity
in connection with tenders of Old Notes or accompanying deliveries of Consents
must be cured within such reasonable time as the Company determines, unless
waived by the Company. Tenders of Old Notes shall not be deemed to have been
made until all defects or irregularities have been waived by the Company or
cured. None of the Company, the Exchange Agent or another person will be under
any duty to give notice of any defects or irregularities in tenders of Old
Notes, or will incur any liability to holders for failure to give any such
notice.
7. WAIVER OF CONDITIONS. The Company expressly reserves the absolute right,
in its sole discretion, to amend or waive any of the conditions to the Offer,
in whole or in part, at any time and from time to time.
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES FOR OLD NOTES. Any
holder whose certificates for Old Notes have been mutilated, lost, stolen or
destroyed should write or telephone the Exchange Agent at the address or
telephone number set forth in Instruction 9 below.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance may be directed to the Customer Service Department at United States
Trust Company of New York, the Exchange Agent, 770 Broadway, New York, New
York 10003, Telephone 1-800-548-6565. Requests for copies of the Prospectus,
this Letter of Transmittal or other documents may also be directed to the
Exchange Agent, and copies will be furnished promptly at the Company's
expense.
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