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As Filed Pursuant to Rule 424(b)(3)
Registration No. 333-88157
PROSPECTUS
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$185,000,000
CONSOLIDATED CONTAINER COMPANY LLC,
CONSOLIDATED CONTAINER CAPITAL, INC.
OFFER TO EXCHANGE ALL
OUTSTANDING 10 1/8% SENIOR SUBORDINATED NOTES DUE 2009
FOR
10 1/8% SENIOR SUBORDINATED NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
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- We will exchange all of your outstanding notes that are properly delivered
and not properly withdrawn for an equal principal amount of exchange
notes.
- The exchange notes will be substantially identical to the outstanding
notes, except that, because we have registered the exchange notes under
the Securities Act of 1933, they will:
-- be freely tradeable, will not bear legends restricting their transfer;
-- will not be subject to any additional obligations regarding
registration under the Securities Act of 1933; and
-- will not be subject to special interest payments.
- The exchange notes will be issued under, and entitled to the benefits of,
the same indenture under which we issued the outstanding notes.
- All of our domestic subsidiaries which, jointly and severally, guarantee
the outstanding notes fully and unconditionally on a senior subordinated
basis will, jointly and severally, guarantee the exchange notes fully and
unconditionally, on a senior subordinated basis.
- The outstanding notes and the guarantees of the outstanding notes are, and
the exchange notes and the guarantees of the exchange notes will be,
senior subordinated debt that rank junior to senior debt. At
September 30, 1999, we and the guarantors had approximately
$597.5 million of senior debt outstanding.
- The exchange offer expires at 5:00 p.m., New York City time, on March 17,
2000, unless extended. We do not currently intend to extend the expiration
date
- We will not receive any proceeds from the exchange offer.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 14 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 31, 2000.
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TABLE OF CONTENTS
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Prospectus Summary..................... 2
Risk Factors........................... 14
Where You Can Find More Information.... 23
Forward-Looking Statements............. 24
Use of Proceeds........................ 25
Capitalization......................... 26
The Exchange Offer..................... 27
Description of Notes................... 38
U.S. Federal Income Tax Consequences... 93
Plan of Distribution................... 95
Consolidated Container Company LLC
Unaudited Pro Forma Financial
Information.......................... 96
Management's Discussion and Analysis of
Financial Condition and Pro Forma
Results of Operations of Consolidated
Container Company LLC................ 105
Selected Historical Financial Data of
Consolidated Container Company LLC,
Successor to Reid Plastics, Inc...... 112
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Management's Discussion and Analysis of
Financial Condition and Results of
Operations of Consolidated Container
Company LLC, Successor to Reid
Plastics, Inc........................ 115
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Selected Historical Financial Data of
Suiza Packaging...................... 119
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of Suiza Packaging........ 121
Selected Historical Pre-Acquisition
Financial Data of Plastic Containers,
Inc.................................. 124
Business............................... 126
The Transactions....................... 142
Management............................. 146
Security Ownership of Certain
Beneficial Owners and Management..... 152
Certain Relationships and Related Party
Transactions......................... 155
Description of Senior Credit
Facility............................. 162
Legal Matters.......................... 165
Experts................................ 165
Index to Financial Statements.......... F-1
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission. By this prospectus, we are offering to
exchange all outstanding 10 1/8% Senior Subordinated Notes due 2009, which we
placed in a private offering on July 2, 1999, for 10 1/8% Senior Subordinated
Notes due 2009 that we registered with the Securities and Exchange Commission.
As part of the private offering, we entered into a registration rights agreement
with the initial purchasers of the outstanding notes in which we agreed to
deliver to you this prospectus and to complete the exchange offer within
210 days after the date of the original issuance of the outstanding notes.
This prospectus contains information about Consolidated Container Company
LLC and Consolidated Container Capital, Inc., the issuers of the outstanding
notes, and Reid Plastics Group LLC, Plastic Containers LLC, Continental Plastic
Containers LLC and Continental Caribbean Containers, Inc., the subsidiaries of
Consolidated Container Company which are guarantors of the outstanding notes.
This prospectus does not contain, however, all of the information contained in
the registration statement or in the exhibits to the registration statement
which we filed with it. For more information regarding the registration
statement, its exhibits and the periodic reports and other information that we
will file with the Securities and Exchange Commission, see "Where You Can Find
More Information" in this prospectus.
In this prospectus, we rely on and refer to information and statistics
regarding the packaging industry and our market share in the sectors in which we
compete. We obtained this information and statistics from various third party
sources, discussions with our customers and our own internal estimates. We
believe that these sources and estimates are reliable, but we have not
independently verified them.
You should rely only on the information provided in this prospectus. We have
not authorized anyone else to provide you with different or additional
information.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY CONTAINS INFORMATION ABOUT THE EXCHANGE OFFER, THE
EXCHANGE NOTES AND CONSOLIDATED CONTAINER COMPANY AND ITS SUBSIDIARIES. BECAUSE
IT IS JUST A SUMMARY, IT MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THIS ENTIRE PROSPECTUS, INCLUDING THE
FINANCIAL DATA AND RELATED NOTES, IN ITS ENTIRETY. UNLESS THE CONTEXT INDICATES
OTHERWISE, ALL REFERENCES TO "WE," "US," OR "OUR" IN THIS PROSPECTUS MEAN
CONSOLIDATED CONTAINER COMPANY AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS
AFTER GIVING EFFECT TO THE TRANSACTIONS SUMMARIZED BELOW IN THIS SUMMARY UNDER
THE SECTION "THE TRANSACTIONS." WHEN WE REFER TO "PRO FORMA" FINANCIAL RESULTS
OR "ADJUSTED" FINANCIAL RESULTS WE MEAN THE FINANCIAL RESULTS OF CONSOLIDATED
CONTAINER COMPANY AND ITS SUBSIDIARIES ON A COMBINED BASIS AS IF THE
TRANSACTIONS HAD OCCURRED AT THE BEGINNING OF THE TIME PERIOD INDICATED.
SUMMARY OF TERMS OF THE EXCHANGE OFFER
On July 2, 1999, we completed the private offering of the outstanding notes.
We summarize below the principal terms of the exchange offer. For a more
complete description of the exchange offer, see "The Exchange Offer" in this
prospectus.
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The Exchange Offer................... We are offering to exchange up to $185.0 million total
principal amount of exchange notes for up to $185.0 million
total principal amount of outstanding notes. You may
exchange outstanding notes only in integral multiples of
$1,000. The exchange notes will be substantially identical
to the outstanding notes, except that, because we have
registered the exchange notes, they:
- will be freely tradeable;
- will not bear legends restricting their transfer;
- will not be subject to any additional obligations
regarding registration under the Securities Act of 1933;
and
- will not be subject to the special interest
payments described in "Description of Notes --
Registration Rights; Liquidated Damages" in this
prospectus.
We will issue the exchange notes under the same indenture
under which we issued the outstanding notes. Consequently,
the exchange notes will be entitled to the benefits of, and
both series of notes will be treated as a single class of
debt securities, under the indenture.
Resales.............................. Based on interpretations of the staff of the Securities and
Exchange Commission contained in no-action letters issued to
other parties, we believe that the exchange notes may be
offered for resale, resold and otherwise transferred by you
without compliance with the registration and prospectus
delivery provisions of the Securities Act of 1933, if you
meet three requirements. These requirements are:
- you are acquiring the exchange notes in the
ordinary course of your business;
- you have not engaged in, do not intend to engage
in, and have no arrangement or understanding
with any
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person to participate in, a distribution of the
exchange notes; and
- you are not an "affiliate" of either Consolidated
Container Company or Consolidated Container Capital
within the meaning of Rule 405 under the Securities
Act of 1933.
If you do not meet these requirements, you will need to
comply with the registration and prospectus delivery
requirements of the Securities Act of 1933 whenever you
resell your exchange notes, unless an exemption to these
requirements applies. The exchange offer requires that each
participating broker-dealer which receives exchange notes
for its own account in exchange for outstanding notes that
were acquired as a result of market-making or trading
activity must acknowledge that it will deliver a prospectus
if it resells any of the exchange notes. See "Plan of
Distribution" in this prospectus.
Expiration Date; Withdrawal of
Tender............................. The exchange offer expires at 5:00 p.m., New York City time,
on March 17, 2000, unless we extend the expiration date. We
do not currently intend to extend the expiration date. You
may withdraw tenders of outstanding notes at any time prior
to the expiration of the exchange offer.
Conditions to the Exchange Offer..... The exchange offer is subject to customary conditions, which
we may waive if, in our reasonable determination, one or
more conditions have not been satisfied. We currently expect
that each of the conditions will be satisfied and that no
waivers will be necessary. For more information regarding
the conditions to the exchange offer, see the section "The
Exchange Offer -- Conditions to the Exchange Offer" in this
prospectus.
Procedures for Tendering Outstanding
Notes.............................. If you wish to accept the exchange offer, you must:
- complete, sign and date the accompanying letter of
transmittal, or a facsimile of the letter of
transmittal, according to the instructions contained
in this prospectus and the letter of transmittal; and
- mail or otherwise deliver the letter of
transmittal, or a facsimile of the letter of
transmittal, together with the outstanding notes and
any other required documents to the exchange agent at
the address listed on the cover page of the letter of
transmittal.
If you hold outstanding notes through The Depository Trust
Company and wish to participate in the exchange offer, you
must comply with the Automated Tender Offer Program
procedures of The Depository Trust Company, by which you
will agree to be bound by the letter of transmittal.
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Terms and Conditions of the Letter of
Transmittal........................ By signing, or agreeing to be bound by, the letter of
transmittal, you will represent to us that, among other
things:
- any exchange notes that you receive will be
acquired in the ordinary course of your business;
- you have no arrangement or understanding
with any person or entity to participate in, and do
not intend to engage in, a distribution of the
exchange notes;
- if you are a broker-dealer which will receive
exchange notes for your own account in exchange for
outstanding notes that you have acquired as a result
of market-making or trading activities, that you will
deliver a prospectus, as required by law, whenever you
sell any of the exchange notes;
- you are not an "affiliate," as defined in Rule 405
of the Securities Act of 1933, of either Consolidated
Container Company or Consolidated Container Capital
or, if you are an "affiliate," you will comply with
the applicable registration and prospectus delivery
requirements of the Securities Act of 1933; and
- if you are a person in the United Kingdom, that
your ordinary activities involve you in acquiring,
holding, managing or disposing of investments, as
principal or agent, for the purposes of your business.
Special Procedures for Beneficial
Owners............................. If you are a beneficial owner of outstanding notes which are
registered in the name of a broker, dealer, commercial bank,
trust company or other nominee, and you wish to tender these
outstanding notes in the exchange offer, you should contact
promptly the person in whose name your outstanding notes are
registered and instruct that person to tender them on your
behalf. If you wish to tender them on your own behalf, you
must, prior to completing and executing the letter of
transmittal and delivering your outstanding notes, either
make appropriate arrangements to register ownership of the
outstanding notes in your name or obtain a properly
completed bond power from the registered holder. The
transfer of registered ownership may take considerable time
and may not be able to be completed prior to the expiration
date.
Guaranteed Delivery
Procedures......................... If you wish to tender your outstanding notes and, prior to
the expiration date, you cannot:
- deliver your outstanding notes, the letter of
transmittal or any other documents required by the
letter of transmittal; or
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- comply with the applicable procedures under The
Depository Trust Company's Automated Tender Offer
Program,
then you must tender your outstanding notes according to
guaranteed delivery procedures. We explain these procedures
under the section "The Exchange Offer -- Guaranteed Delivery
Procedures" in this prospectus.
Effect on Holders of Outstanding
Notes.............................. When we complete the exchange offer, we will have fulfilled
a covenant contained in the registration rights agreement.
If you do not tender your outstanding notes in the exchange
offer, you will continue to be entitled to the rights and
benefits of the indenture but will not be entitled to an
increase in the interest rate on these notes.
Consequence of Failure to Exchange... If you do not exchange your outstanding notes for exchange
notes, your outstanding notes will continue to be subject to
restrictions on transfer. In general, outstanding notes may
not be offered or sold, unless registered under the
Securities Act of 1933, except if offered or sold under an
exemption from, or in a transaction not subject to, the
Securities Act of 1933 and applicable state securities laws.
We do not currently anticipate that we will register the
outstanding notes under the Securities Act of 1933. In
addition, the tender of outstanding notes in the exchange
offer will reduce the principal amount of the outstanding
notes outstanding, which may have an adverse effect upon,
and increase the volatility of, the market price of the
outstanding notes due to a reduction in liquidity. See "Risk
Factors--Risks of Not Participating in the Exchange Offer"
in this prospectus.
U.S. Federal Income Tax
Considerations..................... The exchange of outstanding notes for exchange notes in the
exchange offer, will not be a taxable event for U.S. federal
income tax purposes. See "U.S. Federal Income Tax
Consequences of the Exchange Offer."
Use of Proceeds...................... We will not receive any cash proceeds from the issuance of
exchange notes.
Exchange Agent....................... The Bank of New York is the exchange agent for the exchange
offer. The address and telephone number of the exchange
agent are listed under the section "Exchange Offer --
Exchange Agent" in this prospectus.
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SUMMARY OF TERMS OF THE EXCHANGE NOTES
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Issuers.............................. Consolidated Container Company LLC and Consolidated
Container Capital, Inc.
Notes Offered........................ $185.0 million total principal amount of 10 1/8% Senior
Subordinated Notes due 2009, which have been registered
under the Securities Act of 1933.
Maturity............................. July 15, 2009.
Interest Rate and Payment Dates...... Interest on the exchange notes will accrue at the rate of
10 1/8% per year, payable semi-annually in cash in arrears
on January 15 and July 15 of each year, commencing on
January 15, 2000.
Optional Redemption.................. Prior to July 15, 2002, we may redeem up to 40% of the
exchange notes with the net cash proceeds of one or more
equity offerings at the price listed under the section
"Description of Notes -- Optional Redemption" in this
prospectus.
On or after July 15, 2004, we may redeem some or all of the
exchange notes at any time at the redemption prices listed
under the section "Description of Notes -- Optional
Redemption" in this prospectus.
Mandatory Repurchase Offer........... If we sell all or substantially all of our assets or undergo
specific kinds of changes in control, we will be required to
offer to repurchase the exchange notes at 101% of the
principal amount of the exchange notes plus accrued but
unpaid interest to the date of redemption. We may not have,
however, sufficient funds to repurchase the exchange notes
if a sale of assets or a change of control were to occur.
See "Risk Factors -- Limitations on Ability to Make Change
of Control Payment" in this prospectus.
Subsidiary Guarantees................ All of our existing and future domestic restricted
subsidiaries will, jointly and severally, guarantee fully
and unconditionally, on a senior, subordinated basis, our
obligation to pay principal, premium, if any, and interest
on the exchange notes. In general, our restricted
subsidiaries are subsidiaries that are subject to the
restrictions contained in the indenture. Currently, all of
our subsidiaries are restricted subsidiaries. Four of our
subsidiaries, Reid Canada Inc., Stewart/Walker
Plastics Ltd., Master Plastics Inc. and Reid Mexico, S.A. de
CV, are not domestic subsidiaries and are not guarantors.
If we cannot make payments on the exchange notes when they
are due, the guarantors will be required to make them
instead. The obligations of each guarantor will, however, be
limited (1) as necessary to prevent that guarantee from
constituting a fraudulent conveyance under applicable law
and (2) by specified procedures that must be satisified to
exercise the right to enforce the guarantees, as described
under " -- Events of Default and Remedies". Our subsidiaries
that are not guarantors will not be
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required to make any payments on the exchange notes from
their assets unless those assets are transferred to us or a
guarantor. In the event of a bankruptcy, liquidation or
reorganization of a non-guarantor subsidiary, holders of its
liabilities, including its trade creditors, will generally
be entitled to payment of claims from the assets of that
subsidiary before any assets are made available for
distribution to us. In addition, one or more of our
guarantors may not have the funds or resources to satisfy
our obligations in the event they are called upon to do so.
At September 30, 1999, the total liabilities, including
trade payables, of our non-guarantor subsidiaries were
approximately $3.7 million.
Ranking of Exchange Notes and
Guarantees......................... The exchange notes will constitute senior subordinated debt,
will rank junior to all of our existing and future senior
debt and will rank senior to all of our future debt that is
expressly subordinated to the outstanding notes. At
September 30, 1999, the outstanding notes were contractually
subordinated to approximately $412.5 million of senior debt
and structurally subordinated to approximately $3.7 million
of liabilities of non-guarantor subsidiaries. See
"Description of Notes -- Subordination" in this prospectus.
The guarantees will constitute full and unconditional
guarantees on a senior, subordinated basis, will rank junior
in right of payment to all existing and future senior debt
of the guarantors and will rank senior to all of their
future debt that is expressly subordinated to the
guarantees. At September 30, 1999, we and our guarantors had
approximately $597.5 million of senior debt outstanding. See
"Description of Notes -- Subsidiary Guarantees" in this
prospectus.
Covenants............................ We will issue the exchange notes under the indenture dated
as of July 1, 1999 among Consolidated Container Company,
Consolidated Container Capital, the subsidiary guarantors
and The Bank of New York, as trustee. The indenture will
limit, among other things, our, and our restricted
subsidiaries, ability to:
- borrow or issue additional debt;
- pay dividends on our stock or repurchase our stock;
- make investments;
- use assets as security in other transactions; and
- sell specified assets or merge with or into other
companies.
Each of the covenants referred to above are subject to a
number of important qualifications and exceptions. For more
information, see "Description of Notes -- Covenants" in this
prospectus.
Use of Proceeds...................... There will be no cash proceeds to us from the exchange
offer. See "Use of Proceeds" in this prospectus.
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COMPANY OVERVIEW
We are a leading domestic developer, manufacturer and marketer of rigid
plastic containers for many of the world's largest branded consumer products and
beverage companies. In 1998, we sold over 4 billion containers to the dairy,
water, other beverage, food, household chemical and personal care, automotive
and agricultural and industrial chemical sectors. Our broad container product
line ranges in size from two ounce to six gallon containers and consists of
single and multi-layer plastic containers made from a variety of plastic resins,
including high density polyethylene, polycarbonate, polypropylene, polyethylene
terephthalate and polyvinyl chloride. Because our broad range of product lines
serves customers in diverse industries and regions in the United States, we
believe that our net sales and cash flow are relatively stable, reducing our
exposure to particular market or regional economic cycles. We have grown net
sales through acquisitions and internal growth between 1996 and 1998 at a
compounded annual growth rate of approximately 58.0%. For the nine months ended
September 30, 1999, we generated pro forma net sales of $546.3 million and pro
forma EBITDA of $100.5 million.
THE TRANSACTIONS
The private offering of the outstanding notes was part of a series of
simultaneous transactions that closed on July 2, 1999. These transactions
resulted in the creation of Consolidated Container Company, a new Delaware
limited liability company, and its parent, Consolidated Container Holdings, also
a Delaware limited liability company. Consolidated Container Holdings LLC owns
all of the member units in Consolidated Container Company.
The transactions included the following:
- Vestar Packaging LLC, a newly formed Delaware limited liability company,
controlled by Vestar Capital Partners III, L.P., contributed
$60.8 million in cash to Consolidated Container Holdings. Vestar Capital
Partners III is an investment fund managed by Vestar Capital Partners.
Vestar Capital Partners, headquartered in New York with an office in
Denver, Colorado, manages over $1 billion in private equity capital.
Founded in 1988, Vestar Capital Partners focuses on management buyouts,
recapitalizations and growth equity investments and, to date, has
completed 29 investments with an total value of approximately $6 billion.
- Vestar Capital Partners III caused Reid Plastics Holdings, Inc. and Vestar
Reid LLC, both companies which it controls, to contribute Reid
Plastics, Inc. to Consolidated Container Holdings and its subsidiaries. In
consideration for the contributions described above, Vestar Capital
Partners III, through its controlled affiliates, controls 51% of the
member units in Consolidated Container Holdings.
- Suiza Foods Corporation caused its subsidiaries to contribute
substantially all of the U.S. plastics packaging assets of Franklin
Plastics, Inc. and Plastic Containers, Inc. to Consolidated Container
Holdings and its subsidiaries. As a result, Suiza Foods, through a
subsidiary, controls 49% of the member units of Consolidated Container
Holdings and had its debt repaid and preferred stock redeemed, as
described below.
- Plastic Containers conducted a consent solicitation and tender offer for
its outstanding 10% Senior Secured Notes due 2006, in which all of the
holders of these notes consented to remove restrictive covenants under the
related indenture and, then, tendered their notes on the closing of the
tender offer for them.
- Consolidated Container Holdings repaid substantially all of the
outstanding debt of Reid Plastics, Inc. and Franklin Plastics, Inc.,
redeemed the preferred stock of Franklin Plastics, Inc. and paid a portion
of accrued interest and dividends on the debt and preferred stock of
Franklin Plastics, Inc.
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- We paid the fees and expenses of the transactions, including the fees and
expenses of the initial purchasers, the lenders, the trustee and our
lawyers, accountants and printing company.
- Consolidated Container Company and the related guarantors entered into a
new senior credit facility and borrowed $412.5 million under it to fund
the transactions described above.
- We issued the outstanding notes in a private offering exempt from the
registration requirements of the Securities Act of 1933 to fund the
transactions described above.
* * * * * *
Consolidated Container Company is a Delaware limited liability company, and
Consolidated Container Capital is a Delaware corporation. The address of their
principal executive offices is 2515 McKinney Avenue, Suite 850, Dallas, Texas
75201, and their telephone number is (214) 303-3700.
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PRE-CLOSING ORGANIZATIONAL STRUCTURES
The charts below provide an illustration of the organizational structures of
Franklin Plastics, Inc., Vestar Packaging LLC and Reid Plastics Holdings, Inc.,
the owners of Consolidated Container Holdings LLC, and each of their direct and
indirect controlling owners and subsidiaries immediately prior to July 2, 1999,
the date of the closing of the transactions. For more information regarding the
minority owners of these companies, see "Security Ownership of Certain
Beneficial Owners and Management" in this prospectus.
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* Vestar Packaging LLC was formed and owned by Vestar Capital Partners III
L.P. prior to the closing of the transactions. At the closing of the
transactions, Vestar Capital Partners III L.P. sold limited liability
company interests in Vestar Packaging to several persons and currently owns
69.4% of the limited liability company interests in Vestar Packaging LLC.
For more information regarding the minority owners of Vestar Packaging LLC,
see note (b) to "Security Ownership of Certain Beneficial Owner and
Management" in this prospectus.
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POST-CLOSING ORGANIZATIONAL STRUCTURE
The chart below provides an illustration of the organizational structure of
Consolidated Container Company, its controlling direct and indirect owners and
its direct and indirect subsidiaries at July 2, 1999, the date of the closing of
the transactions. For more information regarding the minority owners of these
companies, see "Security Ownership of Certain Beneficial Owners" in this
prospectus.
[CHART]
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CONSOLIDATED CONTAINER COMPANY LLC
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following table presents summary pro forma financial data derived from
our unaudited pro forma financial statements for the year ended December 31,
1998 and the six months ended June 30, 1999 and Consolidated Container Company's
unaudited financial statements for the three months ended September 30, 1999,
which statements are included elsewhere in this prospectus. The historical
balance sheet data has been derived from our unaudited balance sheet at
September 30, 1999, which statement is included elsewhere in this prospectus.
The summary pro forma data give effect to the transactions as if they had
occurred, for the purposes of the operating data, on January 1, 1998. The
summary pro forma financial data do not purport to represent what our combined
results of operations would have been had the transactions, in fact, occurred on
this date and do not purport to project our combined results of operations for
the current year or any future period. In reviewing the data presented here, you
should refer to the information under the headings "Consolidated Container
Company LLC Unaudited Pro Forma Financial Information," and "Management's
Discussion and Analysis of Financial Condition and Pro Forma Results of
Operations of Consolidated Container Company of Consolidated Container Company
LLC."
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PRO FORMA
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NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
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(IN MILLIONS)
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INCOME STATEMENT DATA:
Net sales................................................... $687.3 $546.3
Cost of goods sold.......................................... 548.1 422.7
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Gross profit................................................ 139.2 123.6
Selling, general and administrative expenses................ 61.4 49.8
Amortization of goodwill.................................... 13.7 10.3
Restructuring Charge........................................ -- 1.5
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Operating income............................................ 64.1 62.0
Other income................................................ 1.4 0.8
Interest expense, net (a)................................... 51.6 38.6
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Income before income taxes.................................. 13.9 24.2
Income tax (benefit) expense (b)............................ -- --
Minority interest in subsidiaries........................... 0.1 (0.3)
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Income before extraordinary item............................ 13.8 24.5
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OTHER DATA:
Depreciation and amortization............................... 44.6 37.4
Capital expenditures (c).................................... 83.2 29.6
Cash interest expense, net (d).............................. 48.3 36.1
Ratio of earnings to fixed charges (e)...................... 1.2x 1.6x
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AT SEPTEMBER 30,
1999
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(IN MILLIONS)
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BALANCE SHEET DATA:
Working capital............................................. $ 36.5
Total assets................................................ 1,008.0
Total debt.................................................. 603.3
Total member's equity....................................... 263.8
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(FOOTNOTES APPEAR ON THE FOLLOWING PAGE)
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(FOOTNOTES FROM TABLE ON PRIOR PAGE)
(a) Represents interest expense, net of interest income. For more information
regarding our calculation of pro forma interest expense, see Note (c) to the
Unaudited Pro Forma Statement of Operations of Consolidated Container
Company LLC for the nine months ended September 30, 1999 and Notes (i) and
(j) to the Unaudited Pro Forma Statement of Operations of Consolidated
Container Company LLC for the year ended December 31, 1998.
(b) As a limited liability company, Consolidated Container Company is not
subject to corporate income taxes. Consolidated Container Company expects to
distribute cash to its sole member, Consolidated Container Holdings, to
allow its members to pay income taxes to the extent required.
(c) Of the total amount of capital expenditures listed, we spent approximately
$16.4 million for the year ended December 31, 1998 and approximately
$12.4 million for the nine months ended September 30, 1999, in each case on
maintenance.
(d) Cash interest expense, net excludes amortization of deferred financing fees.
(e) For purposes of determining the ratio of earning to fixed charges,
"earnings" is defined as income (loss) before income taxes plus fixed
charges. "Fixed charges" consist of interest expense on all debt,
amortization of deferred financing costs and one-third of rental expense on
operating leases, representing that portion of rental expense which we
consider to be attributable to interest.
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RISK FACTORS
BEFORE YOU TENDER YOUR OUTSTANDING NOTES IN THE EXCHANGE OFFER, YOU SHOULD
BE AWARE THAT THERE ARE VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW, RELATING
TO AN INVESTMENT IN THE OUTSTANDING NOTES AND THE EXCHANGE NOTES. YOU SHOULD
CONSIDER CAREFULLY THESE RISK FACTORS, TOGETHER WITH ALL OF THE OTHER
INFORMATION INCLUDED IN THIS PROSPECTUS, BEFORE YOU DECIDE TO PARTICIPATE IN THE
EXCHANGE OFFER. WE HAVE SUMMARIZED BELOW THE MATERIAL RISKS RELATING TO YOUR
PARTICIPATION IN THE EXCHANGE OFFER AND AN INVESTMENT IN THE EXCHANGE NOTES.
RISKS OF NOT PARTICIPATING IN EXCHANGE OFFER -- IF YOU DO NOT EXCHANGE YOUR
OUTSTANDING NOTES, THE PRESENT TRANSFER RESTRICTIONS WILL REMAIN IN FORCE AND
THE MARKET PRICE OF YOUR OUTSTANDING NOTES COULD DECLINE.
If you do not participate in the exchange offer, or you do not successfully
tender your outstanding notes, the market for outstanding notes will be less
liquid and more volatile and, accordingly, the market price for them could
decline. Outstanding notes that are not exchanged for exchange notes will suffer
from reduced liquidity for the two following reasons.
- First, the outstanding notes will continue to be subject to transfer
restrictions because they will not have been registered under the
Securities Act of 1933, whereas the exchange notes will be freely
tradeable. As a result, the outstanding notes will, following the
completion of the exchange offer, become less liquid than they were
before.
- Second, the tender of outstanding notes in the exchange offer will reduce
the outstanding amount of outstanding notes, which will likely reduce the
liquidity for them. The result is that their price will likely become more
volatile.
Accordingly, the market price for outstanding notes could decline after the
exchange offer.
RISK THAT AN ACTIVE TRADING MARKET WILL NOT DEVELOP -- IF AN ACTIVE TRADING
MARKET DOES NOT DEVELOP FOR THE OUTSTANDING NOTES AND THE EXCHANGE NOTES, IT
WILL LIKELY HAVE A MATERIAL ADVERSE EFFECT ON THE MARKET PRICE AND LIQUIDITY OF
THESE NOTES.
If a liquid market for the exchange notes or outstanding notes does not
develop, you may not be able to sell these notes at attractive prices or at all.
The exchange notes constitute a new class of securities for which there is no
established trading market. We do not intend to list the outstanding notes or
exchange notes on any national securities exchange or to seek their quotation on
any automated dealer quotation system. Although the initial purchasers of the
outstanding notes informed us that they intend to make a market in the
outstanding notes and exchange notes, they are not obligated to do so and may
cease market-making activities at any time without notice. The liquidity of a
market for the outstanding notes and exchange notes will depend upon a number of
factors, including the number of those holding these notes and the interest of
securities dealers in making a market in these notes.
In addition, if the outstanding notes and exchange notes are traded, they
may trade at a discount from the initial offering price of the outstanding
notes, depending upon prevailing interest rates, the market for similar
securities, our operating and financial performance and other factors. In
addition, the market for non-investment grade debt has been historically subject
to disruptions that have caused volatility in their prices independent of the
operating and financial performance of the issuers of these securities. It is
possible that the market for the outstanding notes and the exchange notes will
be subject to these kind of disruptions. Accordingly, declines in the liquidity
and market price of the outstanding notes or exchange notes may also occur
independent of our operating and financial performance.
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LIMITATIONS ON ABILITY TO MAKE CHANGE OF CONTROL PAYMENT -- WE MAY NOT BE
PERMITTED, AND WE MAY NOT HAVE SUFFICIENT FUNDS, TO PURCHASE THE OUTSTANDING
NOTES OR THE EXCHANGE NOTES UPON A CHANGE OF CONTROL AS REQUIRED BY THE
INDENTURE.
We may not be permitted, and we may not have sufficient funds, to purchase
the outstanding notes or the exchange notes upon a change of control as required
by the indenture. Upon a change of control, we will be required to offer to
purchase all of the outstanding notes and the exchange notes then outstanding at
101% of their principal amount, plus accrued interest to the date of repurchase.
However, a change of control will also constitute an event of default under the
senior credit facility that would permit the lenders to accelerate the debt
under the facility. In addition, the senior credit facility will restrict our
purchase of the outstanding notes and exchange notes upon a change of control.
As a result, prior to purchasing the outstanding notes and the exchange notes
upon a change of control, we must either repay the debt under the senior credit
facility or obtain the consent of the lenders under the facility. If we do not
repay the senior credit facility or obtain the required consent, we will be
prohibited from offering to purchase the outstanding notes and exchange notes.
The source of funds for any purchase of the outstanding notes and exchange
notes would be our available cash or cash generated from other sources,
including borrowings, sales of assets, sales of equity or funds provided by an
existing or a new controlling person. These source may not, however, be
available to us. Upon the occurrence of a change of control event, we may seek
to refinance the debt outstanding under the senior credit facility, the
outstanding notes and exchange notes. It is possible, however, that we will not
be able to complete this refinancing on commercially reasonable terms or at all.
In that event, we would not have the funds necessary to finance the required
change of control offer. See "Description of Notes -- Repurchase at the Option
of Holders -- Change of Control" and "Description of Senior Credit Facility
- -- Senior Credit Facility."
CONTROL BY VESTAR CAPITAL PARTNERS III AND SUIZA FOODS -- OUR OWNERS' INTERESTS
MAY CONFLICT WITH YOURS AS HOLDERS OF NOTES.
The interests of Vestar Capital Partners III and Suiza Foods, the owners of
Consolidated Container Company and its subsidiaries, may conflict with yours as
a holder of outstanding notes or exchange notes. For example, Vestar Capital
Partners III and Suiza Foods, as equity holders, may have an incentive to
increase the value of their equity investment or cause us to distribute funds by
dividend or otherwise at the expense of our financial risk and our ability to
make payments on the outstanding notes and exchange notes. Each of Vestar
Capital Partners III, through affiliates which it controls, and Suiza Foods,
through its indirect ownership, is able to veto most major decisions regarding
the management and operations of Consolidated Container Company. We summarize
these decisions under "Certain Relationships and Related Party Transactions
- -- Limited Liability Company Agreement of Consolidated Container Holdings
- -- Management." In addition, Vestar Capital Partners III, through affiliates
which it controls, will have the sole power to elect a majority of the
management committee and appoint new officers and management of Consolidated
Container Company and, therefore, will effectively control many other major
decisions regarding our operations. We cannot assure you that the interests of
either Vestar Capital Partners III or Suiza Foods will not conflict with your
interests as a holder of the outstanding notes or the exchange notes. In
addition, we note that each of Vestar Capital Partners III and Suiza Foods is a
party to specified related party transactions with Consolidated Container
Company. For more information regarding Vestar Capital Partners III, Suiza Foods
and related matters, see "Security Ownership of Certain Beneficial Owners and
Management," "Management" and "Certain Relationships and Related Party
Transactions."
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SUBSTANTIAL LEVERAGE AND DEBT SERVICE -- OUR SUBSTANTIAL LEVEL OF DEBT HAS
INCREASED OUR FINANCIAL RISK AND, IN PARTICULAR, MAY PREVENT US FROM MAKING THE
REQUIRED PAYMENTS ON THE OUTSTANDING NOTES AND THE EXCHANGE NOTES.
Our substantial level of debt has increased our financial risk and, in
particular, may prevent us from making the required payments on the outstanding
notes and the exchange notes. We have now, and after the exchange offer will
continue to have, a substantial amount of debt. At September 30, 1999, we had
total debt of $603.3 million, not including unused commitments, and member's
equity of $263.8 million and, at September 30, 1999, we had a ratio of total
debt to pro forma EBITDA of 4.7x for the twelve months ended September 30, 1999.
Subject to restrictions in our senior credit facility and the indenture, we may
borrow or issue more debt for working capital, capital expenditures,
acquisitions and for other purposes. At September 30, 1999, approximately
$62.5 million was available for borrowing as additional senior debt under our
senior credit facility subject to borrowing conditions in it, and we may issue
an additional $115.0 million of senior subordinated notes under the indenture,
which senior subordinated notes would rank equally with the outstanding notes
and the exchange notes. For a summary of the significant consequences of our
high degree of leverage, see "Management's Discussion and Analysis of Financial
Condition and Pro Forma Results of Operations of Consolidated Container Company
LLC -- Liquidity and Capital Resources." For more information regarding our
ability to borrow or issue more debt and the conditions to this borrowing or
issuance, see "Description of the Notes -- Covenants -- Additional Indebtedness
and Preferred Stock" and "Description of Senior Credit Facility -- Covenants."
In addition, our substantial leverage will make it more difficult to
refinance our existing debt obligations. We expect to obtain the money to pay
the principal and interest on the outstanding notes and the exchange notes from
cash flow from operations and from future borrowings under our senior credit
facility. Our ability to meet our debt service thus depends on our future
performance and our ability to meet the conditions for future borrowings under
the senior credit facility, which will be affected by financial, business,
economic, competitive and other factors, many of which are beyond our control.
We cannot be certain that the money earned by us will be sufficient to pay
principal and interest on our debt, including the outstanding notes and the
exchange notes, and to meet our other obligations. If we do not have enough
money, we may be required to refinance all or part of our existing debt,
including the outstanding notes and the exchange notes, sell assets or borrow or
issue more debt. We cannot guarantee that we will be able to refinance our debt,
sell assets or borrow or issue more debt on terms acceptable to us or at all. In
addition, the terms of existing or future debt agreements, including the senior
credit facility and the indenture, will place restrictions on our ability to
adopt any of these alternatives.
At the present time, we do not intend to issue any additional notes under
the indenture.
CONTRACTUAL SUBORDINATION -- AS A RESULT OF THE SUBORDINATION PROVISIONS OF THE
OUTSTANDING NOTES AND EXCHANGE NOTES, YOU MAY NOT RECEIVE PAYMENT ON YOUR NOTES
IF WE ARE INVOLVED IN A BANKRUPTCY OR SIMILAR PROCEEDING.
The notes are contractually subordinated in right of payment to all of our
senior debt, and each subsidiary guarantee is contractually subordinated in
right of payment to all senior debt of the subsidiary guarantors. As a result,
our other creditors will get paid before you do and there may not be sufficient
funds to repay you if we are declared bankrupt or insolvent, or if there is a
payment default under any senior debt. If we or the subsidiary guarantors are
declared bankrupt or insolvent, or if there is a payment default under any
senior debt, we will be required to pay the lenders under the senior credit
facility and any other creditors who are holders of senior debt in full before
we pay you. Accordingly, we may not have enough assets remaining after payments
to holders of that senior debt to pay you. In addition, under some
circumstances, Consolidated Container Company may not pay any amount on the
outstanding notes and the exchange notes if some senior debt, including
borrowings
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under the senior credit facility, is not paid when due or any other default on
that senior debt exists. See "Description of Notes -- Subordination." At
September 30, 1999, Consolidated Container Company had approximately
$597.5 million of senior debt, including senior debt of subsidiary guarantors
and excluding unused commitments, all of which is secured, and the subsidiary
guarantors had $5.8 million of senior debt, excluding their guarantees of the
senior credit facility. The indenture permits us and our subsidiary guarantors
to borrow or issue additional debt under specific conditions, which may be
senior debt.
Further, the senior credit facility prohibits us from repurchasing any
outstanding notes or exchange notes prior to maturity, even though the indenture
requires us to offer to repurchase outstanding notes and exchange notes in some
circumstances. If we or the subsidiary guarantors make specified asset sales or
if a change of control occurs when we are prohibited from repurchasing
outstanding notes and exchange notes, we could ask the lenders under the senior
credit facility to allow us to repurchase the outstanding notes and exchange
notes or we could attempt to refinance the borrowings that contain these
prohibitions. If we do not obtain that consent or repay those borrowings, we
would be unable to repurchase the outstanding notes and exchange notes. Our
failure to repurchase tendered notes at a time when that repurchase is required
by the indenture would constitute an event of default under the indenture,
which, in turn, would constitute a default under the senior credit facility. In
these circumstances, the subordination provisions in the indenture would
restrict payments to you. See "Description of Senior Credit Facility" and
"Description of Notes -- Subordination."
RESTRICTIVE COVENANTS -- COVENANT RESTRICTIONS MAY ADVERSELY LIMIT OUR ABILITY
TO OPERATE OUR BUSINESS.
The indenture and our senior credit facility restrict, and debt that we may
incur in the future may also restrict, our financial flexibility. Specifically,
the covenants in these agreements may restrict our ability to borrow or issue
additional debt, sell assets, create liens or other encumbrances, make
restricted payments, pay dividends and merge or consolidate. Any of these
restrictions could affect our ability to operate our business and may limit our
ability to take advantage of potential business opportunities as they arise. Our
ability to comply with these covenants depends on many events beyond our
control. See "Description of Senior Credit Facility" and "Description of Notes
- -- Covenants."
ASSET ENCUMBRANCES -- BECAUSE OUR ASSETS ARE PLEDGED TO SECURE PAYMENT OF THE
SENIOR CREDIT FACILITY, THE LENDERS COULD FORECLOSE ON THEIR COLLATERAL TO YOUR
EXCLUSION, EVEN IF AN EVENT OF DEFAULT EXISTS UNDER THE INDENTURE AT THE TIME OF
THE FORECLOSURE.
Because our assets are pledged to secure payment of the senior credit
facility, the lenders could foreclose on their collateral to your exclusion,
even if an event of default exists under the indenture at the time of the
foreclosure. In addition to being contractually subordinated to all existing and
future senior debt, the outstanding notes and exchange notes are unsecured while
our obligations under the senior credit facility are secured by a first priority
interest in collateral in:
- all of the limited liability company interests and stock of each direct
and indirect domestic subsidiary of Consolidated Container Holdings,
including Consolidated Container Company;
- 65% of the stock of each foreign subsidiary of Consolidated Container
Holdings, except Reid Mexico; and
- all other tangible and intangible assets of Consolidated Container
Holdings and each of its direct and indirect domestic subsidiaries,
including Consolidated Container Company.
If we default under the senior credit facility, the lenders could declare,
at that time, all of the funds borrowed under the senior credit facility,
together with accrued interest, immediately due and payable. If we are unable to
repay debt under the senior credit facility, the lenders could foreclose on
their collateral to your exclusion, even if an event of default exists under the
indenture at the time of the foreclosure. Furthermore, if all shares of a
subsidiary guarantor are sold to persons under an
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enforcement of a pledge of shares for the benefit of the senior lenders, then
the applicable subsidiary guarantor will be released from its subsidiary
guarantee automatically and immediately upon the sale. See "Description of Notes
- -- Subsidiary Guarantees."
STRUCTURAL SUBORDINATION -- THE OUTSTANDING NOTES AND EXCHANGE NOTES ARE
SUBORDINATED TO THE LIABILITIES OF OUR NON-GUARANTOR SUBSIDIARIES.
Consolidated Container Company is both an operating company and a holding
company with total assets at September 30, 1999 of $1.008 billion. To the extent
that Consolidated Container Company is a holding company, it is dependent upon
dividends or other intercompany transfers of funds from its subsidiaries to meet
its debt service and other obligations. Generally, creditors of a subsidiary
have a superior claim to the assets and earnings of that subsidiary than the
claims of creditors of its parent company, except to the extent the claims of
the parent's creditors, including its trade creditors, are guaranteed by the
subsidiary. Because of this, the outstanding notes and exchange notes are
effectively subordinated to creditors of the direct and indirect subsidiaries of
Consolidated Container Company that do not guarantee the outstanding notes and
exchange notes. At September 30, 1999, Consolidated Container Company's
non-subsidiary guarantors had total liabilities of approximately $3.7 million.
Although the indenture and the senior credit facility limit the ability of
the non-subsidiary guarantors to borrow or issue debt and issue preferred stock,
there are significant qualifications and exceptions to these limitations. The
indenture does not limit these subsidiaries from incurring liabilities that are
excluded from the definitions of debt or preferred stock. See "Description of
Notes -- Covenants -- Additional Indebtedness and Preferred Stock."
In addition, the ability of Consolidated Container Company's subsidiaries to
pay dividends and make other payments to Consolidated Container Company may be
restricted by, among other things, applicable corporate and other laws and
regulations and agreements of the subsidiaries. Although the indenture limits
the ability of these subsidiaries to enter into consensual restrictions on their
ability to pay dividends and make other payments, these limitations are subject
to a number of significant qualifications and exceptions. See "Description of
Notes -- Covenants -- Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries."
FUTURE CAPITAL REQUIREMENTS -- IF WE CANNOT OBTAIN THE FUNDS TO MAKE THE
SIGNIFICANT CAPITAL EXPENDITURES THAT OUR BUSINESS WILL REQUIRE, WE MAY NOT BE
ABLE TO MAINTAIN OUR CURRENT LEVEL OF OPERATIONS OR GROW OUR BUSINESS.
If we cannot generate or obtain the funds for capital expenditures, or if
our growth strategy or current level of business requires more capital than
anticipated, it could negatively affect our ability to grow our operations and
our current level of business. We will have to make substantial capital
expenditures to maintain our current level of operations and to fund the growth
of future operations. Namely:
- To maintain our plant, property and equipment, we estimate that we will
spend approximately $15.5 million in 1999 and approximately $16.0 million
in 2000.
- To expand our production capacity, we currently estimate we will need to
spend approximately $25.0 million in 1999 and approximately $15.0 million
in 2000, in each case in addition to the amount which we will need to
spend to maintain our plant, property and equipment.
- We may need to borrow or issue additional debt to finance future
acquisitions.
- In addition, we may be required to make additional investments in
research, engineering and development and to develop new molding
processes, products and resins with improved barrier and performance
properties as the industry evolves and as our customers demand.
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We cannot assure you that we will be able to fund the kind of investments which
we have described above, and the failure to do so could prevent us from
implementing our business strategy, hurt our relationships with customers and
reduce our revenues and profitability.
INTEGRATION OF REID PLASTICS, INC. AND SUIZA PACKAGING -- WE FACE CONSIDERABLE
BUSINESS RISK IN INTEGRATING REID PLASTICS, INC. AND SUIZA PACKAGING BUSINESSES.
Our success, and thus our ability to pay interest and principal on the
outstanding notes and the exchange notes, depends in part on our ability to
integrate Reid Plastics, Inc. and Suiza Packaging, which consisted of Franklin
Plastics, Inc., Plastic Containers and each of their subsidiaries, into one
company and to realize cost reductions and operating synergies from the
combination of these businesses. This objective is made more difficult by the
fact that each of these businesses, on their own, are still in the process of
integrating several acquisitions which they made in the last several years. We
cannot assure you that we will be able to integrate these businesses or to
realize the cost savings and operational synergies that we expect from combining
them. For more information about Suiza Packaging, see "Selected Historical
Financial Data of Suiza Packaging," "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Suiza Packaging," and "Index to
Financial Statements."
ACQUISITION STRATEGY -- WE FACE CONSIDERABLE BUSINESS AND FINANCIAL RISK IN
IMPLEMENTING OUR ACQUISITION STRATEGY.
We face considerable business and financial risk in implementing our
business strategy which calls, in part, for the acquisition of companies in the
plastic container business. In pursuing this strategy, we face the following
risks:
- We may be limited by, the availability of suitable acquisition candidates,
our access to additional capital and the restrictive covenants in the
indenture and the other agreements governing our debt.
- In implementing an acquisition strategy, we will face considerable
operating and financial risks. Specifically:
-- Operating risks include those of integrating acquisitions into our
business, which itself has undergone considerable integration from
prior acquisitions and is undergoing further integration from the
contributions and mergers, dissipating our limited management
resources and increasing the risks relating to managing important
relationships with customers, employees and vendors.
-- Financial risks include those associated with the borrowing or
issuing of additional debt to fund acquisitions and a related
reduction in liquidity and financial flexibility.
We cannot assure you that we will be able to identify suitable acquisition
candidates, obtain the capital necessary to pursue our acquisition strategy,
close acquisitions on satisfactory terms or, if we acquire any companies,
successfully integrate them into our business. See "Management's Discussion and
Pro Forma Analysis of Financial Condition and Results of Operations of
Consolidated Container Company LLC -- Liquidity and Capital Resources."
CONCENTRATION OF CUSTOMERS -- WE ARE DEPENDENT ON SEVERAL CUSTOMERS, THE LOSS OF
WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON US. IN ADDITION, BECAUSE MANY OF
OUR CUSTOMERS' CONTRACTS ARE REQUIREMENTS CONTRACTS, WE FACE THE RISK THAT THEY
WILL PURCHASE LESS THAN WE ANTICIPATED.
We are dependent on several customers, the loss of which could have a
material adverse effect on us. For the year ended December 31, 1998, our largest
customer, Procter & Gamble, accounted for approximately 15% of our pro forma net
sales from our different products and our largest 10 customers accounted for
approximately 48% of our pro forma net sales. The termination by Procter &
Gamble, or other of our top customers, of its, or their, relationship with us
could negatively affect our business and results of operations. In addition,
because many of our customers' contracts are requirements contracts, we face the
risk that they will purchase less than we anticipated.
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COMPETITION -- WE FACE CONSIDERABLE COMPETITIVE RISK.
We face substantial competition throughout our product lines from a number
of well-established businesses operating nationally and from firms operating
regionally. Our primary national competitors include American National
Can, Inc., Crown Cork & Seal Company, Inc., Graham Packaging Company, Liquid
Container, Liqui-Box Corporation, Owens-Illinois, Inc., Plastipak, Inc. and
Silgan Holdings Inc. Several of these competitors are larger and have greater
financial and other resources than us. In addition, we face substantial
competition from a number of captive packaging operations with significant
in-house bottling and blow molding capacity, such as The Perrier Group of
America, The Kroger Company and Dean Foods. We cannot assure you that we will be
able to compete effectively or that our competition will not cause our revenues
or profitability to decrease. See "Business -- Competition."
EXPOSURE TO FLUCTUATIONS IN RESIN PRICES AND DEPENDENCE ON RESIN SUPPLIES -- WE
ARE EXPOSED TO THE RISKS ASSOCIATED WITH FLUCTUATIONS IN THE PRICES OF SOME RAW
MATERIALS.
We face the risk that our access to some raw materials is interrupted or we
may not be able to purchase them at competitive prices. We use large quantities
of high density polyethylene, polycarbonate, polypropylene, polyethylene
terephthalate and polyvinyl chloride resins in manufacturing our products. In
general, we do not have long-term supply contracts with our suppliers and our
purchases of raw materials are subject to market prices, and we pass changes in
the prices of raw materials through to our customers over a period of time. We
may not always, however, be able to do so. Because of this, we cannot assure you
that we will be able to pass through any future raw material price increases in
a timely manner. Any limitation on our ability to pass through any of these
kinds of price increases on a timely basis could negatively affect our results
of operations. Furthermore, a significant increase in resin prices could slow
the pace of conversions from paper, glass and metal containers to plastic
containers to the extent that these costs are passed onto the customer. See
"Management's Discussion and Pro Forma Analysis of Financial Condition and
Results of Operations of Consolidated Container Company LLC" and "Business --
Raw Materials."
DEPENDENCE ON KEY PERSONNEL -- WE ARE DEPENDENT ON SEVERAL KEY SENIOR MANAGERS,
THE LOSS OF WHOM COULD HAVE A MATERIAL EFFECT ON OUR BUSINESS AND DEVELOPMENT.
Our success depends, to a larger extent than some other companies, on a
number of key employees because of their experience and relationships with
significant customers and because we could not replace them easily if we needed
to do so unexpectedly. The loss of the services provided by William Estes, the
President and Chief Executive Officer of Consolidated Container Holdings, among
others, could interrupt our business before we found a suitably qualified and
experienced replacement. In addition, we have not purchased key man life
insurance for any members of our senior management.
LABOR STOPPAGE -- EMPLOYEE SLOWDOWNS, STRIKES AND SIMILAR ACTIONS COULD HAVE A
MATERIAL ADVERSE EFFECT ON US.
A prolonged labor dispute, slowdown, strike or similar action could have a
material adverse effect on our business and results of operations. At
September 30, 1999, approximately 24% of our employees were represented under
collective bargaining agreements which expire between 1999 to 2002. At
September 30, 1999, unions represented approximately 1,150 of our employees at
16 of our 76 U.S. and international facilities. In addition, the transportation
and delivery of raw materials to our manufacturing facilities and of our
products to our customers by union members is critical to our business. See
"Business -- Employees."
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U.S. FRAUDULENT TRANSFER CONSIDERATIONS -- YOU FACE THE RISK THAT U.S.
BANKRUPTCY OR FRAUDULENT CONVEYANCE LAW MAY INTERFERE WITH THE PAYMENT OF THE
OUTSTANDING NOTES AND THE EXCHANGE NOTES AND PAYMENTS UNDER THE RELATED
GUARANTEES.
You face the risk that the outstanding notes and the exchange notes could be
avoided or made further subordinate to our other debt. The borrowing or issuing
of debt by us may be subject to review under U.S. federal bankruptcy law or
relevant state fraudulent conveyance laws if a bankruptcy case or lawsuit is
begun by our unpaid creditors. Under these laws, if in this kind of a case or
lawsuit a court were to find that, at the time of the issuance of the
outstanding notes and exchange notes that we:
(1) incurred debt with the intent of hindering, delaying or defrauding
current or future creditors; or
(2) received less than reasonably equivalent value or fair consideration for
incurring the debt and they:
- were insolvent or were rendered insolvent by reason of any of the
transactions;
- were engaged, or about to engage, in a business or transaction for
which our assets remaining constituted unreasonably small capital to
carry on that business;
- intended to borrow or issue, or believed that they would borrow or
issue, debts beyond their ability to pay as these debts matured; or
- were defendants in an action for money damages, or had a judgment for
money damages docketed against them, if, in either case, after final
judgment, the judgment is unsatisfied,
then that court could avoid or subordinate the amounts owing under the
outstanding notes and exchange notes to our existing and future debt and take
other actions detrimental to you.
In addition, the subsidiary guarantees may be subject to the same risk
described above. In that case, the criteria summarized above would generally
apply, except that our subsidiaries could also be subject to the claim that,
since their subsidiary guarantees were incurred for our benefit, their
obligations under the subsidiary guarantee were incurred for less than
reasonably equivalent value or fair consideration. A court could avoid their
obligations under the subsidiary guarantees, subordinate the subsidiary
guarantees to other debt of these subsidiaries or take other action detrimental
to the holders of the notes.
YEAR 2000 PROBLEM -- THE YEAR 2000 PROBLEM COULD HAVE A MATERIAL ADVERSE EFFECT
ON US.
Our failure to make our computer systems Year 2000 compliant, and the
failure by our material customers and suppliers, among others, to make their
computer systems Year 2000 compliant, could negatively impact on our business
and results of operations. There are many risks associated with the Year 2000
issue, including the possible failure of our systems and hardware with embedded
applications. These kinds of failures could result in:
- our inability to order raw materials;
- the malfunctioning of our manufacturing or service processes;
- our inability to properly bill and collect payments from our customers;
and
- errors or omissions in accounting and financial data.
In addition, the Year 2000 problem has inherent risks that are difficult to
measure, including our ability to test all material systems on a timely basis
and the readiness of third parties. We cannot assure you that we will foresee
and remediate all Year 2000 problems on a timely basis. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance."
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PRODUCT LIABILITY EXPOSURE AND NEGATIVE PUBLICITY -- WE FACE PRODUCTS LIABILITY
RISK. IN ADDITION, OUR BUSINESS IS EXPOSED TO THE PRODUCTS LIABILITY RISK AND
NEGATIVE PUBLICITY OF OUR CUSTOMERS.
Our business entails products liability risk. Currently, we maintain
approximately $20.0 million of insurance for products liability claims. The
amount and scope of our insurance may not be adequate to cover a products
liability claim that is successfully asserted against us. In addition, products
liability insurance could become more expensive and difficult to maintain and,
in the future, may not be available on commercially reasonable terms or at all.
Accordingly, we cannot assure you that we have, or will continue to have,
adequate insurance coverage against possible products liability claims against
us.
In addition, we are exposed to the products liability risk and negative
publicity of our customers. Because many of our customers are dairy, water and
branded consumer products companies, with their own products liability risk, our
sales may decline if any of our or our competitors' customers are sued on a
products liability claim. We may also suffer a decline in sales from the
negative publicity associated with that kind of a lawsuit or with adverse public
perceptions in general regarding our products or the products for which our
customers use our containers.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement and related exhibits under the Securities Act of 1933 regarding the
exchange notes being offered and the exchange offer described by this
prospectus. This prospectus, which forms a part of the registration statement,
does not contain all of the information contained in, or filed as an exhibit to,
the registration statement. For further information about Consolidated Container
Company and Consolidated Container Capital and the exchange notes, we refer you
to the registration statement. Where these contracts and other documents are
filed as exhibits to the registration statement, our descriptions are qualified
by the exhibits.
We are not currently subject to the information requirements of the
Securities Exchange Act of 1934. Upon completion of the exchange offer, however,
we will become subject to the informational requirements of the Securities
Exchange Act of 1934. Accordingly, we will file periodic reports and other
information with the Securities and Exchange Commission. The registration
statement which we filed and our periodic reports and other information which we
will file with the Securities and Exchange Commission can be inspected and
copied at the Public Reference Section of the Securities and Exchange Commission
located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C.
20549 and at regional public reference facilities maintained by the Securities
and Exchange Commission located at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300,
New York, New York 10048. You can obtain copies of these materials from the
Public Reference Section of the Securities and Exchange Commission at prescribed
rates and may obtain information regarding the operation of the Public Reference
Section by calling 1-800-SEC 0330. You may also access this material
electronically by means of the Securities and Exchange Commission's home page on
the Internet at http://www.sec.gov.
Whether or not required by the Securities and Exchange Commission, so long
as any outstanding notes are outstanding, beginning with the quarter ended
September 30, 1999 we will furnish to those holding outstanding notes, within
the time periods specified in the Securities and Exchange Commission's rules and
regulations:
- all quarterly and annual financial information that would be required to
be contained in a filing with the Securities and Exchange Commission on
Forms 10-Q and 10-K if we were required to file these Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and, for the annual information only, a report on the
annual financial statements by our independent auditors; and
- all current reports that we would be required to file with the Securities
and Exchange Commission on Form 8-K if we were required to file these
reports.
In addition, whether or not required by the Securities and Exchange Commission,
we will file a copy of all of the information and reports referred to above with
the Securities and Exchange Commission for public availability within the time
periods specified in the Securities and Exchange Commission's rules and
regulations, unless the Securities and Exchange Commission will not accept the
filing. We will also make this information available to securities analysts and
prospective investors upon request.
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<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. All statements other
than statements of historical facts included in by this prospectus, including
the statements about our plans, strategies and prospects under the sections
"Prospectus Summary," "Management's Discussion and Pro Forma Analysis of
Financial Condition and Results of Operations of Consolidated Container Company
LLC," "Business," "The Transactions," "Certain Relationships and Related Party
Transactions" and in the "Unaudited Pro Forma Financial Information of
Consolidated Container Company LLC" and the notes related to them. We have based
these forward-looking statements on our current assumptions, expectations and
projections about future events. We caution you that a variety of factors could
cause business conditions and results to differ materially from what is
contained in the forward-looking statements. We summarize the important factors
that could cause our actual results to differ from these expectations above
under "Risk Factors."
24
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes.
The net proceeds from the sale of the outstanding notes were approximately
$178.3 million after deducting underwriting discounts and other fees and
expenses. We used the net proceeds, together with available cash from Reid
Plastics, Inc. and Suiza Packaging, initial borrowings under the senior credit
facility and the cash contribution by Vestar Packaging to Consolidated Container
Holdings, to:
- repay substantially all of the $122.0 million in outstanding debt of Reid
Plastics, Inc., which bore a weighted average interest rate of 7.2% at
June 30, 1999;
- repay substantially all of the $267.9 million in outstanding debt of
Franklin Plastics, Inc., which bore a weighted average interest rate of
11.0% at June 30, 1999, redeem the $72.6 million in preferred stock of
Franklin Plastics, Inc., which had a preferred dividend rate of 15%, and
pay a portion of accrued interest and dividends on these amounts;
- fund the consent solicitation and tender offer for the 10% Senior Secured
Notes due 2006 of Plastic Containers; and
- pay fees and expenses of the transactions, including the fees and expenses
of the initial purchasers, the lenders, the trustee and our lawyers,
accountants and printing company.
Because a portion of the debt that we repaid from the net proceeds of the
offering of the outstanding notes had a lower weighted average interest rate
than that of the outstanding notes and the exchange notes, our average interest
expense has increased as a result of the transactions. Had this debt not been
repaid, however, we could not have completed the transactions, as contemplated.
In addition, Morgan Guaranty Trust Company of New York, an affiliate of one
of the initial purchasers of the outstanding notes, was also the agent and a
lender under the former credit facility of Reid Plastics, Inc. and so they
received a portion of the net proceeds of the offering of the outstanding notes
that were used to repay this facility.
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<PAGE>
CAPITALIZATION
We provide in the table below the cash and cash equivalents and
capitalization of Consolidated Container Company and its subsidiaries on a
consolidated and an actual basis at July 2, 1999 and at September 30, 1999. You
should read the table below in conjunction with the financial statements of
Consolidated Container Company and the notes to them included elsewhere in this
prospectus. See also "Management's Discussion and Analysis of Financial
Condition and Pro Forma Results of Operations of Consolidated Container Company
LLC -- Liquidity and Capital Resources."
In consideration for issuing the exchange notes as contemplated by this
prospectus, we will receive in exchange a like principal amount of outstanding
notes. For accounting purposes, the exchange notes will evidence the same debt
as the outstanding notes. The outstanding notes surrendered in exchange for the
exchange notes will be retired and canceled and will not be able to be reissued.
Accordingly, the issuance of the exchange notes will not result in any change in
our capitalization.
<TABLE>
<CAPTION>
AT JULY 2, 1999 SEPTEMBER 30, 1999
--------------- ------------------
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................... $ 10.6 $ 10.9
====== ======
Total debt (including current maturities):
Revolving credit loans.................................... $ 27.5 $ 27.5
Term loans................................................ 385.0 385.0
Outstanding notes issued at 100% of their face amount..... 185.0 185.0
Capital leases............................................ 6.4 5.8
------ ------
Total debt.............................................. 603.9 603.3
Member's equity:
Member's equity........................................... 256.0 263.8
------ ------
Total capitalization.................................... $859.9 $867.1
====== ======
</TABLE>
26
<PAGE>
THE EXCHANGE OFFER
OVERVIEW
We are offering, upon the terms and subject to the conditions listed in this
prospectus and in the accompanying letter of transmittal to exchange up to
$185.0 million total principal amount of the exchange notes for a like total
principal amount of outstanding notes which have been properly tendered on, or
prior to, the expiration date and which have not withdrawn as permitted under
the procedures described below. We are making the exchange offer for all of the
outstanding notes. The terms, conditions and other provisions of the exchange
offer are contained in this prospectus and the letter of transmittal.
The form and terms of the exchange notes will be substantially identical to
the form and terms of the outstanding notes, except that the exchange notes:
- will be freely tradeable because we have registered them under the
Securities Act of 1933;
- will not bear legends restricting their transfer; will not be subject to
any additional obligations regarding registration under the Securities Act
of 1933; and
- will not be subject to the special interest payments described in
"Description of Notes -- Registration Covenant; Exchange Offer."
The exchange notes will be issued under, and entitled to the benefits of,
the same indenture under which we issued the outstanding notes. Consequently,
both series will be treated as a single class of debt securities under the
Indenture.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We are making the exchange offer in order to satisfy our obligations under
the registration rights agreement, which we and the subsidiary guarantors
entered into on July 2, 1999 with the initial purchasers of the outstanding
notes. Under the registration rights agreement, we and the subsidiary guarantors
agreed, among other things:
- to use our reasonable best efforts to file with the Securities and
Exchange Commission, within 90 days of July 2, 1999, a registration
statement under the Securities Act of 1933 relating to the exchange offer;
- to use our reasonable best efforts to cause the registration statement to
become effective as soon as practicable, but no later than 180 days after
July 2, 1999; and
- to commence the exchange offer promptly after registration statement has
become effective, hold the offer open for at least 30 days, and exchange
the exchange notes for all outstanding notes properly delivered and not
withdrawn before the expiration of the offer.
If we fail to comply with our obligations under the registration rights
agreement, we will be required to pay additional interest to holders of the
outstanding notes. For more information regarding the registration rights
agreement, see "Description of Notes -- Registration Rights; Liquidated
Damages." We have filed a copy of the registration rights agreement as an
exhibit to the registration statement, of which this prospectus forms a part.
Other than under the registration rights agreement, we are not required to
file any registration statement to register any outstanding notes which may
remain outstanding following the exchange offer. If you hold outstanding notes
and do not tender them or your outstanding notes are tendered but not accepted,
you will have to rely on exemptions to the registration requirements under the
securities laws, including the Securities Act of 1933, if you wish to sell your
outstanding notes.
27
<PAGE>
RESALE OF EXCHANGE NOTES
Based on interpretations of the staff of the Securities and Exchange
Commission contained in no-action letters issued to other parties, we believe
that exchange notes that we will issue under the exchange offer in exchange for
outstanding notes may be offered for resale, resold and otherwise transferred by
any exchange note holder without compliance with the registration and prospectus
delivery provisions of the Securities Act of 1933, if three conditions apply.
These conditions are that:
- you are acquiring the exchange notes in the ordinary course of your
business;
- you have not engaged in, do not intend to engage in, and have no
arrangements or understanding with any person to participate in, a
distribution of the exchange notes; and
- that you are not our "affiliate," as defined in Rule 405 of the Securities
Act of 1933 of Consolidated Container Company or Consolidated Container
Capital, or if you are an "affiliate," that you will comply with
applicable registration and prospectus delivery requirements of the
Securities Act of 1933.
See K-III COMMUNICATIONS CORPORATION, SEC No-Action Letter (available
May 14, 1993); MARY KAY COSMETICS, INC., SEC No-Action Letter (available
June 5, 1991); MORGAN STANLEY & CO., INCORPORATED, SEC No-Action Letter
(available June 5, 1991); and EXXON CAPITAL HOLDINGS CORPORATION, SEC No-Action
Letter (available May 13, 1988). If you do not meet these requirements, you:
- cannot rely on the position of the staff of the Securities and Exchange
Commission enunciated in "Exxon Capital Holdings Corporation" or similar
interpretive letters; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933 if you engage in a secondary resale
transaction.
This prospectus may be used for an offer to resell, resale or other
retransfer of exchange notes only as specifically stated in this prospectus.
With regard to broker-dealers, only broker-dealers that acquired the outstanding
notes as a result of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that receives exchange
notes for its own account in exchange for outstanding notes, where these
outstanding notes were acquired by that broker-dealer as a result of market
- -making activities or other trading activities, must acknowledge that it will
deliver a prospectus whenever you resell any of the exchange notes. For more
details regarding the transfer of exchange notes, see "Plan of Distribution".
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions stated in this prospectus and
in the letter of transmittal, we will accept for exchange any outstanding notes
properly tendered and not withdrawn prior to the expiration date. We will issue
$1,000 principal amount of exchange notes in exchange for each $1,000 principal
amount of outstanding notes surrendered in the exchange offer. You may tender
only in integral multiples of $1,000.
As of the date of this prospectus, $185.0 million total principal amount of
the outstanding notes are outstanding. This prospectus and the letter of
transmittal are being sent to all registered holders of outstanding notes. There
will be no fixed record date for determining registered holders of outstanding
notes entitled to participate in the exchange offer.
We intend to conduct the exchange offer according to the provisions of the
registration rights agreement, the requirements of the Securities Act of 1933,
the Securities Exchange Act of 1934 and the rules and regulations of the
Securities and Exchange Commission. Outstanding notes that are not tendered for
exchange will:
- remain outstanding;
- will continue to accrue interest at 10 1/8% payable semi-annually in
arrears;
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<PAGE>
- will be entitled to the rights and benefits under the indenture and the
registration rights agreement; but
- will not be entitled to Liquidated Damages, as described under
"Description of Notes -- Registration Rights; Liquidated Damages."
We will be considered to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
the exchange agent. The exchange agent will act as agent for the tendering
holders for the purposes of receiving the exchange notes from us and delivering
exchange notes to these holders. Subject to the terms of the registration rights
agreement, we expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any outstanding notes not previously
accepted for exchange, upon the occurrence of any of the conditions specified
below under the section "-- Conditions to the Exchange Offer."
If you tender outstanding notes in the exchange offer, you will not be
required to pay brokerage commissions or foes or, subject to the instructions in
the letter of transmittal, transfer taxes on the exchange of outstanding notes.
We will pay all charges and expenses, other than applicable taxes described
below, regarding the exchange offer. It is important that you read the section
"-- Fees and Expenses" below for more details regarding fees and expenses
incurred in the exchange offer.
EXPIRATION DATE, EXTENSIONS AND AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on
March 17, 2000, unless in our sole discretion, we extend it.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
outstanding notes of the extension no later than 9:00 a.m., New York City time,
on the business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting for exchange any outstanding notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept outstanding notes which we have not previously accepted
if any of the conditions listed below under the section "-- Conditions to
the Exchange Offer" have not been satisfied, by giving oral or written
notice of that delay, extension or termination to the exchange agent; or
- to amend the terms of the exchange offer in any manner, subject to the
terms of the registration rights agreement.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any outstanding notes by giving oral or written notice of
that extension to their holders. During any extensions, all outstanding notes
previously tendered will remain subject to the exchange offer, and we may accept
them for exchange. We will return any outstanding notes that we do not accept
for exchange for any reason without expense to their tendering holder as
promptly as practicable after the expiration or termination of the exchange
offer.
We expressly reserve the right to amend or terminate the exchange offer, and
to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the outstanding notes
as promptly as practicable. In the case of any extension, that notice will be
issued no later than 9:00 a.m., New York City time, on the business day after
the previously scheduled expiration date.
If we delay accepting exchange notes, extend or terminate the exchange offer
or amend the terms of the exchange offer, then we will provide oral or written
notice as promptly as possible to registered
29
<PAGE>
holders of outstanding notes. If we amend the exchange offer in a manner that we
determine to constitute a material change to it, then we will promptly disclose
the amendment in a manner reasonably calculated to inform you of the amendment.
Without limiting the manner in which the we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we shall have no obligation to publish, advertise or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
CONDITIONS TO THE EXCHANGE OFFER
Despite any other provision of the exchange offer, we will not be required
to accept for exchange, or exchange any exchange notes for, any outstanding
notes, and we may terminate the exchange offer as provided in this prospectus
before accepting any outstanding notes for exchange if, in our reasonable
judgment:
- any action or proceeding is instituted or threatened in any court or by or
before any governmental agency or regulatory authority, or any injunction,
order or decree is issued regarding the exchange offer which, in our sole
judgment, might materially impair our ability to proceed with the exchange
offer or have a material adverse effect on the contemplated benefits of
the exchange offer to us;
- any change, or any development involving a prospective change, shall have
occurred or been threatened in our business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects that is or may be adverse to us, or we shall have become aware
of facts that have or may have adverse significance on the value of the
outstanding notes or the exchange notes or that may materially impair the
contemplated benefits of the exchange offer to us;
- any law, rule or regulation or applicable interpretations of the staff of
the Securities and Exchange Commission is issued or promulgated which, in
our good faith determination, do not permit us to effect the exchange
offer;
- any governmental approval has not been obtained, which approval we, in our
sole discretion, deem necessary to complete the exchange offer;
- there shall have been proposed, adopted or enacted any law, statute, rule
or regulation, or an amendment to any existing law, statute, rule or
regulation, which, in our sole judgment, might materially impair our
ability to proceed with the exchange offer or have a material adverse
effect on the contemplated benefits of the exchange offer to us; or
- there shall occur a change in the current interpretation by the staff of
the Securities and Exchange Commission which permits outstanding notes to
be offered for resale, resold and otherwise transferred by holders who are
not "affiliates" of either Consolidated Container Company or Consolidated
Container Capital within the meaning of Rule 405 under the Securities Act,
without compliance with the registration and prospectus delivery
provisions of the Securities Act of 1933, PROVIDED that these notes are
acquired in the ordinary course of the holder's business and the holder
has no arrangement with any person to participate in the distribution of
these notes.
In addition, we will not be obligated to accept for exchange your
outstanding notes if you have not made to us the following representations:
- any exchange notes that you receive will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with any person to participate
in, and does not intend to engage in, the distribution of the exchange
notes;
30
<PAGE>
- if you are not a broker-dealer that will receive exchange notes for your
own account in exchange for outstanding notes that you acquired as a
result of market -making or trading activities, that it will deliver a
prospectus, as required by law, if it resells any of those exchange notes;
- you are not our "affiliate," as defined in Rule 405 of the Securities Act
of 1933 of either Consolidated Container Company or Consolidated Container
Capital, or if you are an "affiliate," that you will comply with
applicable registration and prospectus delivery requirements of the
Securities Act of 1933;
- if you are a person in the United Kingdom, that your ordinary activities
involve it in acquiring, holding, managing or disposing of investments, as
principal or agent, for the purposes of your business;
- other representations as may be reasonably necessary under applicable
Securities and Exchange Commission rules, regulations or interpretations
to make available to us an appropriate form for registration of the
exchange notes under the Securities Act of 1933.
These conditions are for our sole benefit, and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion if we reasonably
determine that one or more conditions have not been satisfied. If we fail at any
time to exercise any of the rights above, this failure will not constitute a
waiver of this right. Each right is an ongoing right that we may assert at any
time or at various times.
In addition, we will not accept for exchange any outstanding notes tendered,
and will not issue exchange notes in exchange for any outstanding notes, if at
that time any stop order will be threatened or in effect regarding the
registration statement, of which this prospectus forms a part, or the
qualification of the indenture under the Trust Indenture Act of 1939.
The exchange offer is not conditioned, however, upon our receiving a minimum
principal amount of outstanding notes being tendered for exchange.
PROCEDURES FOR TENDERING
TENDER ONLY BY REGISTERED HOLDERS
Only a registered holder of outstanding notes may tender outstanding notes
in the exchange offer. If you are a registered holder of outstanding notes, to
tender in the exchange offer, you must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
that letter of transmittal or facsimile to the exchange agent prior to the
expiration date; or
- comply with The Depositary Trust Company's Automated Tender Offer Program
procedures described below.
In addition, regarding the delivery of outstanding notes, one of the
following must occur:
- the exchange agent must receive outstanding notes with the letter of
transmittal; or
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of these outstanding notes into the
exchange agent's account at The Depository Trust Company according to the
procedure for book-entry transfer described below or a properly
transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
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<PAGE>
If your outstanding notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender them, you
should contact that party promptly and instruct it to tender on your behalf. If
your outstanding notes are registered in the name of a nominee and you wish to
tender on their or your behalf, you must, prior to completing and executing the
letter of transmittal and delivering outstanding notes; either:
- make appropriate arrangements to register ownership of the outstanding
notes in your name; or
- obtain a properly completed bond power from the nominee. The bond power
must be signed by you as your name appears on the outstanding notes, and
an eligible institution must guarantee the signature on the bond power.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
If you tender your outstanding notes and do not withdraw your tender prior
to the expiration date, your tender will constitute an agreement between you and
us according to the terms of and subject to the conditions listed in, this
prospectus and in the letter of transmittal.
REQUIREMENTS REGARDING DELIVERY
If you physically deliver the letter of transmittal and other required
documents, the exchange agent must receive them at the address listed below
under the section "-- Exchange Agent" prior to the expiration date.
The method of delivery of outstanding notes, the letter of transmittal and
all other required documents to the exchange agent is at your election and risk.
Rather than mail these items, we recommend that you use an overnight or hand
delivery service. In all cases, you should allow sufficient time to assure
delivery to the exchange agent before the expiration date. You should not send
the letter of transmittal or outstanding notes to us. You may request your
broker, dealer, commercial bank, trust company or other nominee to effect the
transactions described above for you.
REQUIREMENTS REGARDING SIGNATURES
If you sign the letter transmittal, your signature on it, or a notice of
withdrawal described below, must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or another "eligible institution" within the
meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, unless:
- you are the registered owner of the outstanding notes, and you have not
completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the letter of transmittal; or
- you are on an eligible institution.
If the letter of transmittal is signed by a person other than you, the
outstanding notes must be endorsed or accompanied by a properly completed bond
power. The bond power must be signed by you as your name appears on the
outstanding notes and an eligible institution must guarantee the signature on
the bond power. If the letter of transmittal or any outstanding notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, these persons should indicate that fact when signing.
Unless waived by us, they should also submit evidence satisfactory to us of
their authority to deliver the letter of transmittal.
32
<PAGE>
THE AUTOMATED TENDER OFFER PROGRAM
The exchange agent and The Depository Trust Company have confirmed that any
financial institution that is a participant in The Depository Trust Company's
system may use The Depository Trust Company's Automated Tender Offer Program to
tender their outstanding notes. Participants in the program may, instead of
physically completing and signing the letter of transmittal and delivering it to
the exchange agent, may transmit their acceptance of the exchange offer
electronically. They may do so by causing The Depository Trust Company to
transfer the outstanding notes to the exchange agent according to its procedures
for transfer. The Depository Trust Company will then send an agent's message to
the exchange agent. The term "agent's message" means a message transmitted by
The Depository Trust Company, received by the exchange agent and forming part of
the book-entry confirmation, to the effect that:
- The Depository Trust Company has received an express acknowledgment from a
participant in its Automated Tender Offer Program that is tendering
outstanding notes that are the subject of that book-entry confirmation;
- that participant has received and agrees to be bound by the terms of the
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, that participant has received and agrees to be bound
by the applicable notice of guaranteed delivery; and
- the agreement may be enforced against that participant.
OTHER MATTERS
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered outstanding notes and
withdrawal of tendered outstanding notes. Our determination will be final and
binding. We reserve the absolute right to reject any outstanding notes not
properly tendered or any outstanding notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the right to waive any
defects, irregularities or conditions of tender as to particular outstanding
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties. Unless waived, any defects or irregularities in the
tender of outstanding notes must be cured within that time as we shall
determine. Although we intend to notify holders of defects or irregularities in
the tenders of outstanding notes, neither we, the exchange agent nor any other
person will be liable for failure to give that notification. Tenders of
outstanding notes will not be considered made until these defects or
irregularities have been cured or waived. Any outstanding notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the exchange
agent without cost to the tendering holder, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration date.
In all cases, we will issue exchange notes for outstanding notes that we
have accepted for exchange under the exchange offer only after the exchange
agent timely receives:
- outstanding notes or a timely book-entry confirmation of these outstanding
notes into the exchange agent's account at The Depository Trust Company;
and
- a properly completed and properly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The letter of transmittal contains, among other things, the following terms
and conditions, which are part of the exchange offer.
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<PAGE>
- The party tendering, or transferring, outstanding notes for exchange notes
exchanges, assigns and transfers the outstanding notes to us and
irrevocably constitutes and appoints the exchange agent as the
transferor's agent and attorney-in-fact to cause the outstanding notes to
be assigned, transferred and exchanged.
- The transferor represents, warrants and agrees that:
-- it has full power and authority to tender, exchange, assign and
transfer the outstanding notes and to acquire exchange notes issuable
upon the exchange of the tendered outstanding notes, and that, when
the outstanding notes are accepted for exchange, we will acquire good
and unencumbered title to the tendered outstanding notes, free and
clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim;
-- it will, upon request, execute and deliver any additional documents
considered by the exchange agent or us to be necessary or desirable
to complete the exchange, assignment and transfer of tendered
outstanding notes or transfer ownership of these outstanding notes on
the account books maintained by a book-entry transfer facility; and
-- acceptance of any tendered outstanding notes by us and the issuance
of exchange notes in exchange for these outstanding notes will
constitute performance in full by us and our subsidiaries
guaranteeing the outstanding notes of our obligations under the
registration rights agreement.
- All authority conferred by the transferor will survive the death or
incapacity of the transferor and every obligation of the transferor shall
be binding upon the heirs, legal representatives, successors, assigns,
executors and administrators of the Transferor.
By signing the letter of transmittal and tendering outstanding notes you
will represent to us that, among other things:
- any exchange notes that you receive will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with any person or entity to
participate in and do not intend to engage in, the distribution of the
exchange notes;
- if you are a broker-dealer that will receive exchange notes for your own
account in exchange for outstanding notes, that you acquired as a result
of market-making or trading activities, that you will deliver a
prospectus, as required by law, regarding any resale of those exchange
notes;
- you are not our "affiliate," as defined in Rule 405 of the Securities Act
of 1933 of either Consolidated Container Company or Consolidated Container
Capital, or if you are an "affiliate," that you will comply with
applicable registration and prospectus delivery requirements of the
Securities Act of 1933; and
- if you are a person in the United Kingdom, that your ordinary activities
involve you in acquiring, holding, managing or disposing of investments,
as principal or agent, for the purposes of your business.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account regarding the
outstanding notes at The Depository Trust Company for purposes of the exchange
offer promptly after the date of this prospectus. If you are a financial
institution participating in The Depository Trust Company's system, you may make
book-entry delivery of outstanding notes by causing The Depository Trust Company
to transfer the outstanding notes into the exchange agent's account at The
Depository Trust Company according to The Depository Trust Company's procedures
for transfer. Holders of outstanding notes who are unable to deliver
confirmation of the book-entry tender of your outstanding notes into the
exchange agent's account at The Depository Trust Company or all other documents
required by the
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letter of transmittal to the exchange agent on or prior to the expiration date,
you must tender your outstanding notes according to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your outstanding notes but (1) your outstanding notes
are not immediately available, (2) you cannot deliver your outstanding notes,
the letter of transmittal or any other required documents to the exchange agent
or (3) you are not able to comply with the applicable procedures under The
Depository Trust Company's Automated Tender Offer Program prior to the
expiration date, then you may still tender your outstanding notes in the
exchange offer if you follow, or cause to be followed, the specified procedures.
The procedures are:
- you make the tender through an eligible institution;
- prior to the expiration date, the exchange agent receives from the
eligible institution either a properly completed and properly executed
notice of guaranteed delivery by facsimile transmission, receipt confirmed
by telephone and an original delivered by guaranteed overnight courier,
mail or hand delivery or a properly transmitted agent's message and notice
of guaranteed delivery listing:
-- your name and address, the registered number(s) of the outstanding
notes and the principal amount of outstanding notes tendered;
-- stating that the tender is being made by the notice of guaranteed
delivery; and
-- guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, (1) the letter of transmittal or a facsimile
of it, (2) the outstanding notes or a book-entry confirmation of the
transfer and (3) any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent; and
- the exchange agent receives a properly completed and executed letter of
transmittal or facsimile of it, as well as all tendered outstanding notes
in proper form for transfer or a book-entry confirmation, and all other
documents required by the letter of transmittal, within three New York
Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to you.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to the expiration date. For a withdrawal to be
effective:
- the exchange agent must receive a written notice, which may be by
telegram, telex, facsimile transmission or letter of withdrawal at one of
the addresses listed below under "-- Exchange Agent"; or
- you must comply with the appropriate procedures of The Depository Trust
Company's Automated Tender Offer Program system.
A notice of withdrawal must:
- specify the name of the person who tendered the outstanding notes to be
withdrawn;
- identify the outstanding notes to be withdrawn, including the principal
amount of these outstanding notes; and
- where certificates for outstanding notes have been transmitted, specify
the name or names in which these outstanding notes were registered, if
different from that of the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of these
certificates, the withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
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<PAGE>
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless the holder is an eligible institution.
If you have tendered outstanding notes according to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at The Depository Trust Company to be credited
with the withdrawn outstanding notes and otherwise comply with the procedures of
that facility. We will determine all questions as to the validity, form and
eligibility, including time of receipt, of these notices, and our determination
shall be final and binding on all parties. We will conclude that any outstanding
notes properly withdrawn not to have validity tendered for exchange for purposes
of the exchange offer. Any outstanding notes that you have tendered for exchange
but that are not exchanged for any reason will be returned to you without cost
as soon as practicable after the withdrawal, rejection of tender or termination
of the exchange offer. In the case of outstanding notes being tendered by
book-entry transfer into the exchange agent's account at The Depository Trust
Company according to the procedures described above, these outstanding notes
will be credited to an account maintained with The Depository Trust Company for
outstanding notes as soon as practicable after the withdrawal, rejection of
tender or termination of the exchange offer. Properly withdrawn outstanding
notes may be re-tendered by following one of the procedures described under "--
Procedures for Tendering" above at any time on or prior to the expiration date.
EXCHANGE AGENT
We have appointed The Bank of New York to act as exchange agent for the
exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for the notice of guaranteed delivery to the exchange
agent addressed as follows:
<TABLE>
<S> <C>
FOR DELIVERY BY REGISTERED OR CERTIFIED MAIL: FOR OVERNIGHT DELIVERY ONLY OR BY HAND:
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attention: Jason Larragoity Ground Level
New York, New York 10286
Attention: Jason Larragoity
BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY):
The Bank of New York
(212) 815-4699
CONFIRM BY TELEPHONE:
(212) 815-4997
FOR INFORMATION CALL:
(212) 815-4997
</TABLE>
FEES AND EXPENSES; TRANSFER TAXES
We will bear the expenses of soliciting tenders. We are making the principal
solicitation by mail. We may make, however, additional solicitations by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates. We have not retained any dealer-manager for the
exchange offer and will not make any payments to broker-dealers or others
soliciting acceptances of the exchange offer.
We will pay the expenses to be incurred under the exchange offer. We
estimate that these expenses will be approximately $500,000. They include:
- registration fee of the Securities and Exchange Commission;
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<PAGE>
- fees and expenses of the exchange agent, including the reasonable and
customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses and the trustee;
- accounting and legal fees;
- printing costs;
- transfer taxes, if any, as described below; and
- related fees and expenses.
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. If you tender outstanding notes,
however, you will be required to pay any transfer taxes, whether imposed on
yourself directly, or any other person, if:
- certificates representing outstanding notes for principal amounts not
tendered or accepted for are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of outstanding
notes tendered;
- tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.
If you do not submit satisfactory evidence of payment of these taxes with
the letter of transmittal, then we will bill the amount of these transfer taxes
to you.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not tender your outstanding notes in the tender offer, the
outstanding notes which you will hold will continue to have transfer
restrictions and which are less liquid and more volatile in price.
If you do not exchange your outstanding notes for exchange notes, your
outstanding notes will continue to be subject to restrictions on transfer. In
general, outstanding notes may not be offered or sold unless registered under
the Securities Act of 1933, except if offered or sold under an exemption from,
or in a transaction not subject to, the Securities Act of 1933 and applicable
state securities laws. We do not currently anticipate that we will register the
outstanding notes under the Securities Act of 1933. In addition, the tender of
outstanding notes in the exchange offer will reduce the principal amount of the
outstanding notes outstanding, which may have an adverse effect upon, and
increase the volatility of, the market price of the outstanding notes due to a
reduction in liquidity.
ACCOUNTING TREATMENT
We will record the exchange notes in our accounting records at the same
carrying value as the outstanding notes, which is the total principal amount, as
reflected in our accounting records on the date of exchange. Accordingly, we
will not recognize any gain or loss for accounting purposes under the exchange
offer. We will capitalize the expenses of the exchange offer and amortize them
over the life of these notes.
OTHER
You are not required to exchange your outstanding notes for exchange notes
and to participate in the exchange offer. You should consider carefully whether
to accept the offer to exchange the outstanding notes for exchange notes. We
urge you to consult your financial and tax advisors in making your own decision
on what action to take.
In the future, we may seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered outstanding notes.
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<PAGE>
DESCRIPTION OF NOTES
You can find the definitions of the capitalized terms used in this
description under the subcaption "Definitions." In this description, the word
"Company" refers only to Consolidated Container Company LLC and not to any of
its subsidiaries, the word "Capital" refers only to Consolidated Container
Capital, Inc. and not to any of its subsidiaries and the word "Issuers" refers
collectively to the Company and Capital.
The outstanding notes were issued, and the exchange notes will be, issued
under an Indenture (the "Indenture") among the Issuers, the Guarantors and The
Bank of New York, as trustee (the "Trustee"). Upon the issuance of the exchange
notes, the Indenture will be subject to and governed by the Trust Indenture Act
of 1939. All references to the "Notes" are to the outstanding notes (the
"Outstanding Notes") and the exchange notes (the "Exchange Notes") collectively.
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939.
Some purchasers of the outstanding notes would not have been able to buy
them because they are prohibited from buying debt securities of a limited
liability company. Accordingly, Capital was incorporated in Delaware, as a
wholly owned subsidiary of the Company, to serve as a co-issuer of the Notes.
Capital does not have any substantial operations or assets and does not have any
revenues. As a result, you should not expect Capital to participate in servicing
the interest and principal obligations on the Notes. See "-- Covenants --
Restrictions on Activities of Capital" below.
The following description is a summary of the material provisions of the
Indenture and the Registration Rights Agreement. It does not restate those
agreements in their entirety. We urge you to read the Indenture and the
Registration Rights Agreement because they, and not this description, define
your rights as holders of the Notes. The Indenture and the Registration Rights
Agreement are exhibits to the registration statement of which this prospectus is
a part.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
The Notes:
- are general unsecured obligations of the Issuers;
- are subordinated in right of payment to all existing and future Senior
Debt of the Issuers;
- are equal in right of payment with any future senior subordinated
Indebtedness of the Issuers;
- are senior in right of payment to any future subordinated Indebtedness of
the Issuers; and
- are guaranteed fully and unconditionally on a senior subordinated basis by
the Subsidiary Guarantors, jointly and severally, subject to the
limitations described below.
THE GUARANTEES
The Notes are guaranteed by all of the Domestic Subsidiaries of the Company,
other than Capital, which are Reid Plastic Group, Plastic Containers,
Continental Plastic Containers and Continental Caribbean Containers.
Each Subsidiary Guarantee of the Notes:
- is a full and unconditional obligation on a senior subordinated basis of
the Subsidiary Guarantor, limited (1) as necessary to prevent that
guarantee from constituting a fraudulent conveyance under applicable law
and (2) by specified procedures that must be satisified to exercise the
right to enforce the guarantees, as described under "-- Events of Default
and Remedies".
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- is subordinated in right of payment to all existing and future Senior Debt
of the Subsidiary Guarantor;
- is equal in right of payment with any future senior subordinated
Indebtedness of the Subsidiary Guarantor; and
- is senior in right of payment to any future subordinated Indebtedness of
the Subsidiary Guarantor.
At September 30, 1999, the Issuers and the Subsidiary Guarantors had total
Senior Debt of approximately $597.5 million. As indicated above and as discussed
in detail below under the subcaption "Subordination," payments on the Notes and
the Subsidiary Guarantees are subordinated to the payment of Senior Debt. The
Indenture permits us and the Subsidiary Guarantors to borrow and issue
additional Senior Debt.
Not all of our subsidiaries guarantee the outstanding notes and will
guarantee the exchange notes. In the event of a bankruptcy, liquidation or
reorganization of any of these non-guarantor subsidiaries, these non-guarantor
subsidiaries will pay the holders of their debts and their trade creditors
before they will be able to distribute any of their assets to us. At
September 30, 1999, Consolidated Container Company's non-Subsidiary Guarantors
had total liabilities of approximately $3.7 million.
Currently, all of our subsidiaries are "Restricted Subsidiaries." However,
under the circumstances described below under the subcaption "-- Covenants --
Designation of Restricted and Unrestricted Subsidiaries," the Company is
permitted to designate some of its subsidiaries as "Unrestricted Subsidiaries."
The Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants in the Indenture. The Unrestricted Subsidiaries will not guarantee the
Notes.
PRINCIPAL, MATURITY AND INTEREST
The Issuers may issue Notes with a maximum total principal amount of
$300.0 million, of which the Issuers issued $185.0 million total principal
amount of outstanding notes on July 2, 1999. As a result, the Issuers may issue
a total principal amount of $115.0 million of additional notes (the "Additional
Notes") from time to time after the offering of the outstanding notes. Any
offering of Additional Notes is subject to the covenant described below under
the section "-- Covenants -- Additional Indebtedness and Preferred Stock." The
Notes and any Additional Notes subsequently issued under the Indenture would be
treated as a single class for all purposes under the Indenture, including,
waivers, amendments, redemptions and offers to purchase. The Issuers do not have
any current plans to issue any Additional Notes.
The Issuers issued the outstanding notes, and will issue the exchange notes,
in denominations of $1,000 and integral multiples of $1,000. The Notes will
mature on July 15, 2009.
Interest on the Notes will accrue at the rate of 10 1/8% each year and will
be payable semi-annually in arrears on each January 15 and July 15, commencing
on January 15, 2000. The Issuers will make each interest payment to the Holders
of record on the immediately preceding January 1 and July 1.
Interest on the Notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
FORM AND TERM OF EXCHANGE NOTES
The form and terms of the exchange notes will be substantially identical to
the form and terms of the outstanding notes, except that the exchange notes:
- will be freely tradeable as a result of their registration under the
Securities Act of 1933;
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<PAGE>
- will not bear legends restricting their transfer, will not be subject to
any additional obligations regarding registration under the Securities Act
of 1933; and
- will not be subject to the special interest payments described in "--
Registration Covenant; Exchange Offer."
The exchange notes will be issued under and entitled to the benefits of the
same indenture under which the Issuers issued the outstanding notes.
Consequently, both series will be treated as a single class of debt securities
under the indenture.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a Holder has given wire transfer instructions to the Issuers, the Issuers
will pay all principal, interest and premium and Liquidated Damages, if any, on
that Holder's Notes under those instructions. All other payments on Notes will
be made at the office or agency of the Paying Agent and Registrar within the
City and State of New York unless the Issuers elect to make interest payments by
check mailed to the Holders at their addresses as listed in the register of
Holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as Paying Agent and Registrar. The Issuers
may change the Paying Agent or Registrar without prior notice to the Holders,
and the Company or any of its Restricted Subsidiaries may act as Paying Agent or
Registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes only as specified in the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents, and the Issuers may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Issuers are not required to transfer or exchange any Note
selected for redemption. Also, the Issuers are not required to transfer or
exchange any Note for a period of 15 days before the mailing of a notice of
redemption of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
SUBSIDIARY GUARANTEES
The Subsidiary Guarantors will, jointly and severally, fully and
unconditionally guarantee on a senior subordinated basis the Issuers'
obligations under the Notes. Each Subsidiary Guarantee will be subordinated to
the prior payment in full of all Senior Debt of that Subsidiary Guarantor. The
subordination provisions applicable to the Subsidiary Guarantees will be
substantially similar to the subordination provisions applicable to the Notes as
stated below under "Subordination." The obligations of each Subsidiary Guarantor
under its Subsidiary Guarantee will be limited as necessary to prevent that
Subsidiary Guarantee from constituting a fraudulent conveyance under applicable
law. See "Risk Factors -- Fraudulent Conveyance Matters." In addition, the
indenture contains some procedural limitations on the rights of holders of the
Notes to bring suit to enforce the Subsidiary Guarantees. For more information
about these procedural limitations, see "-- Events of Default and Remedies."
A Subsidiary Guarantor may not sell or otherwise dispose of all or
substantially all of its assets to, or consolidate with or merge with or into,
whether or not such Subsidiary Guarantor is the surviving Person, another
Person, other than the Company or another Subsidiary Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or Event
of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger,
if other than such Subsidiary Guarantor,
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<PAGE>
assumes all the obligations of that Subsidiary Guarantor under the
Indenture, its Subsidiary Guarantee and the Registration Rights
Agreement under a supplemental indenture satisfactory to the Trustee;
or
(b) the Net Proceeds of such sale or other disposition are applied under
the "Asset Sale" provisions of the Indenture.
The Subsidiary Guarantee of a Subsidiary Guarantor will be released:
(1) if there is any sale or other disposition of all or substantially all of
the assets of that Subsidiary Guarantor, including by way of merger or
consolidation, to a Person that is not, either before or after giving
effect to the transaction, a Restricted Subsidiary of the Company, if the
Subsidiary Guarantor applies the Net Proceeds of that sale or other
disposition in a manner that complies with the "Asset Sale" provisions of
the Indenture;
(2) if there is any sale of all of the Capital Stock of a Subsidiary
Guarantor to a Person that is not, either before or after giving effect
to the transaction, a Restricted Subsidiary of the Company, if the Net
Proceeds of that sale are applied in a manner that complies with the
"Asset Sale" provisions of the Indenture; or
(3) if the Company properly designates any Restricted Subsidiary that is a
Subsidiary Guarantor as an Unrestricted Subsidiary.
See "-- Repurchase at the Option of Holders -- Asset Sales."
SUBORDINATION
The payment of principal, interest and premium and Liquidated Damages, if
any, on the Notes will be subordinated to the prior payment in full in cash or
Cash Equivalents of all Senior Debt of the Issuers, including Senior Debt
borrowed or issued after the date of the Indenture.
The holders of Senior Debt will be entitled to receive payment in full in
cash or Cash Equivalents of all Obligations due regarding Senior Debt, including
interest after the commencement of any bankruptcy proceeding at the rate
specified in the applicable Senior Debt whether or not the interest is an
allowable claim, before the Holders of Notes will be entitled to receive any
payment or distribution of any kind or character regarding any Obligation on, or
relating to, the Notes -- except that Holders of Notes may receive and retain
Permitted Junior Securities and payments made from the trust described under "--
Legal Defeasance and Covenant Defeasance" so long as the trust was created in a
manner that complies with all relevant conditions specified in the Indenture at
the time it was created -- in the event of any distribution to creditors of
either Issuer:
(1) in a liquidation or dissolution of such Issuer;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to such Issuer or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of such Issuer's assets and liabilities.
The Issuers also may not make any payment or distribution of any kind or
character regarding any Obligations on, or regarding, the Notes or acquire any
Notes for cash or property or otherwise, except in Permitted Junior Securities
or from the trust described under "-- Legal Defeasance and Covenant Defeasance"
so long as the trust was created in a manner that complies with all relevant
conditions specified in the Indenture at the time it was created, if:
(1) a payment default on Designated Senior Debt occurs and is continuing; or
(2) any other default occurs and is continuing on any series of Designated
Senior Debt that permits holders of that series of Designated Senior Debt
to accelerate its maturity and the
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<PAGE>
Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Issuers or the holders of any Designated Senior Debt.
Payments on the Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default is
cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived, 179 days after the date on which
the applicable Payment Blockage Notice is received or the Trustee
receives notice from the representative for such Designated Senior Debt
rescinding the Payment Blockage Notice, unless the maturity of any
Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the delivery of the immediately prior
Payment Blockage Notice; and
(2) all scheduled payments of principal, interest and premium and Liquidated
Damages, if any, on the Notes that have come due have been paid in full
in cash.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 90 days.
If the Trustee or any Holder of the Notes receives a payment or distribution
of any kind or character regarding any Obligations on, or regarding, the Notes
- -- except in Permitted Junior Securities or from the trust described under "--
Legal Defeasance and Covenant Defeasance" so long as the trust was created in a
manner that complies with all relevant conditions specified in the Indenture at
the time it was created -- when the payment is prohibited by these subordination
provisions, the Trustee or the Holder, as the case may be, shall hold the
payment in trust for the benefit of the holders of Senior Debt. Upon the proper
written request of the holders of Senior Debt, the Trustee or the Holder, as the
case may be, shall deliver the amounts in trust to the holders of Senior Debt or
their proper representative.
The Issuers must promptly notify holders of Senior Debt, or their
representative, if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of either Issuer, Holders of Notes
may recover less ratably than creditors of the Issuers who are holders of Senior
Debt. See "Risk Factors -- Contractual Subordination."
OPTIONAL REDEMPTION
At any time prior to July 15, 2002, the Issuers may on any one or more
occasions redeem up to 40% of the total principal amount of Notes issued under
the Indenture at a redemption price of 110.125% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Equity Offerings of
the Company, or of Holdings to the extent the proceeds are contributed to the
Company; PROVIDED that:
(1) at least 60% of the total principal amount of Notes issued under the
Indenture remains outstanding immediately after the occurrence of such
redemption, excluding Notes held by the Company and its Subsidiaries; and
(2) the redemption occurs within 90 days of the date of the closing of such
Equity Offering.
Except stated in the preceding paragraph, the Notes will not be redeemable
at the Issuers' option prior to July 15, 2004.
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<PAGE>
On or after July 15, 2004, the Issuers may redeem all or a part of the Notes
upon not less than 30 nor more than 90 days' notice, at the redemption prices,
expressed as percentages of principal amount, stated below plus accrued and
unpaid interest and Liquidated Damages, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on July 15 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004........................................................ 105.0625%
2005........................................................ 103.3750%
2006........................................................ 101.6875%
2007 and thereafter......................................... 100.0000%
</TABLE>
MANDATORY REDEMPTION
The Issuers are not required to make mandatory redemption or sinking fund
payments regarding the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of Notes will have the right to
require the Issuers to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that Holder's Notes under a Change of Control
Offer on the terms stated in the Indenture. In the Change of Control Offer, the
Issuers will offer a Change of Control Payment in cash equal to 101% of the
total principal amount of Notes repurchased plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the date of purchase. Within 30 days
following any Change of Control, the Issuers will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase Notes on the Change of Control Payment Date specified
in the notice, which date shall be no earlier than 30 days and no later than
60 days from the date the notice is mailed, under the procedures required by the
Indenture and described in such notice. The Issuers will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent these laws and regulations are
applicable regarding the repurchase of the Notes as a result of a Change of
Control.
Rule 14e-1 requires that the Issuers not do any of the following if a Change
of Control Offer occurs:
- hold the Change of Control Offer open for less than 20 business days from
the date it is first published or sent to Holders;
- increase the payment beyond two percent of all of the Notes that are
subject to the Change of Control Offer, decrease the percentage of Notes
being sought, reduce the Change of Control Payment or increase the
dealer's soliciting fee unless the Change of Control Offer remains open
for at least 10 business days from the date that notice of any of these
changes is first published or sent to Holders;
- fail to pay the Change of Control Payment or return Notes that have been
tendered by Holders promptly after the termination or withdrawal of the
Change of Control Offer; and
- extend the length of time of the Change of Control Offer without issuing a
notice of extension by a press release or other public announcement, which
discloses the approximate number of Notes deposited to date, by the
earlier of (1) 9:00 a.m. New York City time on the business day
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<PAGE>
following the extension and (2) the first opening of a national securities
exchange if the Notes are then listed on that exchange.
To the extent that the provisions of any securities laws or regulations conflict
with the Change of Control provisions of the Indenture, the Issuers will comply
with the applicable securities laws and regulations and will not be considered
to have breached its obligations under the Change of Control provisions of the
Indenture by virtue of that conflict.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful:
(1) accept for payment all Notes or portions thereof properly tendered under
the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the total principal amount
of Notes or portions thereof being purchased by the Issuers.
The Paying Agent will promptly mail to each Holder of Notes so tendered the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail, or cause to be transferred by book entry, to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; PROVIDED that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, the
Company will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of Notes required by this covenant. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Company shall first comply with the covenant in the first sentence in
the immediately preceding paragraph before it shall be required to repurchase
Notes under the provisions described above. The Company's failure to comply with
the covenant described in the immediately preceding sentence will, with notice
and lapse of time, constitute an Event of Default described in clause (3) but
shall not constitute an Event of Default described under clause (2) under the
section "-- Events of Defaults and Remedies."
The provisions described above that require the Issuers to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether any other provisions of the Indenture are applicable. Except as
described above regarding a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Issuers
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements stated in
the Indenture applicable to a Change of Control Offer made by the Issuers and
purchases all Notes properly delivered and not withdrawn under the Change of
Control Offer.
Notwithstanding the foregoing, the Company shall not be required to make a
Change of Control Offer as provided above if, as part of or in contemplation of
any Change of Control, it has made an offer to purchase (an "Alternate Offer")
any and all Notes properly delivered at a cash price equal to
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or higher than the Change of Control Payment and has purchased all Notes
properly tendered in a manner that complies with the terms of such Alternate
Offer.
The definition of Change of Control includes a phrase relating to the direct
or indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of the Company and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Notes to require the Issuers to repurchase such Notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of the Company and its Subsidiaries taken as a whole to another Person or
group may be uncertain.
ASSET SALES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, close an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is determined by the Management Committee and, in
the case of Asset Sales in excess of $10.0 million, evidenced by a
resolution of the Management Committee stated in an Officers' Certificate
delivered to the Trustee; and
(3) at least 75% of the consideration therefor received by the Company or
such Restricted Subsidiary is in the form of cash or Cash Equivalents.
For purposes of this provision, each of the following shall be considered
to be cash:
(a) any liabilities, as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet, of the Company or any
Restricted Subsidiary, other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any
Subsidiary Guarantee, that are assumed by the transferee of any such
assets that releases the Company or such Restricted Subsidiary from
further liability;
(b) any securities, notes or other obligations received by the Company or
any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash, to
the extent of the cash received in that conversion, within 180 days
of the closing of such Asset Sale; and
(c) any Designated Noncash Consideration received by the Company or any
of its Restricted Subsidiaries in such Asset Sale (i) having a fair
market value, taken together with all other Designated Noncash
Consideration received under this clause (c)(i) that is at that time
outstanding, not to exceed 15% of Total Assets at the time of the
receipt of such Designated Noncash Consideration or (ii) if, on a pro
forma basis after giving effect to such Asset Sale and the
application of the Net Proceeds therefrom, including the application
of the proceeds under clause (1) or (2) of the next paragraph, the
Company can borrow or issue $1.00 of Indebtedness under the Fixed
Charge Coverage Ratio test stated in the first sentence of the
covenant described below under "Additional Indebtedness and Preferred
Stock," in the case of each clause (c)(i) or (c)(ii), with the fair
market value being measured at the time received and without giving
effect to subsequent changes in value.
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Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds at its option:
(1) to repay Senior Debt and, if the Senior Debt repaid is revolving credit
Indebtedness, to correspondingly reduce commitments regarding them;
(2) to repay equally ranking Indebtedness PROVIDED that the Company will
equally and ratably reduce Obligations under the Notes if the Notes are
then redeemable or, if the Notes may not be then redeemed, the Company
will make an offer, under the procedures stated below for an Asset Sale
Offer, to all Holders to purchase the Notes that would otherwise be
redeemed at a price equal to 100% of the principal amount of such Notes;
(3) to make an investment in properties or assets that replaces the assets
that are the subject of such Asset Sale;
(4) to make capital expenditures; or
(5) to make an investment in one or more businesses or to acquire other
assets that are used or useful in a Permitted Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings, invest such Net Proceeds in Cash
Equivalents or Investment Grade Securities or otherwise invest such Net Proceeds
in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." Within
ten business days after the date on which the total amount of Excess Proceeds
exceeds $15.0 million, the Issuers will make an Asset Sale Offer to all Holders
of Notes and all holders of other Indebtedness that ranks equally with the Notes
containing provisions similar to those stated in the Indenture regarding offers
to purchase or redeem with the proceeds of sales of assets to purchase the
maximum principal amount of Notes and the other equally ranking Indebtedness
that may be purchased out of the Excess Proceeds. The offer price in any Asset
Sale Offer will be equal to 100% of principal amount plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase, and will be
payable in cash. If any Excess Proceeds remain after consummation of an Asset
Sale Offer, the Company may use the Excess Proceeds for any purpose not
otherwise prohibited by the Indenture. If the total principal amount of Notes
and the other equally ranking Indebtedness tendered into the Asset Sale Offer
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and
the other equally ranking Indebtedness to be purchased on a pro rata basis based
on the principal amount of Notes and the other equally ranking Indebtedness
tendered. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable to each repurchase of Notes
under an Asset Sale Offer. If there is an Asset Sale Offer, Rule 14e-1 requires
that the Issuers not do any of the following:
- hold the Asset Sale Offer open for less than 20 business days from the
date it is first published or sent to Holders;
- increase the payment beyond two percent of all of the Notes that are
subject to the Asset Sale Offer, decrease the percentage of Notes being
sought, reduce the amount of Excess Proceeds payable to Holders or
increase the dealer's soliciting fee unless the Asset Sale Offer remains
open for at least 10 business days from the date that notice of any of
these changes is first published or sent to Holders;
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- fail to pay the Excess Proceeds payable to Holders or return Notes that
have been tendered by Holders promptly after the termination or withdrawal
of the Asset Sale Offer; and
- extend the length of time of the Asset Sale Offer without issuing a notice
of extension by a press release or other public announcement, which
discloses the approximate number of Notes deposited to date, by the
earlier of (1) 9:00 a.m. New York City time on the business day following
the extension and (2) the first opening of a national securities exchange
if the Notes are then listed on that exchange.
To the extent that the provisions of any securities laws or regulations conflict
with the Asset Sales provisions of the Indenture, the Issuers will comply with
the applicable securities laws and regulations and will not be considered to
have breached its obligations under the Asset Sale provisions of the Indenture
by virtue of such conflict.
The agreements governing the Issuers' outstanding Senior Debt currently
prohibit the Issuers from purchasing any Notes, and also provide that specified
change of control or asset sale events regarding the Company would constitute a
default under these agreements. Any future credit agreements or other agreements
relating to Senior Debt to which the Issuers becomes a party may contain similar
restrictions and provisions. In the event a Change of Control or Asset Sale
occurs at a time when the Issuers are prohibited from purchasing Notes, the
Issuers could seek the consent of its senior lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Issuers do not obtain such a consent or repay such borrowings, the Issuers will
remain prohibited from purchasing Notes. In such case, the Issuers' failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture, which would, in turn, constitute a default under such Senior Debt. In
such circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of Notes.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, the Trustee
will select Notes for redemption as follows:
- If the Notes are listed on a principal national securities exchange, the
Trustee will select Notes in compliance with the requirements of that
exchange.
- If the Notes are not listed on a principal national securities exchange,
the Trustee will select Notes on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate.
No Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion of
the original Note will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
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COVENANTS
RESTRICTED PAYMENTS
The Company will not, and will not permit any of its Restricted Subsidiaries
to:
(1) declare or pay any dividend or make any other payment or distribution on
account of the Company's or any of its Restricted Subsidiaries' Equity
Interests, including any payment regarding any merger or consolidation
involving the Company or any of its Restricted Subsidiaries, or to the
direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such, other than
dividends or distributions payable in Equity Interests, (other than
Disqualified Stock, of the Company or to the Company or a Restricted
Subsidiary of the Company);
(2) purchase, redeem or otherwise acquire or retire for value, including
from any merger or consolidation involving the Company, any Equity
Interests of the Company or any direct or indirect parent of the Company;
(3) make any payment on or regarding, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes or the Subsidiary Guarantees, except:
(a) a mandatory sinking fund payment or a payment of interest or
principal that is paid within one year prior to the Stated Maturity
of such subordinated Indebtedness; or
(b) Indebtedness permitted under clause (6) of the covenant described
below under "--Additional Indebtedness and Preferred Stock"; or
(4) make any Restricted Investment (all the payments and other actions
stated in clauses (1) through (4) above being collectively referred to as
"Restricted Payments");
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect to them as if the Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to borrow or issue at least $1.00 of additional Indebtedness
under the Fixed Charge Coverage Ratio test stated in the first paragraph
of the covenant described below under the section "-- Additional
Indebtedness and Preferred Stock;" and
(3) such Restricted Payment, together with the total amount of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture, excluding Restricted Payments permitted
by clauses (2), (3), (4), (6), (7), (8), (11), (14), (15) and (16) of the
next succeeding paragraph, is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the period,
taken as one accounting period, from April 1, 1999 to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), PLUS
(b) 100% of the total net proceeds, including cash and the fair market
value of property other than cash, received by the Company since the
date of the Indenture as a contribution to its common equity capital
or from the issue or sale of Equity Interests of the Company, other
than Disqualified Stock, or from the issue or sale of convertible or
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exchangeable Disqualified Stock or convertible or exchangeable debt
securities of the Company that have been converted into or exchanged
for such Equity Interests, other than Equity Interests (or
Disqualified Stock or debt securities) sold to a Subsidiary of the
Company, PLUS
(c) to the extent that any Restricted Investment that was made after the
date of the Indenture is sold or otherwise liquidated or repaid, the
total amount received in cash and the fair market value of property
other than cash received regarding the Restricted Investment, PLUS
(d) in case any Unrestricted Subsidiary has been redesignated a
Restricted Subsidiary or has been merged, consolidated or amalgamated
with or into, transfers or conveys assets to, or is liquidated into,
the Company or any of its Restricted Subsidiaries, the fair market
value of such Investment in such Unrestricted Subsidiary at the time
of such redesignation, combination or transfer, or of the assets
transferred or conveyed, as applicable, after deducting any
Indebtedness associated with the Unrestricted Subsidiary so
designated or combined or with the assets so transferred or conveyed.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied
with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any equally ranking or subordinated Indebtedness of the Company or any
Restricted Subsidiary or of any Equity Interests (the "Retired Equity
Interests") of the Company in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary of the Company) of, Equity Interests of the Company (the
"Refunding Equity Interests"); PROVIDED that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from
clause (3)(b) of the preceding paragraph;
(3) the declaration and payment of dividends on the Retired Equity Interests
out of the proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary) of Refunding Equity Interests; PROVIDED that the
amount of any such proceeds that are utilized for any such dividends
shall be excluded from clause (3)(b) of the preceding paragraph;
(4) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of the Company or any Restricted Subsidiary
with the net cash proceeds from borrowing or issuance of Permitted
Refinancing Indebtedness;
(5) the payment of any dividend by a Restricted Subsidiary of the Company to
the holders of its Equity Interests on a pro rata basis;
(6) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of the Company or any Restricted Subsidiary of
the Company or any direct or indirect parent of the Company held by any
future, present or former member of the Company's, or any of its
Restricted Subsidiaries', management or any director, employee or
consultant of the Company or any of its Restricted Subsidiaries under any
management equity subscription agreement or stock option agreement in
effect as of the date of the Indenture or by any employee upon retirement
of such employee; PROVIDED that the total price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed in any calendar year $5.0 million, with unused amounts in any
calendar year being carried over to succeeding calendar years subject to
a maximum (without giving effect to the following
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proviso) of $10.0 million in any calendar year; PROVIDED FURTHER that
such amount in any calendar year may be increased by any amount not to
exceed
(a) the cash proceeds from the sale of Equity Interests of the Company,
or of Holdings that are contributed to the Company, to members of
management, directors or consultants of the Company and its
Subsidiaries or Vestar that occurs after the date of the Indenture,
PROVIDED that such proceeds have not been included for the purpose of
determining whether a previous Restricted Payment was permitted under
the preceding paragraph, PLUS
(b) the cash proceeds of key man life insurance policies received by the
Company and its Restricted Subsidiaries after the date of the
Indenture;
(7) so long as the Company is a limited liability company treated as a
partnership or an entity disregarded as separate from its owner for
federal and state income tax purposes, and prior to any distribution of
any Tax Amount, the Company delivers an officers' certificate to such
effect, distributions to members of the Company in an amount, regarding
any period after March 31, 1999 not to exceed the Tax Amount regarding
the Company for the period;
(8) the making of distributions, loans or advances to Holdings in order to
permit the Company to pay the ordinary operating expenses of Holdings,
including directors' fees, indemnification obligations, professional fees
and expenses;
(9) the declaration and payment of dividends or distributions to holders of
any class or series of Disqualified Stock of the Company or any of its
Restricted Subsidiaries issued or assumed as stated under the covenant
described below under the section "Additional Indebtedness and Preferred
Stock";
(10) the declaration and payment of dividends or distributions to holders of
any class or series of Designated Preferred Stock; PROVIDED that for the
most recently ended four full fiscal quarters for which internal
financial statements are available preceding the date of declaration of
any such dividend or distribution, after giving effect to such dividend
or distribution as a Fixed Charge on a pro forma basis, the Company and
its Restricted Subsidiaries would have had a Fixed Charge Coverage Ratio
of at least 1.75 to 1.0;
(11) the repurchase of, or a dividend or distribution to fund the repurchase
of, Equity Interests of the Company or any direct or indirect parent of
the Company considered to occur upon exercise of stock options if such
Equity Interests represent a portion of the exercise price of such
options;
(12) so long as no Default -- except for any Default stated below in
clause (3) or (7) under the section "Events of Default" -- has occurred
and is continuing or would be caused thereby, the payment of dividends on
the Company's common Equity Interests, or the payment to Holdings to fund
the payment by Holdings of dividends on Holdings' common Equity
Interests, following the first public offering of common Equity Interests
of the Company or Holdings, as the case may be, after the date of the
Indenture, of up to 6% each year of the net proceeds received by the
Company or contributed to the Company by Holdings, as the case may be, in
such public offering;
(13) the repurchase, retirement or other acquisition for value after the
first anniversary of the date of the Indenture, or dividend or
distribution to fund the repurchase, retirement or other acquisition, of
Equity Interests of the Company or any direct or indirect parent of the
Company in existence on the date of the Indenture and that are not held
by the Principals or any of their Related Parties on the date of the
Indenture, including any Equity Interests issued in respect of such
Equity Interests as a result of a stock split, recapitalization, merger,
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combination, consolidation or otherwise, but excluding any management
equity plan or stock option plan or similar agreement, PROVIDED that
(a) the total amounts paid under this clause (13) shall not exceed
(i) $15.0 million on or prior to the second anniversary of the date of
the Indenture or (ii) $30.0 million at any time after the second
anniversary of the date of the Indenture and (b) after giving effect to
them, the Company would be permitted to borrow or issue at least $1.00 of
additional Indebtedness under the Fixed Charge Coverage Ratio test stated
in the first sentence of the covenant described below under "--
Additional Indebtedness and Preferred Stock";
(14) Investments that are made with Excluded Contributions;
(15) so long as no Default, except for any Default set stated in clause (3)
or (7) under the section "Events of Default", has occurred and is
continuing or would be caused thereby, other Restricted Payments in an
total principal amount not to exceed $15.0 million; and
(16) Restricted Payments contemplated by the Contribution and Merger
Agreement and any agreement executed in connection therewith or
contemplated thereby.
The amount of all Restricted Payments, other than cash, shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by the Company or such Restricted
Subsidiary, as the case may be, under the Restricted Payment. The fair market
value of any assets or securities that are required to be valued by this
covenant shall be determined by the Management Committee whose resolution
regarding them shall be delivered to the Trustee. The Management Committee
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million. Not later than the date of making any
Restricted Payment, the Issuers shall deliver to the Trustee an Officers'
Certificate stating that the Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
Accrual of interest, accretion or amortization of original issue discount,
the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms and the payment of dividends on Disqualified
Stock in the form of additional shares of the same class of Disqualified Stock
will not be considered to be a Restricted Payment for purposes of this covenant;
PROVIDED, in each case, that the amount thereof is included in Fixed Charges of
the Company as accrued.
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ADDITIONAL INDEBTEDNESS AND PREFERRED STOCK
Except to the extent permitted by the next sentence, the Company:
(a) will not, and will not permit any of its Subsidiaries to incur,
create, issue, assume, guarantee or otherwise become liable, contingently or
otherwise (collectively, "borrow or issue") regarding any Indebtedness,
including Acquired Debt;
(b) the Company will not issue any Disqualified Stock; and
(c) will not permit any of its Restricted Subsidiaries that are not
Subsidiary Guarantors to issue any shares of preferred stock.
However, the Issuers and the Subsidiary Guarantors may borrow or issue
Indebtedness, including Acquired Debt, or issue Disqualified Stock, and the
Company's Restricted Subsidiaries that are not Subsidiary Guarantors may, borrow
or issue Indebtedness, including Acquired Debt, or issue preferred stock, if the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which the additional Indebtedness is borrowed
or issued or the Disqualified Stock or preferred stock is issued would have been
at least 1.75 to 1.0. The Fixed Charge Coverage Ratio is to be determined on a
pro forma basis, including a pro forma application of the net proceeds
therefrom, as if the additional Indebtedness had been borrowed or issued or the
preferred stock or Disqualified Stock had been issued, as the case may be, at
the beginning of that four-quarter period.
The first paragraph of this covenant will not prohibit the borrowing or
issuance of any of the following items of Indebtedness (collectively, "Permitted
Debt"):
(1) the borrowing or issuance by the Company and its Restricted
Subsidiaries of additional Indebtedness and letters of credit under
Credit Facilities in an total principal amount at any one time
outstanding under this clause (1) (with letters of credit being
considered to have a principal amount equal to the maximum potential
liability of the Company and its Restricted Subsidiaries thereunder) not
to exceed $575.0 million outstanding at any one time;
(2) the borrowing or issuance by the Company and its Restricted
Subsidiaries of the Existing Indebtedness;
(3) the borrowing or issuance by the Issuers and the Subsidiary Guarantors
of Indebtedness represented by the $185.0 million in total principal
amount of the Notes to be issued on the date of the Indenture, the
related Subsidiary Guarantees to be issued on the date of the Indenture
and the Exchange Notes and the related Subsidiary Guarantees to be issued
under the Registration Rights Agreement;
(4) the borrowing or issuance by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case, borrowed
or issued for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant or
equipment used in the business of the Company or the Restricted
Subsidiary, in an total principal amount that, when aggregated with the
principal amount of all other Indebtedness then outstanding and borrowed
or issued under this clause (4) and including all Permitted Refinancing
Indebtedness borrowed or issued to refund, refinance or replace any
Indebtedness borrowed or issued under this clause (4), does not exceed
15% of the Total Assets at the time of the respective borrowing or
issuance;
(5) the borrowing or issuance by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or
the net proceeds of which are used to refund, refinance or replace
Indebtedness, other than intercompany Indebtedness, that was permitted
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by the Indenture to be incurred under the first paragraph of this
covenant or clauses (2), (3), (4), (5), (10), (16) or (18) of this
paragraph;
(6) the borrowing or issuance by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company
and any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that:
(a) if the Issuers or any Subsidiary Guarantor is the obligor on the
Indebtedness and the lender is not a Subsidiary Guarantor, the
Indebtedness must be expressly subordinated to the prior payment in
full in cash of all Obligations regarding the Notes, in the case of
the Issuers, or the Subsidiary Guarantees, in the case of a
Subsidiary Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any Indebtedness being held by a Person other than the
Company or a Restricted Subsidiary thereof and (ii) any sale or
other transfer of any such Indebtedness to a Person that is not
either the Company or a Restricted Subsidiary thereof shall be
considered, in each case, to constitute a borrowing or issuance of
the Indebtedness by the Company or the Restricted Subsidiary, as the
case may be, that was not permitted by this clause (6);
(7) the borrowing or issuance by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are borrowed or issued:
(a) for the purpose of fixing or hedging interest rate risk regarding any
floating rate Indebtedness that is permitted by the terms of this
Indenture to be outstanding;
(b) for the purpose of fixing or hedging currency exchange rate risk
regarding any currency exchanges; or
(c) for the purpose of fixing or hedging commodity price risk regarding
any commodity purchases;
(8) the guarantee by the Issuers or any of the Subsidiary Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company
that was permitted to be acquired by another provision of this covenant;
(9) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form
of additional Indebtedness with the same terms, and the payment of
dividends on Disqualified Stock in the form of additional shares of the
same class of Disqualified Stock will not be considered to be a borrowing
or issuance of Indebtedness or an issuance of Disqualified Stock for
purposes of this covenant; PROVIDED, in each such case, that the amount
thereof is included in Fixed Charges of the Company as accrued;
(10) the borrowing or issuance by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, PROVIDED, HOWEVER, that if any Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
considered to constitute a borrowing or issuance of Indebtedness by a
Restricted Subsidiary of the Company that was not permitted by this
clause (10);
(11) the borrowing or issuance by the Company or any of its Restricted
Subsidiaries of Indebtedness constituting reimbursement obligations
regarding letters of credit issued in the ordinary course of business,
including, letters of credit in respect of workers' compensation claims
or self-insurance, or other Indebtedness regarding reimbursement type
obligations regarding workers' compensation claims or self-insurance;
(12) the borrowing or issuance by the Company or any of its Restricted
Subsidiaries of Indebtedness arising from agreements of the Company or
such Restricted Subsidiary
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providing for indemnification, adjustment of purchase price or similar
obligations, in each case, borrowed or issued or assumed regarding the
disposition of any business, assets or Capital Stock of a Subsidiary,
other than guarantees of Indebtedness borrowed or issued by any Person
acquiring all or any portion of such business, assets or a Subsidiary for
the purpose of financing such acquisition;
(13) the issuance of preferred stock by any of the Company's Restricted
Subsidiaries issued to the Company or another Restricted Subsidiary;
PROVIDED that any subsequent issuance or transfer of any Equity
Securities or any other event that results in any Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any other subsequent transfer of
any shares of preferred stock, except to the Company or another
Restricted Subsidiary, shall be considered, in each case to be an
issuance of shares of preferred stock;
(14) the borrowing or issuance by the Company or any of its Restricted
Subsidiaries of obligations in respect of performance and surety bonds
and completion guarantees provided by the Company or such Restricted
Subsidiary in the ordinary course of business;
(15) the borrowing or issuance by the Company or any of its Restricted
Subsidiaries of Indebtedness or Disqualified Stock not otherwise
permitted under this covenant in an total principal amount or liquidation
preference that, when aggregated with the principal amount and
liquidation preference of all other Indebtedness and Disqualified Stock
then outstanding and borrowed or issued this clause (15) does not exceed
$50.0 million;
(16) the borrowing or issuance of Indebtedness or Disqualified Stock of
Persons that are acquired by the Company or any of its Restricted
Subsidiaries or merged into a Restricted Subsidiary in a manner that
complies with the terms of the Indenture; PROVIDED that the Indebtedness
or Disqualified Stock is not borrowed or issued in contemplation of the
acquisition or merger; PROVIDED FURTHER that after giving effect to such
acquisition, either:
(a) the Company would be permitted to borrow or issue at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test stated in the first sentence of this covenant; or
(b) the Fixed Charge Coverage Ratio is greater than immediately prior to
the acquisition;
(17) the borrowing or issuance of any Excluded Guarantee by any Restricted
Subsidiary; and
(18) the borrowing or issuance of any Indebtedness by a Receivables
Subsidiary that is not recourse to the Company or any other Restricted
Subsidiary of the Company, other than Standard Securitization
Undertakings, borrowed or issued regarding a Qualified Receivables
Transaction.
For purposes of determining compliance with this "Additional Indebtedness
and Preferred Stock" covenant, in the event that an item of proposed
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (18) above, or is entitled to be borrowed
or issued under the first paragraph of this covenant, the Company will be
permitted to classify the item of Indebtedness on the date of its borrowing or
issuance, or later reclassify all or a portion of the item of Indebtedness, in
any manner that complies with this covenant. Indebtedness under Credit
Facilities outstanding on the date on which Notes are first issued and
authenticated under the Indenture shall be considered to have been borrowed or
issued on such date in reliance on the exception provided by clause (1) of the
definition of Permitted Debt.
Accrual of interest, accretion or amortization of original issue discount,
the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms and the payment of dividends on Disqualified
Stock in the form of additional shares of the same class of Disqualified Stock
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will not be considered to be a Restricted Payment for purposes of this covenant;
PROVIDED, in each case, that the amount thereof is included in Fixed Charges of
the Company as accrued.
NO SENIOR SUBORDINATED DEBT
The Issuers will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of the Issuers and senior in any respect in right of
payment to the Notes. No Subsidiary Guarantor will incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to the Senior Debt of such Subsidiary Guarantor and
senior in any respect in right of payment to such Subsidiary Guarantor's
Subsidiary Guarantee.
LIENS
The Company will not and will not permit any of its Restricted Subsidiaries
to, create, incur, assume or otherwise cause or suffer to exist or become
effective any Lien of any kind securing Indebtedness, Attributable Debt or trade
payables, other than Permitted Liens, upon any of their property or assets, now
owned or hereafter acquired, unless all payments due under the Indenture and the
Notes are secured on an equal and ratable basis with the obligations so secured
until such time as such obligations are no longer secured by a Lien.
No Subsidiary Guarantor will create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien of any kind securing Indebtedness,
Attributable Debt or trade payables, other than Permitted Liens, that secures
any Indebtedness that ranks equally with or is subordinated to such Subsidiary
Guarantor's Subsidiary Guarantee upon any of its property or assets, now owned
or hereafter acquired, unless all payments due under its Subsidiary Guarantee
are secured on an equal and ratable basis with the obligations so secured until
such time as such obligations are no longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any of its Restricted Subsidiaries
to create or permit to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
the Company or any of its Restricted Subsidiaries, or regarding any other
interest or participation in, or measured by, its profits, or pay any
indebtedness owed to the Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) the Credit Facilities as in effect on the date of the Indenture;
(2) contractual encumbrances or restrictions as in effect on the date of
the Indenture, including regarding Existing Indebtedness;
(3) the Indenture and the Notes, the Exchange Notes and the Subsidiary
Guarantees;
(4) applicable law or regulation;
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(5) any agreement or other instrument of a Person acquired by the Company
or any of its Restricted Subsidiaries as in effect at the time of the
acquisition, except to the extent such Indebtedness was borrowed or
issued as part of or in contemplation of the acquisition, which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired;
(6) customary provisions in leases entered into in the ordinary course of
business;
(7) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions on the property so acquired of the
nature described in clause (3) of the preceding paragraph;
(8) any agreement for the sale or other disposition of assets, including,
without limitation customary restrictions regarding a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(9) Permitted Refinancing Indebtedness, PROVIDED that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(10) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;
(11) provisions regarding the disposition or distribution of assets or
property in joint venture agreements, assets sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary
course of business;
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(13) other Indebtedness of any Restricted Subsidiary that is not a Domestic
Subsidiary permitted to be borrowed or issued subsequent to the date of
the Indenture under the provisions of the covenant described above under
"-- Additional Indebtedness and Preferred Stock";
(14) any encumbrance or restrictions of the type referred to in clauses (1),
(2) and (3) of the preceding paragraph imposed by any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments or
obligations referred to in clauses (1) through (13) above, PROVIDED that
such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are, in the good
faith judgment of the Management Committee, no more restrictive, taken as
a whole, regarding that dividend and other payment restrictions than
those contained in such contracts, instruments or obligations prior to
such amendment, modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing;
(15) any agreement relating to a sale and leaseback transaction or Capital
Lease Obligation, but only on the property subject to the transaction or
Capital Lease Obligation and only to the extent that the restrictions or
encumbrances are customary regarding a sale and leaseback transaction or
Capital Lease Obligation;
(16) any encumbrance or restriction that will not in the aggregate cause the
Issuers not to have the funds necessary to pay the principal of, premium,
if any, or interest on the Notes, Senior Debt and any equally ranking
Indebtedness; or
(17) any other agreement, instrument or document relating to Senior Debt
hereafter in effect, PROVIDED that the terms and conditions of such
encumbrances or restrictions are not more restrictive than those
encumbrances or restrictions imposed as part of the Credit Agreement as
in effect on the date of the Indenture.
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MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may not:
(1) consolidate or merge with or into another Person (whether or not the Company
is the surviving entity); or
(2) sell, assign, transfer, convey, lease or otherwise dispose of all or
substantially all of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole, in one or more related
transactions, to another Person;
unless:
(1) either: (a) the Company is the surviving corporation or entity; or
(b) the Person formed by or surviving any such consolidation or merger,
if other than the Company, or to which such sale, assignment, transfer,
conveyance, lease or other disposition shall have been made is a
corporation, limited liability company or partnership organized or
existing under the laws of the United States, any state thereof or the
District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger, if
other than the Company or Capital, or the Person to which such sale,
assignment, transfer, conveyance, lease or other disposition shall have
been made assumes all the obligations of the Company under the Notes, the
Indenture and the Registration Rights Agreement under agreements
reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) the Company or the Person formed by or surviving any such consolidation
or merger, if other than Capital, or the Person, if other than Capital,
to which such sale, assignment, transfer, conveyance, lease or other
disposition shall have been made will, on the date of such transaction
after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the
applicable four-quarter period, either
(a) be permitted to borrow or issue at least $1.00 of additional
Indebtedness under the Fixed Charge Coverage Ratio test stated in the
first paragraph of the covenant described above under the section
"-- Additional Indebtedness and Preferred Stock"; or
(b) have a Fixed Charge Coverage Ratio that is greater than such ratio
for the Company and its Restricted Subsidiaries immediately prior to
that transaction.
The predecessor Company will not be relieved from its obligations to pay the
principal of, and interest on the Notes except in the case of a sale, but not
lease, of all of the Company's assets that meets the requirements of this
covenant. This "Merger, Consolidation or Sale of Assets" covenant will not apply
to a sale, assignment, transfer, conveyance or other disposition of assets
between or among the Company and any of its Wholly Owned Restricted
Subsidiaries.
Notwithstanding the foregoing, the Company is permitted to reorganize as a
corporation under the procedures established in the Indenture, and may merge or
consolidate with an Affiliate for this purpose, PROVIDED that the Company shall
have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of the reorganization.
TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any
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property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) regarding any Affiliate Transaction or series of related Affiliate
Transactions involving total consideration in excess of $5.0 million,
such Affiliate Transaction is on terms that are not materially less
favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company
or such Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) regarding any Affiliate Transaction or series of related Affiliate
Transactions involving total consideration in excess of
$5.0 million, a resolution of the Management Committee stated in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the
Management Committee; and
(b) regarding any Affiliate Transaction or series of related Affiliate
Transactions involving total consideration in excess of
$10.0 million, an opinion as to the fairness to the holders of the
Notes of the Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of
national standing.
The following items shall not be considered to be Affiliate Transactions
and, therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment or consulting agreement entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted
Subsidiary;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries;
(3) transactions with a Person that is an Affiliate of the Company solely
because the Company owns an Equity Interest in such Person;
(4) payment of reasonable directors' fees and the provision of customary
indemnities to directors and officers;
(5) sales of Equity Interests (other than Disqualified Stock) to Affiliates
of the Company;
(6) Restricted Payments that are permitted by the provisions of the
Indenture described above under the section "-- Restricted Payments";
(7) the payment, directly or through the Company, of annual management,
consulting, monitoring and advisory fees and related expenses to Vestar
and its Affiliates;
(8) transactions in which the Company or any of its Restricted Subsidiaries,
as the case may be, delivers to the Trustee a letter from an accounting,
appraisal or investment banking firm of national standing stating that
such transaction is fair to the Company or such Restricted Subsidiary
from a financial point of view or meets the requirements of clause (1) of
the preceding paragraph;
(9) payments or loans to employees or consultants that are approved in good
faith by a majority of the Management Committee of the Company;
(10) any agreement, and payments pursuant thereto, as in effect on the date
of the Indenture, including the Permitted Agreements, or any amendment
thereto, so long as such amendment
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is not disadvantageous to the Holders in any material respect, or any
transaction contemplated thereby;
(11) the existence of, or the performance by the Company or any Restricted
Subsidiary of its obligations under the terms of, the Contribution and
Merger Agreement, or any agreement contemplated thereunder, including any
registration rights agreement or purchase agreement related thereto, to
which it is a party as of the date of the Indenture and any similar
agreements that it may enter into thereafter; PROVIDED, HOWEVER, that the
existence of, or the performance by the Company or any Restricted
Subsidiary of obligations under, any future amendment to any such
existing agreement or under any similar agreement entered into after the
date of the Indenture shall only be permitted by this clause (11) to the
extent that the terms of any such amendment or new agreement are not
otherwise disadvantageous to the Holders in any material respect;
(12) the payment of all fees, expenses, bonuses and awards related to the
transactions contemplated by the Contribution and Merger Agreement,
including fees to Vestar;
(13) transactions with customers, clients, suppliers, or purchasers or
sellers of goods or services, in each case in the ordinary course of
business and otherwise in compliance with the terms of the Indenture that
are fair to the Company and its Restricted Subsidiaries in the reasonable
determination of the majority of the Management Committee or are on terms
at least as favorable as might reasonably have been obtained at such time
from an unaffiliated party; and
(14) payments by the Company or any of its Restricted Subsidiaries to Vestar
and its Affiliates made for any financial advisory, financing,
underwriting or placement services or in respect of other investment
banking activities, including regarding acquisitions or divestitures,
which payments are approved by the majority of the Management Committee
in good faith.
ADDITIONAL SUBSIDIARY GUARANTEES
If the Company or any of its Restricted Subsidiaries acquires or creates
another Domestic Subsidiary after the date of the Indenture, then that newly
acquired or created Domestic Subsidiary must become a Subsidiary Guarantor and
execute a supplemental indenture and deliver an Opinion of Counsel to the
Trustee within 10 Business Days of the date on which it was acquired or created;
PROVIDED that (i) all Subsidiaries that have properly been designated as
Unrestricted Subsidiaries under the Indenture shall not become Subsidiary
Guarantors for so long as they continue to constitute Unrestricted Subsidiaries
and (ii) the foregoing covenant shall not apply to any newly acquired or created
Domestic Subsidiary for so long as such Domestic Subsidiary does not have total
assets exceeding $500,000.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Management Committee may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the total
fair market value of all outstanding Investments owned by the Company and its
Restricted Subsidiaries in the Subsidiary so designated will be considered to be
an Investment made as of the time of such designation and will either reduce the
amount available for Restricted Payments under the first paragraph or under
clause (14) or (15) of the covenant described above under the section
"-- Restricted Payments" or reduce the amount available for future Investments
under one or more clauses of the definition of Permitted Investments, as the
Company shall determine. That designation will only be permitted if such
Investment would be permitted at that time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. The Management
Committee may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if the redesignation would not cause a Default.
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SALE AND LEASEBACK TRANSACTIONS
The Company will not, and will not permit any of its Restricted Subsidiaries
to, enter into any sale and leaseback transaction; PROVIDED that the Company or
any Restricted Subsidiary may enter into a sale and leaseback transaction if:
(1) the Company or that Restricted Subsidiary, as applicable, could have
borrowed or issued Indebtedness in an amount equal to the Attributable
Debt relating to the sale and leaseback transaction under the Fixed
Charge Coverage Ratio test in the first paragraph of the covenant
described above under the section "-- Additional Indebtedness and
Preferred Stock";
(2) the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by the
Management Committee and stated in an Officers' Certificate delivered to
the Trustee, of the property that is the subject of that sale and
leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and the Company applies the proceeds of such transaction in
compliance with, the covenant described above under the section
"-- Repurchase at the Option of Holders -- Asset Sales."
LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS IN WHOLLY OWNED
RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests
in any Wholly Owned Restricted Subsidiary of the Company to any Person, other
than the Company or a Wholly Owned Restricted Subsidiary of the Company, unless
the cash Net Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with the covenant described above under
the section "-- Repurchase at the Option of Holders -- Asset Sales."
In addition, the Company will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests, other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares, to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary of the Company.
LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
The Company will not permit any of its Restricted Subsidiaries to Guarantee
any other Indebtedness of the Company or any Restricted Subsidiary unless either
(1) such Restricted Subsidiary is a Subsidiary Guarantor or (2) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture
providing for the Guarantee of the payment of the Notes by such Subsidiary,
which Guarantee shall be senior to or equally ranking with that Restricted
Subsidiary's Guarantee of such other Indebtedness, unless such other
Indebtedness is Senior Debt, in which case the Guarantee of the Notes may be
subordinated to the Guarantee of such Senior Debt to the same extent as the
Notes are subordinated to such Senior Debt.
The provisions of this covenant will not apply to any guarantee by any
Restricted Subsidiary:
(1) that
(a) existed at the time the Person became a Restricted Subsidiary of the
Company, and
(b) was not borrowed or issued regarding, or in contemplation of, the
Person becoming a Restricted Subsidiary of the Company; or
(2) that guarantees the payment of Obligations of the Company or any
Restricted Subsidiary under the Credit Facilities and any refunding,
refinancing or replacement thereof, in whole or in part, PROVIDED that
such refunding, refinancing or replacement thereof is not borrowed or
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issued as part of a registered offering of securities under the
Securities Act or a private placement of securities, including under
Rule 144A, under any exemption from the registration requirements of the
Securities Act, other than securities issued under any bank or similar
credit facility, including the Credit Agreement, which private placement
provides for registration rights under the Securities Act (any guarantee
excluded by operation of this clause (2) being an "Excluded Guarantee").
Notwithstanding the preceding paragraph, any Subsidiary Guarantee of the
Notes will provide by its terms that it will be automatically and
unconditionally released and discharged under the circumstances described above
under the section "-- Subsidiary Guarantees." The form of the Subsidiary
Guarantee will be attached as an exhibit to the Indenture.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to the Company and its Restricted Subsidiaries taken as a
whole.
PAYMENTS FOR CONSENT
The Company will not, and will not permit any of its Restricted Subsidiaries
to pay or cause to be paid any consideration to or for the benefit of any Holder
of Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid and is paid to all Holders of the Notes that consent,
waive or agree to amend in the time frame stated in the solicitation documents
relating to the consent, waiver or agreement.
RESTRICTIONS ON ACTIVITIES OF CAPITAL
Capital will not hold any material assets, become liable for any material
obligations, other than the Notes, or engage in any significant business
activities; PROVIDED that Capital may be a co-obligor regarding Indebtedness if
the Company is a primary obligor of such Indebtedness and the net proceeds of
such Indebtedness are received by the Company or one or more of the Company's
Restricted Subsidiaries other than Capital.
REPORTS
Whether or not required by the Commission, so long as any Notes are
outstanding, the Issuers will furnish to the Holders of Notes, within the time
periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if
the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, regarding the annual information only, a report on the annual
financial statements by the Company's certified independent accountants;
and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports.
In addition, following the consummation of the exchange offer contemplated
by the Registration Rights Agreement, whether or not required by the Commission,
the Issuers will file a copy of all of the information and reports referred to
in clauses (1) and (2) above with the Commission for public availability within
the time periods specified in the Commission's rules and regulations, unless the
Commission will not accept such a filing, and make such information available to
securities analysts and
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prospective investors upon request. In addition, the Issuers and the Subsidiary
Guarantors have agreed that, for so long as any Notes, but not Exchange Notes,
remain outstanding, they will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered under Rule 144A(d)(4) under the Securities Act.
If the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or premium
or Liquidated Damages, if any, regarding, the Notes whether or not
prohibited by the subordination provisions of the Indenture;
(2) default in payment when due of the principal of the Notes, whether or
not prohibited by the subordination provisions of the Indenture;
(3) failure by the Company or any of its Subsidiaries to comply with the
provisions described under the sections "-- Repurchase at the Option of
Holders -- Change of Control" or "--Repurchase at the Option of
Holders -- Asset Sales";
(4) failure by the Company or any of its Subsidiaries for 60 days after
notice by the Trustee or by the Holders of at least 25% in principal
amount of the Notes to comply with any of the other agreements in the
Indenture;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries, or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries, whether such Indebtedness or guarantee
now exists, or is created after the date of the Indenture, if that
default:
(a) is caused by a failure to pay principal at the final stated maturity
of such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment
Default"); or
(b) results in the acceleration of such Indebtedness prior to its express
maturity,
and, in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$20.0 million or more;
(6) failure by the Company or any of its Restricted Subsidiaries to pay
judgments, aggregating in excess of $20.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days after such
judgments have become final and nonappealable, and in the event such
judgment is covered by insurance, an enforcement proceeding has been
initiated by any creditor upon such judgment or decree that is not
promptly stayed;
(7) except as permitted by the Indenture, any Subsidiary Guarantee by a
Significant Subsidiary shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full
force and effect or any Subsidiary Guarantor that is a Significant
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Subsidiary, or any Person acting on behalf of any such Subsidiary
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and
(8) specified events of bankruptcy or insolvency regarding the Company or
any of its Significant Subsidiaries.
In the case of an Event of Default arising from specified events of
bankruptcy or insolvency regarding the Company, all outstanding Notes will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, (1) the Trustee, upon request
of Holders of at least 25% in principal amount of the Notes then outstanding, or
(2) the Holders of at least 25% in principal amount of the then outstanding
Notes may declare all the Notes to be due and payable by notice in writing to
the Company and the Trustee. The notice will specify the respective Event of
Default and that the notice is a "notice of acceleration" (the "Acceleration
Notice"). At that time, the Notes (1) will become immediately due and payable or
(2) if there are any amounts outstanding under the Credit Agreement, will become
immediately due and payable upon the first to occur of an acceleration under the
Credit Agreement or five Business Days after receipt by the Company and the
representative under the Credit Agreement of the Acceleration Notice but only if
that Event of Default is then continuing.
Holders of the Notes may enforce the Indenture or the Notes subject to
specified limitations in the Indenture. Subject to specified limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. Regardless of the
provisions summarized above, the right of any Holder of a Note to receive
payment of principal, premium, if any, and Liquidated Damages, if any, and
interest on the Note, on or after the due dates for these payments, or to bring
suit for the enforcement of any payment on or after these dates, will not be
impaired or affected without the consent of that Holder.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default, except a Default or Event of Default relating to
the payment of principal or interest or Liquidated Damages, if it determines
that withholding notice is in their interest. The Trustee may only withhold that
notice, however, if the management committee of Consolidated Container Holdings
or an executive committee established by the management committee and/or
responsible officers of the trustee in good faith determine that the withholding
of that notice is in the interests of the Holders of the Notes.
The Holders of a majority in total principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest or Liquidated Damages on, or the principal of, the Notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture. Upon becoming aware of any Default or
Event of Default, the Issuers are required to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF MANAGERS, DIRECTORS, OFFICERS, EMPLOYEES, STOCKHOLDERS
AND MEMBERS
No manager, director, officer, employee, incorporator, stockholder or member
of the Company, Capital or any Subsidiary Guarantor, as such, shall have any
liability for any obligations of the Company, Capital or the Subsidiary
Guarantors under the Notes, the Indenture, the Subsidiary Guarantees, or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. The waiver may not be effective to waive liabilities under the
federal securities laws.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of its
obligations discharged regarding the outstanding Notes and all obligations of
the Subsidiary Guarantors discharged regarding their Subsidiary Guarantees
("Legal Defeasance") except for:
(1) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, or interest or premium and Liquidated
Damages, if any, on such Notes when such payments are due from the trust
referred to below;
(2) the Issuers' obligations regarding the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
the Issuers' and the Subsidiary Guarantor's obligations in connection
therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Issuers may, at their option and at any time, elect to have
the obligations of the Issuers and the Subsidiary Guarantors released regarding
specified covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants shall not constitute
a Default or Event of Default regarding the Notes. In the event Covenant
Defeasance occurs, specified events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default regarding the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Issuers must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, or interest and
premium and Liquidated Damages, if any, on the outstanding Notes on the
stated maturity or on the applicable redemption date, as the case may be,
and the Issuers must specify whether the Notes are being defeased to
maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the Issuers shall have delivered to the
Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that:
(a) the Issuers have received from, or there has been published by, the
Internal Revenue Service a ruling; or
(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such Opinion of Counsel shall confirm that, the
Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Issuers shall have delivered to
the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
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(4) no Default or Event of Default shall have occurred and be continuing
either:
(a) on the date of such deposit, other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit;
or
(b) insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the
date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach
or violation of, or constitute a default under any material agreement or
instrument, other than the Indenture, to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound;
(6) the Issuers must have delivered to the Trustee an Opinion of Counsel to
the effect that, assuming no intervening bankruptcy of the Issuers or any
Subsidiary Guarantor between the date of deposit and the 91st day
following the deposit and assuming that no Holder is an "insider" of the
Company or Capital under applicable bankruptcy law, after the 91st day
following the deposit, the trust funds will not be subject to the effect
of any applicable federal bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally;
(7) the Issuers must deliver to the Trustee an Officers' Certificate stating
that the deposit was not made by the Issuers with the intent of
preferring the Holders of Notes over the other creditors of the Issuers
with the intent of defeating, hindering, delaying or defrauding creditors
of the Issuers or others; and
(8) the Issuers must deliver to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent relating
to the Legal Defeasance or the Covenant Defeasance have been complied
with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding, including,
consents obtained under a purchase of, or tender offer or exchange offer for,
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes, including, consents
obtained under a purchase of, or tender offer or exchange offer for, Notes.
Without the consent of each Holder affected, an amendment or waiver may not,
regarding any Notes held by a non-consenting Holder:
(1) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or
alter the provisions regarding the redemption of the Notes, other than
provisions relating to the covenants described above under the section
"-- Repurchase at the Option of Holders";
(3) reduce the rate of or change the time for payment of interest on any
Note;
(4) waive a Default or Event of Default in the payment of principal of, or
interest or premium, or Liquidated Damages, if any, on the Notes, except
a rescission of acceleration of the Notes by the Holders of at least a
majority in total principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration;
(5) make any Note payable in money other than that stated in the Notes;
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(6) make any change in the provisions of the Indenture relating to the
rights of Holders of Notes to receive payments of principal of, or
interest or premium or Liquidated Damages, if any, on the Notes;
(7) waive a redemption payment regarding any Note, other than a payment
required by one of the covenants described above under the section "--
Repurchase at the Option of Holders"; or
(8) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the Indenture
relating to subordination that adversely affects the rights of the Holders of
the Notes will require the consent of the Holders of at least 75% in total
principal amount of Notes then outstanding.
Notwithstanding the preceding, without the consent of any Holder of Notes,
the Issuers, the Subsidiary Guarantors and the Trustee may amend or supplement
the Indenture or the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(3) to provide for the assumption of the Company's, Capital's or any
Subsidiary Guarantor's obligations to Holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the
Company's, Capital's or such Subsidiary Guarantor's assets;
(4) to make any change that would provide any additional rights or benefits
to the Holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture
Act.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all Notes issued under it, when the Issuers or any Subsidiary Guarantor have
paid or caused to be paid all sums payable by it under the Indenture and:
(1) all Notes that have been authenticated -- except lost, stolen or
destroyed Notes that have been replaced or paid and Notes for whose
payment money has theretofore been deposited in trust and thereafter
repaid to the Issuers -- have been delivered to the Trustee for
cancellation; or
(2) the following three conditions have been met:
(a) (1) all Notes that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the making of a
notice of redemption or otherwise or will become due and payable
within one year and (2) the Issuers or any Subsidiary Guarantor has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust solely for the benefit of the Holders. The trust
funds shall be cash in U.S. dollars, non-callable Government
Securities, or a combination of them, in amounts as will be
sufficient without consideration of any reinvestment of interest, to
pay and discharge the entire indebtedness on the Notes not delivered
to the Trustee for cancellation for principal, premium and Liquidated
Damages, if any, and accrued interest to the date of maturity or
redemption;
(b) no Default or Event of Default shall have occurred and be continuing
on the date of the deposit or shall occur as a result of the deposit
and the deposit will not result in a breach
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or violation of, or constitute a default under, any other instrument
to which any of the Issuers or any Subsidiary Guarantor is a party or
by which any of the Issuers or any Subsidiary Guarantor is bound; and
(c) the Issuers have delivered irrevocable instructions to the Trustee
under the Indenture to apply the deposited money toward the payment
of the Notes at maturity or the redemption date, as the case may be.
In addition, the Issuers must deliver an Officers' Certificate and an
Opinion of Counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of the Issuers or any Subsidiary
Guarantor, the Indenture limits its right to obtain payment of claims in
specified cases, or to realize on specified property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; HOWEVER, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
specified exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
Holder of Notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to the Company at the
address stated on the cover page of this prospectus.
BOOK-ENTRY, DELIVERY AND FORM
The Issuers will issue the exchange notes only in fully registered form,
without interest coupons, in denominations of $1,000 and integral multiples of
$1,000. The Issuers will not issue exchange notes in bearer form. The exchange
notes will initially be represented by one or more global notes (the "Global
Notes") that will be deposited with, or on behalf of, The Depository Trust
Company and registered in the name of Cede & Co., as nominee of The Depository
Trust Company, on behalf of the acquirers of exchange notes represented thereby
for credit to the respective accounts of the acquirers, or to such other
accounts as they may direct, at The Depositary Trust Company, or Morgan Guaranty
Trust Company of New York, Brussels Office, as operator of the Euroclear System,
or Cedel Bank, societe anonyme. See "The Exchange Offer -- Book-Entry Transfer."
Transfers of beneficial interests in the Global Notes will be subject to the
applicable rules and procedures of The Depository Trust Company and its direct
or indirect participants, including, if applicable, those of Euroclear and
CEDEL, which may change from time to time. The Global Nots may be transferred,
in whole and not in part, only to another nominee of The Depositary Trust
Company or to a successor of The Depositary Trust Company or its nominee, except
as stated below. You may not exchange your beneficial interest in the Global
Notes for exchange notes in certificated form except in the limited
circumstances described below under "-- Exchanges of Global Notes for
Certificated Notes."
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DEPOSITARY PROCEDURES
The following description of the operations and procedures of The Depositary
Trust Company, Euroclear and Cedel are provided solely as a matter of
convenience. These operations and procedures are solely within the control of
the respective settlement systems and are subject to changes by them. The
Issuers take no responsibility for these operations and procedures and urge
investors to contact the system or their participants directly to discuss these
matters.
The Depositary Trust Company has advised the Issuers that it is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers, including the Initial Purchasers, banks,
trust companies, clearing corporations and other organizations. Access to The
Depository Trust Company's system is also available to other entities such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of The Depositary Trust Company only through the
Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of The
Depositary Trust Company are recorded on the records of the Participants and
Indirect Participants.
The Depositary Trust Company has also advised the Issuers that, under
procedures established by it:
(1) upon deposit of the Global Notes, The Depositary Trust Company will
credit the accounts of Participants designated by the Initial Purchasers
with portions of the principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on, and
the transfer of ownership of them will be effected only through, records
maintained by The Depositary Trust Company regarding the Participants, or
by the Participants and the Indirect Participants regarding other owners
of beneficial interest in the Global Notes.
Investors in the Global Notes who are Participants in The Depositary Trust
Company's system may hold their interests in these notes directly through The
Depositary Trust Company. Investors in the Global Notes who are not Participants
may hold their interests in these notes indirectly through organizations,
including Euroclear and Cedel, which are Participants in such system. All
interests in a Global Note, including those held through Euroclear or Cedel, may
be subject to the procedures and requirements of The Depositary Trust Company.
Those interests held through Euroclear or Cedel may also be subject to the
procedures and requirements of such systems. The laws of some states require
that specified Persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer beneficial interests in a
Global Note to such Persons will be limited to that extent. Because The
Depositary Trust Company can act only on behalf of Participants, which in turn
act on behalf of Indirect Participants, the ability of a Person having
beneficial interests in a Global Note to pledge such interests to Persons that
do not participate in The Depositary Trust Company system, or otherwise take
actions in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests.
Except as described below, owners of interest in the Global Notes will not
have Notes registered in their names, will not receive physical delivery of
Notes in certificated form and will not be considered the registered owners or
"Holders" thereof under the Indenture for any purpose.
Payments in respect of the principal of, and interest and premium and
Liquidated Damages, if any, on a Global Note registered in the name of The
Depositary Trust Company or its nominee will be payable to The Depositary Trust
Company in its capacity as the registered Holder under the Indenture.
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Under the terms of the Indenture, the Issuers and the Trustee will treat the
Persons in whose names the Notes, including the Global Notes, are registered as
the owners thereof for the purpose of receiving payments and for all other
purposes. Consequently, neither the Issuers, the Trustee nor any agent of the
Issuers or the Trustee has or will have any responsibility or liability for:
(1) any aspect of The Depositary Trust Company's records or any
Participant's or Indirect Participant's records relating to or payments
made on account of beneficial ownership interest in the Global Notes or
for maintaining, supervising or reviewing any of The Depositary Trust
Company's records or any Participant's or Indirect Participant's records
relating to the beneficial ownership interests in the Global Notes; or
(2) any other matter relating to the actions and practices of The Depositary
Trust Company or any of its Participants or Indirect Participants.
The Depositary Trust Company has advised the Issuers that its current
practice, upon receipt of any payment in respect of securities such as the
Notes, including principal and interest, is to credit the accounts of the
relevant Participants with the payment on the payment date unless The Depositary
Trust Company has reason to believe it will not receive payment on such payment
date. Each relevant Participant is credited with an amount proportionate to its
beneficial ownership of an interest in the principal amount of the relevant
security as shown on the records of The Depositary Trust Company. Payments by
the Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of The Depositary Trust Company, the Trustee or the
Issuers. Neither the Issuers nor the Trustee will be liable for any delay by The
Depositary Trust Company or any of its Participants in identifying the
beneficial owners of the Notes, and the Issuers and the Trustee may conclusively
rely on and will be protected in relying on instructions from The Depositary
Trust Company or its nominee for all purposes.
Subject to the transfer restrictions stated under "Notice to Investors,"
transfers between Participants in The Depositary Trust Company will be effected
in a manner that complies with The Depositary Trust Company's procedures, and
will be settled in same-day funds, and transfers between participants in
Euroclear and Cedel will be effected in a manner that complies with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes
described herein, cross-market transfers between the Participants in The
Depositary Trust Company, on the one hand, and Euroclear or Cedel participants,
on the other hand, will be effected through The Depositary Trust Company in a
manner that complies with The Depositary Trust Company's rules on behalf of
Euroclear or Cedel, as the case may be, by its respective depositary; however,
the cross-market transactions will require delivery of instructions to Euroclear
or Cedel, as the case may be, by the counterparty in such system in a manner
that complies with the rules and procedures and within the established deadlines
(Brussels time) of the system. Euroclear or Cedel, as the case may be, will, if
the transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Note in The Depositary
Trust Company, and making or receiving payment in a manner that complies with
normal procedures for same-day funds settlement applicable to The Depositary
Trust Company. Euroclear participants and Cedel participants may not deliver
instructions directly to the depositaries for Euroclear or Cedel.
The Depositary Trust Company has advised the Issuers that it will take any
action permitted to be taken by a Holder of Notes only at the direction of one
or more Participants to whose account The Depositary Trust Company has credited
the interests in the Global Notes and only in respect of such portion of the
total principal amount of the Notes as to which such Participant or Participants
has or have given such direction. However, if there is an Event of Default under
the Notes, The Depositary
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Trust Company reserves the right to exchange the Global Notes for legended Notes
in certificated form, and to distribute such Notes to its Participants.
Although The Depositary Trust Company, Euroclear and Cedel have agreed to
the foregoing procedures to facilitate transfers of interests in the Global
Notes among participants in The Depositary Trust Company, Euroclear and Cedel,
they are under no obligation to perform or to continue to perform such
procedures, and may discontinue such procedures at any time. Neither the Issuers
nor the Trustee nor any of their respective agents will have any responsibility
for the performance by The Depositary Trust Company, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
The Depositary Trust Company's management is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates, including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems." The Depositary Trust Company has
informed its Participants and other members of the financial community (the
"Industry") that it has developed and is implementing a program so that its
Systems, as the same relate to the timely payment of distributions, including
principal and income payments, to securityholders, book-entry deliveries, and
settlement of trades within The Depositary Trust Company ("DTC Services"),
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, The Depositary
Trust Company's plan includes a testing phase, which is expected to be completed
within appropriate time frames.
However, The Depositary Trust Company's ability to perform properly its
services is also dependent upon other parties, including but not limited to
issuers and their agents, as well as third party vendors from whom The
Depositary Trust Company licenses software and hardware, and third party vendors
on whom The Depositary Trust Company relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. The Depositary Trust Company has informed the Industry that it is
contacting, and will continue to contact, third party vendors from whom The
Depositary Trust Company acquires services to: (i) impress upon them the
importance of such services being Year 2000 compliant; and (ii) determine the
extent of their efforts for Year 2000 remediation (and, as appropriate, testing)
of their services. In addition, The Depositary Trust Company is in the process
of developing such contingency plans as it considers appropriate.
According to The Depositary Trust Company, the foregoing information
regarding The Depositary Trust Company has been provided to the Industry for
informational purposes only and is not intended to serve as a representation,
warranty, or contract modification of any kind.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if:
(1) The Depositary Trust Company:
(a) notifies the Issuers that it is unwilling or unable to continue as
depositary for the Global Notes and the Issuers fail to appoint a
successor depositary; or
(b) has ceased to be a clearing agency registered under the Exchange Act;
(2) the Issuers, at their option, notifies the Trustee in writing that it
elects to cause the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default regarding the Notes.
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In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the Trustee by or on
behalf of The Depositary Trust Company in a manner that complies with the
Indenture. In all cases, Certificated Notes delivered in exchange for any Global
Note or beneficial interests in Global Notes will be registered in the names,
and issued in any approved denominations, requested by or on behalf of the
depositary, in a manner that complies with its customary procedures, and will
bear the applicable restrictive legend referred to in "Notice to Investors,"
unless that legend is not required by applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the Trustee a written
certificate, in the form provided in the Indenture, to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such Notes. See "Notice to Investors."
SAME DAY SETTLEMENT AND PAYMENT
The Issuers will make payments in respect of the Notes represented by the
Global Notes, including principal, premium, if any, interest and Liquidated
Damages, if any, by wire transfer of immediately available funds to the accounts
specified by the Global Note Holder. The Issuers will make all payments of
principal, interest and premium and Liquidated Damages, if any, regarding
Certificated Notes by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account is specified,
by mailing a check to each such Holder's registered address. The Notes
represented by the Global Notes are expected to be eligible to trade in the
PORTAL market and to trade in The Depositary Trust Company's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
Notes will, therefore, be required by The Depositary Trust Company to be settled
in immediately available funds. The Issuers expect that secondary trading in any
Certificated Notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
The Depositary Trust Company will be credited, and any such crediting will be
reported to the relevant Euroclear or Cedel participant, during the securities
settlement processing day, which must be a business day for Euroclear and Cedel,
immediately following the settlement date of The Depositary Trust Company. The
Depositary Trust Company has advised the Issuers that cash received in Euroclear
or Cedel as a result of sales of interests in a Global Note by or through a
Euroclear or Cedel participant to a Participant in The Depositary Trust Company
will be received with value on the settlement date of The Depositary Trust
Company but will be available in the relevant Euroclear or Cedel cash account
only as of the business day for Euroclear or Cedel following The Depositary
Trust Company's settlement date.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The following description is a summary of the material provisions of the
Registration Rights Agreement. It does not restate that agreement in its
entirety. We urge you to read the Registration Rights Agreement in its entirety
because it, and not this description, defines your registration rights as
Holders of the Outstanding Notes. See "-- Additional Information."
The Issuers, the Subsidiary Guarantors and the Initial Purchasers have
entered into the Registration Rights Agreement. Under the Registration Rights
Agreement, the Issuers and the Subsidiary Guarantors have agreed to file with
the Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act regarding Exchange Notes. Upon the effectiveness of the
Exchange Offer Registration Statement, the Issuers and the Subsidiary Guarantors
will offer to the Holders of Transfer Restricted Securities (defined below) in a
manner that complies
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with the Exchange Offer who are able to make specified representations the
opportunity to exchange their Transfer Restricted Securities for Exchange Notes.
If:
(1) the Issuers and the Subsidiary Guarantors are not permitted to close the
Exchange Offer because the Exchange Offer is not permitted by applicable
law or Commission policy; or
(2) any Holder of Transfer Restricted Securities notifies the Issuers prior
to the 20th day following consummation of the Exchange Offer that:
(a) it is prohibited by law or Commission policy from participating in
the Exchange Offer; or
(b) that it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is
not appropriate or available for such resales; or
(c) that it is a broker-dealer and owns Outstanding Notes acquired
directly from the Issuers or an affiliate of the Issuers,
the Issuers and the Subsidiary Guarantors will use best efforts to file with the
Commission a Shelf Registration Statement to cover resales of the Outstanding
Notes by the Holders thereof who satisfy specified conditions relating to the
provision of information regarding the Shelf Registration Statement.
The Issuers and the Subsidiary Guarantors will use their best efforts to
cause the applicable registration statement to be declared effective as promptly
as possible by the Commission.
For purposes of the preceding, "Transfer Restricted Securities" means each
Outstanding Note until:
(1) the date on which the Outstanding Note has been exchanged by a Person
other than a broker-dealer for an Exchange Note in the Exchange Offer;
(2) following the exchange by a broker-dealer in the Exchange Offer of an
Outstanding Note for an Exchange Note, the date on which the Exchange
Note is sold to a purchaser who receives from the broker-dealer on or
prior to the date of the sale a copy of the prospectus contained in the
Exchange Offer Registration Statement;
(3) the date on which the Outstanding Note has been effectively registered
under the Securities Act and disposed of in a manner that complies with
the Shelf Registration Statement; or
(4) the date on which the Outstanding Note is distributed to the public
under Rule 144 under the Securities Act.
The Registration Rights Agreement provides:
(1) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, the Issuers and the Subsidiary Guarantors will file an
Exchange Offer Registration Statement with the Commission on or prior to
90 days after the closing of the offering of the outstanding notes;
(2) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, the Issuers and the Subsidiary Guarantors will use
their best efforts to have the Exchange Offer Registration Statement
declared effective by the Commission on or prior to 180 days after the
closing of the offering of the outstanding notes;
(3) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, the Issuers and the Subsidiary Guarantors will
(a) commence the Exchange Offer; and
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(b) use their best efforts to issue on or prior to 30 business days, or
longer, if required by the federal securities laws, after the date on
which the Exchange Offer Registration Statement was declared
effective by the Commission, Exchange Notes in exchange for all
Outstanding Notes tendered prior thereto in the Exchange Offer; and
(4) if obligated to file the Shelf Registration Statement, the Issuers and
the Subsidiary Guarantors will use their best efforts to file the Shelf
Registration Statement with the Commission on or prior to 90 days after
such filing obligation arises and to cause the Shelf Registration to be
declared effective by the Commission on or prior to 180 days after such
obligation arises.
If:
(1) the Issuers and the Subsidiary Guarantors fail to file any of the
registration statements required by the Registration Rights Agreement on
or before the date specified for such filing; or
(2) any of such registration statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), subject to specified limited exceptions; or
(3) the Issuers and the Subsidiary Guarantors fail to close the Exchange
Offer within 30 business days of the Effectiveness Target Date regarding
the Exchange Offer Registration Statement; or
(4) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but, subject to specified limited
exceptions, thereafter ceases to be effective or usable regarding resales
of Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses
(1) through (4) above, a "Registration Default"),
then the Issuers and the Subsidiary Guarantors will pay Liquidated Damages to
each Holder of Outstanding Notes, regarding the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal to
$.05 per week per $1,000 principal amount of Outstanding Notes held by the
Holder.
The amount of the Liquidated Damages will increase by an additional $.05 per
week per $1,000 principal amount of Outstanding Notes regarding each subsequent
90-day period until all Registration Defaults have been cured, up to a maximum
amount of Liquidated Damages for all Registration Defaults of $.50 per week per
$1,000 principal amount of Outstanding Notes.
All accrued Liquidated Damages will be paid by the Issuers and the
Subsidiary Guarantors on each Damages Payment Date to the Global Note Holder by
wire transfer of immediately available funds or by federal funds check and to
Holders of Certificated Notes by wire transfer to the accounts specified by them
or by mailing checks to their registered addresses if no such accounts have been
specified.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
Holders of Outstanding Notes will be required to make representations to the
Issuers, as described in the Registration Rights Agreement, in order to
participate in the Exchange Offer and will be required to deliver specified
information to be used regarding the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods stated in
the Registration Rights Agreement in order to have their Outstanding Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages stated above. By acquiring Transfer Restricted
Securities, a Holder will be considered to have agreed to indemnify the Issuers
and the Subsidiary Guarantors against specified losses arising out of
information furnished by such Holder in writing for inclusion in any Shelf
Registration Statement. Holders of Outstanding Notes
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will also be required to suspend their use of the prospectus included in the
Shelf Registration Statement under specified circumstances upon receipt of
written notice to that effect from the Issuers.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York.
DEFINITIONS
We provide below some of the defined terms which are used in this section
and in the Indenture. Reference is made to the Indenture for a full disclosure
of all these terms, as well as any other capitalized terms which we use in this
section for which no definition is provided.
"ACQUIRED DEBT" means, regarding any specified Person:
(1) Indebtedness of any other Person existing at the time the other Person
is merged with or into or became a Restricted Subsidiary of the specified
Person, whether or not the Indebtedness is borrowed or issued regarding,
or in contemplation of, the other Person merging with or into, or
becoming a Restricted Subsidiary of, the specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by the
specified Person.
"AFFILIATE" of any specified Person means any other Person controlling or
controlled by or under common control with such specified Person. For purposes
of this definition, "control," as used regarding any Person, shall mean the
possession of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise. For purposes of this definition, the terms
"controlling," "controlled by" and "under common control with" shall have
correlative meanings.
"ASSET SALE" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of business
consistent with past practices; PROVIDED that the sale, conveyance or
other disposition of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the section "--
Repurchase at the Option of Holders -- Change of Control" and/or the
provisions described above under the section " -- Covenants -- Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset
Sale covenant; and
(2) the issuance or sale of Equity Interests by any of the Company's
Restricted Subsidiaries.
Notwithstanding the preceding, the following items shall not be considered
to be Asset Sales:
(1) any single transaction or series of related transactions that involves
assets having a fair market value of less than $2.0 million;
(2) a transfer of assets between or among the Company and its Restricted
Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable or other
assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents or Investment
Grade Securities;
(6) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the section "-- Covenants -- Restricted
Payments";
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(7) any exchange of like property under to Section 1031 of the Code for use
in a Permitted Business;
(8) any sale-leaseback or asset securitization by the Company or any of its
Restricted Subsidiaries regarding property built or acquired by the
Company or the Restricted Subsidiary after the date of the Indenture;
(9) foreclosures on assets;
(10) any sale of Equity Interests in, or Indebtedness or other securities
of, an Unrestricted Subsidiary; and
(11) any sale of accounts receivable, or participations therein, regarding
any Qualified Receivables Transaction.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee for
net rental payments during the remaining term of the lease included in such sale
and leaseback transaction including any period for which the lease has been
extended or may, at the option of the lessor, be extended. The present value
shall be calculated using a discount rate equal to the rate of interest implicit
in the transaction, determined in a manner that complies with GAAP.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), the "person" shall be considered to have beneficial
ownership of all securities that the "person" has the right to acquire by
conversion or exercise of other securities, whether the right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition. The terms "Beneficially Owns" and "Beneficially Owned" shall have a
corresponding meaning.
"BOARD OF DIRECTORS" means:
(1) regarding a corporation, the board of directors of the corporation;
(2) regarding a partnership, the Board of Directors of the general partner
of the partnership;
(3) regarding any other Person, the board or committee of such Person
serving a similar function; and
(4) any properly authorized committee of any of the foregoing.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in a manner that
complies with GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents, however
designated, of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests, whether general or limited; and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
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"CASH EQUIVALENTS" means:
(1) United States dollars (and foreign currency exchanged into United States
dollars within 180 days);
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof --
PROVIDED that the full faith and credit of the United States is pledged
in support thereof -- having maturities of not more than six months from
the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits, in
each case, with any lender party to the Credit Agreement or with any
domestic commercial bank having capital and surplus in excess of
$500.0 million and a Thomson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and
(3) above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having a rating no lower than "A-2" from Moody's
Investors Service, Inc. ("Moody's") or "P2" from Standard & Poor's Rating
Services ("S&P") and in each case maturing within twelve months after the
date of acquisition;
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition;
(7) readily marketable direct obligations issued by any state of the United
States or any political subdivision thereof having one of the two highest
rating categories obtainable from either Moody's or S&P; and
(8) Indebtedness or preferred stock issued by Persons with a rating of "A"
or higher from S&P or "A-2" or higher from Moody's.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the properties or
assets of Holdings and its Restricted Subsidiaries taken as a whole or
the Company and its Restricted Subsidiaries taken as a whole to any
"person" (as that term is used in Section 13(d)(3) of the Exchange Act)
other than a Principal or a Related Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of the
Issuers;
(3) the Company becomes aware (by way of a report or any other filing under
Section 13(d) of the Exchange Act, proxy, vote, written notice or
otherwise) of the consummation of any transaction, including any merger
or consolidation, the result of which is that any "person" (as defined
above), other than the Principals and their Related Parties, becomes the
Beneficial Owner of more than 50% of the Voting Equity Securities of one
of the Issuers or of Holdings, measured by voting power rather than
number of shares; or
(4) the first day on which a majority of the members of the Management
Committee of the Company are not Continuing Managers.
"CODE" means the Internal Revenue Code of 1986, as amended.
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"CONSOLIDATED CASH FLOW" means, regarding any specified Person for any
period, the Consolidated Net Income of such Person for such period PLUS:
(1) an amount equal to any extraordinary loss plus any net loss realized by
such Person or any of its Restricted Subsidiaries in regarding an Asset
Sale, to the extent such losses were deducted in computing such
Consolidated Net Income; PLUS
(2) provision for taxes based on income or profits or the Tax Amount of such
Person and its Restricted Subsidiaries for such period, to the extent
that such provision for taxes or Tax Amount was included in computing
such Consolidated Net Income; PLUS
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest regarding
Attributable Debt, commissions, discounts and other fees and charges
borrowed or issued in respect of letter of credit or bankers' acceptance
financings, and net of the effect of all payments made or received under
Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income; PLUS
(4) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period) and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person and
its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; PLUS
(5) any fees, expenses or charges related to any Equity Offering, Permitted
Investment, acquisition or recapitalization or Indebtedness permitted to
be borrowed or issued by the Indenture, whether or not successful, and
fees, expenses or charges related to the transactions contemplated by the
Contribution and Merger Agreement, including fees to Vestar; PLUS
(6) the amount of non-recurring charges, including any one-time costs
borrowed or issued regarding acquisitions after the date of the
Indenture, deducted in such period in computing Consolidated Net Income;
PLUS
(7) the amount of any minority interest expense deducted in calculating
Consolidated Net Income; PLUS
(8) special charges and unusual items during any period ending on or prior
to the second anniversary of the date of the Indenture not to exceed
$15.0 million in the aggregate; PLUS
(9) the amount of:
(a) management, consulting, monitoring and advisory fees paid to Vestar
and its Affiliates during such period not to exceed $1.0 million
during any four quarter period; and
(b) amounts payable, excluding any payments of salary, under the
Assumption Agreement, dated as of the date of the Indenture, among
the Company, Holdings and Reid Plastics Holdings, MINUS
(10) non-cash items increasing the Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business, in
each case, on a consolidated basis and determined in a manner that
complies with GAAP.
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Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash expenses
of, a Restricted Subsidiary of the Company shall be added to Consolidated Net
Income to compute Consolidated Cash Flow of the Company only to the extent that
a corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior
governmental approval, that has not been obtained, and without direct or
indirect restriction under the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, regarding any specified Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in a manner
that complies with GAAP; PROVIDED that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Restricted
Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval, that has not been obtained, or by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary
or its stockholders, unless such restriction regarding the payment of
dividends or similar distributions has been legally waived;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded;
(5) the Net Income (but not loss) of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the specified Person or one of
its Restricted Subsidiaries;
(6) the net after-tax extraordinary gains or losses, less all fees and
expenses related thereto, shall be excluded;
(7) any increase in the cost of sales or other incremental expenses
resulting from purchase accounting in relation to any acquisition, net of
taxes, shall be excluded;
(8) any net after-tax income (loss) from discontinued operations and any net
after-tax gains or losses on disposal of discontinued operations shall be
excluded; and
(9) any net after-tax gains or losses, less all fees and expenses relating
thereto, attributable to asset dispositions other than in the ordinary
course of business, as determined in good faith by the Company, shall be
excluded.
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"CONTINUING MANAGERS" means, as of any date of determination, any member of
the Management Committee of the Company who:
(1) was a member of such Management Committee on the date of the Indenture;
or
(2) was nominated for election or elected to such Management Committee with
the approval of a majority of the Continuing Managers who were members of
such Committee at the time of such nomination or election.
"CONTRIBUTION AND MERGER AGREEMENT" means the Contribution and Merger
Agreement, date as of April 29, 1999, among Suiza Foods Corporation, Franklin
Plastics, Inc., Plastic Containers Holding, Inc., the companies owned by Suiza
identified therein, Vestar Packaging LLC, Reid Plastics Holdings, Inc., the
companies owned by Reid identified therein, Holdings and the Company.
"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of the date
of the indenture, by and among Holdings, the Company, Bankers Trust Company, as
administrative agent, Morgan Guaranty Trust Company of New York, as
documentation agent, Donaldson Lufkin & Jenrette Securities Corporation, as
syndication agent, and the other lenders party thereto, together with the
related documents thereto, including any guarantee agreements and security
documents, in each case as such agreements may be amended, including any
amendment and restatement thereof, supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring, including increasing the amount of
available borrowings thereunder or adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder, all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"CREDIT FACILITIES" means, one or more debt facilities, including the Credit
Agreement, or commercial paper facilities, in each case with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing, including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables, swingline loans or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"DEFAULT" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means the fair market value of noncash
consideration, as determined in good faith by the principal financial officer of
the Company, received by the Company or any of its Restricted Subsidiaries under
an Asset Sale that is so designated as Designated Noncash Consideration in an
Officers' Certificate, setting forth the basis of the valuation, less the amount
of cash or Cash Equivalents received a subsequent sale of that Designated
Noncash Consideration.
"DESIGNATED PREFERRED STOCK" means preferred stock of the Company, other
than Disqualified Stock, that is issued for cash, other than to a Restricted
Subsidiary, and is so designated as Designated Preferred Stock, in a manner that
complies with an Officers' Certificate, on the issuance date thereof, the cash
proceeds of which are excluded from the calculation stated in the second
clause (3) of the first paragraph of the covenant described above under "--
Covenants -- Restricted Payments."
"DESIGNATED SENIOR DEBT" means:
(1) any Indebtedness outstanding under the Credit Agreement; and
(2) any other Senior Debt permitted under the Indenture the principal amount
of which is $25.0 million or more and that has been designated by the
Company as "Designated Senior Debt."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms, or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof,
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or upon the happening of any event, matures or is mandatorily redeemable, under
a sinking fund obligation or otherwise, or redeemable at the option of the
holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the Notes mature; PROVIDED that if the Capital Stock is
issued to any employee or to any plan for the benefit of employees of the
Company or any of its Subsidiaries or by any plan to such employees, the Capital
Stock shall not constitute Disqualified Stock solely because it may be required
to be repurchased by the Company or the Subsidiary in order to satisfy
applicable statutory or regulatory obligations or as a result of the employee's
death or disability. Notwithstanding the preceding sentence, any Capital Stock
that would constitute Disqualified Stock solely because the holders thereof have
the right to require the Company to repurchase such Capital Stock upon the
occurrence of a change of control or an asset sale shall not constitute
Disqualified Stock if the terms of the Capital Stock provide that the Company
may not repurchase or redeem any Capital Stock under such provisions unless the
repurchase or redemption complies with the covenant described above under the
section "-- Covenants -- Restricted Payments."
"DOMESTIC SUBSIDIARY" means any Restricted Subsidiary that was formed under
the laws of the United States or any state thereof or the District of Columbia
or that guarantees or otherwise provides direct credit support for any
Indebtedness of the Company.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"EQUITY OFFERING" means an offering of the Equity Interests, other than
Disqualified Stock, of the Company or Holdings, other than (1) public offerings
regarding the Equity Interests registered on Form S-8 and (2) any such offering
of Equity Interests the proceeds of which have been designated by the Company as
an Excluded Contribution.
"EXCLUDED CONTRIBUTIONS" means the net cash proceeds received by the Company
after the date of the Indenture from (a) contributions to its common equity
capital and (b) the sale, other than to a Subsidiary or to any management equity
plan or stock option plan or any other management or employee benefit plan or
agreement of the Company or any of its Subsidiaries, of Capital Stock, other
than Disqualified Stock, of the Company, in each case designated within 60 days
of the receipt of such net cash proceeds as Excluded Contributions in an
Officers' Certificate, the cash proceeds of which are excluded from the
calculation stated in the second clause (3) of the first paragraph of the
covenant described above under the "-- Covenants -- Restricted Payments."
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Restricted
Subsidiaries, other than Indebtedness under the Credit Agreement, in existence
on the date of the Indenture, until such amounts are repaid.
"FIXED CHARGE COVERAGE RATIO" means as to any specified Person and its
Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow
of the Person and its Restricted Subsidiaries for the period to the Fixed
Charges of the Person and its Restricted Subsidiaries for such period. In the
event that the specified Person or any of its Restricted Subsidiaries incurs,
assumes, Guarantees, repays, repurchases or redeems any Indebtedness, other than
ordinary working capital borrowings, or issues, repurchases or redeems preferred
stock subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated and on or prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to that borrowing or issuance, assumption, Guarantee,
repayment, repurchase or redemption of Indebtedness, or the issuance, repurchase
or redemption of preferred stock, and the use of the proceeds therefrom as if
the same had occurred at the beginning of the applicable four-quarter reference
period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) Investments, acquisitions, dispositions, discontinued operations,
mergers and consolidations that have been made by the specified Person or
any of its Restricted Subsidiaries, including
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through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to
such reference period and on or prior to the Calculation Date shall be
given pro forma effect as if they had occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated on a pro forma basis as determined
in good faith by a responsible financial or accounting officer of the
Company, without giving effect to clause (3) of the proviso stated in the
definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in agreement with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded;
(3) the Fixed Charges attributable to discontinued operations, as determined
in a manner that complies with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but only to
the extent that the obligations giving rise to the Fixed Charges will not
be obligations of the specified Person or any of its Restricted
Subsidiaries following the Calculation Date; and
(4) if since the beginning of the period any Person that subsequently became
a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period shall have made
any Investment, acquisition, disposition, discontinued operation, merger
or consolidation that would have required adjustment under this
definition, then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect thereto for the period as if the Investment,
acquisition, disposition, discontinued operation, merger or consolidation
had occurred at the beginning of the applicable four-quarter period.
"FIXED CHARGES" means, regarding any specified Person for any period, the
sum, without duplication, of:
(1) the consolidated interest expense of the Person and its Restricted
Subsidiaries for the period, whether paid or accrued, including
amortization of debt issuance costs incurred under the Transactions, the
Notes and the Credit Agreement and original issue discount, non-cash
interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest regarding to Attributable
Debt, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net of
the effect of all payments made or received under Hedging Obligations;
PLUS
(2) the consolidated interest of such Person and its Restricted Subsidiaries
that was capitalized during such period; PLUS
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon; PLUS
(4) the product of (a) all cash dividend payments or other distributions,
and non-cash dividend payments in the case of a Person that is a
Restricted Subsidiary, on any series of preferred equity of such Person
and its Restricted Subsidiaries, times (b)(i) if such Person is not a
taxable entity for U.S. federal income tax purposes, one, and (ii) if
such Person is a taxable entity for U.S. federal income tax purposes, a
fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal, state and local statutory
tax rate of such Person and its Restricted Subsidiaries, expressed as a
decimal, in each case, on a consolidated basis and in a manner that
complies with GAAP.
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"GAAP" means generally accepted accounting principles stated 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 other statements by the other entity
as have been approved by a significant segment of the accounting profession,
which are in effect on the date of the Indenture. For the purposes of the
Indenture, the term "consolidated" regarding any Person shall mean the Person
consolidated with its Restricted Subsidiaries and shall not include any
Unrestricted Subsidiary.
"GUARANTEE" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including letters of credit or reimbursement agreements
in respect thereof, of all or any part of any Indebtedness.
"HEDGING OBLIGATIONS" means, regarding any specified Person, the obligations
of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates or currency exchange or
commodity prices.
"HOLDINGS" means Consolidated Container Holdings LLC, a Delaware limited
liability company and the parent of the Company.
"INDEBTEDNESS" means, regarding any specified Person, any indebtedness of
such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit, or reimbursement agreements in respect thereof;
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense
or trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items, other than letters of
credit and Hedging Obligations, would appear as a liability upon a balance sheet
of the specified Person prepared in a manner that complies with GAAP. In
addition, the term "Indebtedness" includes all Indebtedness of others secured by
a Lien on any asset of the specified Person, whether or not such Indebtedness is
assumed by the specified Person, and, to the extent not otherwise included, the
Guarantee by the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, in the case of any other Indebtedness.
"INVESTMENT GRADE SECURITIES" means
(1) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof,
other than Cash Equivalents,
(2) debt securities or debt instruments with a rating of BBB- or higher
by S&P or Baa3 or higher by Moody's or the equivalent of such rating
by such rating organization, or, if no rating of S&P or Moody's then
exists, the equivalent of such rating by any other
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nationally recognized securities rating agency, but excluding any
debt securities or instruments constituting loans or advances between
and among the Company and its Subsidiaries, and
(3) investments in any fund that invests exclusively in investments of
the type described in clauses (1) and (2), which fund may also hold
immaterial amounts of cash pending investment and/or distribution.
"INVESTMENTS" means, regarding any Person, all direct or indirect
investments by the Person in other Persons, including Affiliates, in the forms
of loans, including Guarantees or other obligations, advances or capital
contributions, excluding accounts receivable, trade credit, advances to
customers, commission, travel and similar advances to officers and employees
made in the ordinary course of business, purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in a manner that complies with GAAP. If the Company or any Subsidiary
of the Company sells or otherwise disposes of any Equity Interests of any direct
or indirect Subsidiary of the Company such that, after giving effect to any sale
or disposition, the Person is no longer a Subsidiary of the Company, the Company
shall be considered to have made an Investment on the date of any sale or
disposition equal to the fair market value of the Equity Interests of the
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the section "-- Covenants
- -- Restricted Payments." The acquisition by the Company or any Subsidiary of the
Company of a Person that holds an Investment in a third Person shall be
considered to be an Investment by the Company or such Subsidiary in such third
Person in an amount equal to the fair market value of the Investment held by the
acquired Person in the third Person in an amount determined as provided in the
final paragraph of the covenant described above under the section
"-- Covenants -- Restricted Payments."
"LIEN" means, regarding any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of the asset, whether or
not filed, recorded or otherwise perfected under applicable law, including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code, or equivalent statutes, of any jurisdiction; PROVIDED that in
no event shall an operating lease be considered to constitute a Lien.
"MANAGEMENT COMMITTEE" means:
(1) for so long as the Company is a limited liability company, the
Management Committee of the Company, or the Management Committee of
Holdings if acting on behalf of the Company; and
(2) otherwise the Board of Directors of the Company.
"NET INCOME" means, regarding any specified Person, the net income (loss) of
such Person, determined in a manner that complies with GAAP and before any
reduction in respect of dividends on preferred interests, excluding, however:
(1) any gain (but not loss), together with any related provision for
taxes or Tax Distributions on such gain (but not loss), realized
regarding:
(a) any Asset Sale; or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness
of such Person or any of its Restricted Subsidiaries; PLUS
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(2) any extraordinary gain (but not loss), together with any related
provision for taxes or Tax Distributions on such extraordinary gain
(but not loss).
"NET PROCEEDS" means the total cash proceeds received by the Company or any
of its Restricted Subsidiaries in respect of any Asset Sale, including any cash
received upon the sale or other disposition of any Designated Noncash
Consideration received in any Asset Sale, net of the direct costs relating to
the Asset Sale and the sale or disposition of the Designated Noncash
Consideration, including legal, accounting and investment banking fees, and
sales commissions, and any relocation expenses as a result thereof, taxes or Tax
Distributions paid or payable as a result thereof, in each case, after taking
into account any available tax credits or deductions and any tax sharing
arrangements, and amounts required to be applied to the repayment of
Indebtedness, other than Senior Debt under the Credit Agreement, secured by a
Lien on the asset or assets that were the subject of the Asset Sale and any
reserve established in a manner that complies with GAAP for adjustment in
respect of any liabilities associated with the asset or assets and retained by
the Company after the sale or other disposition thereof, including pension and
other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the transaction.
"NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted Subsidiaries;
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness);
(b) is liable as a guarantor or otherwise; or
(c) constitutes the lender;
(2) no default regarding which, including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary, would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the Notes) of the Company or any of
its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PERMITTED AGREEMENTS" means:
(1) the Supply Agreement, dated as of the date of the Indenture, between
Holdings and Suiza Foods Corporation;
(2) the Assumption Agreement, dated as of the date of the Indenture, among
Holdings, the Company and Reid Plastics Holdings;
(3) the Registration Rights Agreement to be entered into among Holdings,
Reid Plastic Holdings and the holders of member units in Holdings, in
substantially the form which is an exhibit to the Limited Liability
Company Agreement of Holdings; and
(4) the Trademark License Agreement, dated as of the date of the Indenture,
among the Company, Holdings and Continental Can Company, Inc.
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"PERMITTED BUSINESS" means any of the lines of business conducted by the
Company and its Restricted Subsidiaries on the date hereof and any business
similar, ancillary or related thereto or that constitutes a reasonable extension
or expansion thereof, including the Company's existing and future technology,
trademarks and patents.
"PERMITTED INVESTMENTS" means:
(1) any Investment in the Company or in a Restricted Subsidiary of the
Company;
(2) any Investment in Cash Equivalents or Investment Grade Securities;
(3) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of the Company; or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the
Company;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made under and in
compliance with the covenant described above under the section
"-- Repurchase at the Option of Holders -- Asset Sales";
(5) any Investments the payment for which solely consists of Equity
Interests (other than Disqualified Stock) of the Company, PROVIDED
that such Equity Interests will not increase the amount available for
Restricted Payments under the second clause (3) of the first
paragraph of the covenant described above under
"-- Covenants -- Restricted Payments";
(6) Hedging Obligations;
(7) other Investments in any Person other than Holdings or an Affiliate
of Holdings that is not also a Restricted Subsidiary of the Company
having an total fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes
in value), when taken together with all other Investments made under
this clause (7) that are at the time outstanding not to exceed
$15.0 million;
(8) Investments in Unrestricted Subsidiaries having an total fair market
value not to exceed at any one time outstanding $15.0 million,
measured on the date each such Investment was made and without giving
effect to subsequent changes in value;
(9) any Investment existing on the date of the Indenture;
(10) advances to employees and officers not in excess of $10.0 million in
the total outstanding at any one time;
(11) any Investment acquired by the Company or any of its Restricted
Subsidiaries:
(a) in exchange for any other Investment or accounts receivable held
by the Company or any Restricted Subsidiary regarding or as a
result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of the other Investment or
accounts receivable, or
(b) as a result of a foreclosure by the Company or any of its
Restricted Subsidiaries regarding any secured Investment or other
transfer of title regarding any secured Investment in default;
(12) any Investment in a Permitted Business, other than an Investment in
an Unrestricted Subsidiary, having an total fair market value, taken
together with all other Investments
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made under to this clause (12) that are at that time outstanding, not
to exceed 10% of the Total Assets at the time of such Investment,
measured on the date each such Investment was made and without giving
effect to subsequent changes in value;
(13) any transaction to the extent it constitutes an Investment that is
permitted by and made in a manner that complies with the provisions
of clauses (7) and (13) of the second paragraph of the covenant
described above under "-- Covenants -- Transactions with Affiliates";
(14) Investments consisting of the licensing or contribution of
intellectual property under joint marketing arrangements with other
Persons;
(15) Investments consisting of purchase and acquisitions of inventory,
supplies, materials and equipment or licenses or leases of
intellectual property, in any case, in the ordinary course of
business; and
(16) Investments by the Company or a Restricted Subsidiary in a
Receivables Subsidiary or any Investment by a Receivables Subsidiary
in any other Person, in each case, with a Qualified Receivables
Transaction.
"PERMITTED JUNIOR SECURITIES" means debt or equity securities of the Company
or any successor corporation issued under a plan of reorganization of the
Company that are subordinated to the payment of all then outstanding Senior Debt
of the Company at least to the same extent that the Notes are subordinated to
the payment of all Senior Debt of the Company on the date of the Indenture, so
long as:
(1) the effect of the use of this defined term in the subordination
provisions contained in the Indenture is not to cause the Notes to be
treated as part of:
(a) the same class of claims as the Senior Debt of the Company; or
(b) any class of claims equally ranking with, or senior to, the
Senior Debt of the Company for any payment or distribution in any
case or proceeding or similar event relating to the liquidation,
insolvency, bankruptcy, dissolution, winding up or reorganization
of the Company; and
(2) to the extent that any Senior Debt of the Company outstanding on the
date of consummation of any such plan of reorganization is not paid
in full in cash or Cash Equivalents, other than Cash Equivalents of
the type referred to in clauses (3) and (4) of the definition
thereof, on such date, either:
(a) the holder of any such Senior Debt not so paid in full in cash or
Cash Equivalents, other than Cash Equivalents of the type
referred to in clauses (3) and (4) of the definition thereof,
have consented to the terms of such plan of reorganization; or
(b) such holders receive securities which constitute Senior Debt of
the Company, which are guaranteed under guarantees constituting
Senior Debt of each Subsidiary Guarantor, and which have been
determined by the relevant court to constitute satisfaction in
full in money or money's worth of any Senior Debt of the Company,
and any related Senior Debt of the Subsidiary Guarantors, not
paid in full in cash or Cash Equivalents, other than Cash
Equivalents of the type referred to in clauses (3) and (4) of the
definition thereof.
"PERMITTED LIENS" means:
(1) Liens of the Company and any Subsidiary Guarantor securing Senior
Debt that was permitted by the terms of the Indenture to be borrowed
or issued;
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(2) Liens in favor of the Issuers or the Subsidiary Guarantors;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or any
Restricted Subsidiary of the Company; PROVIDED that such Liens were
in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company or the Restricted
Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by the
Company or any Restricted Subsidiary of the Company, PROVIDED that
such Liens were in existence prior to the contemplation of such
acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
issued in the ordinary course of business;
(6) Liens to secure Indebtedness, including Capital Lease Obligations,
permitted by clause (4) of the second paragraph of the covenant
entitled "-- Covenants -- Additional Indebtedness and Preferred
Stock" covering only the assets acquired with such Indebtedness;
(7) Liens existing on the date of the Indenture;
(8) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
PROVIDED that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) Liens issued in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company regarding to obligations that do
not exceed $5.0 million at any one time outstanding;
(10) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings
that may have been properly initiated for the review of such judgment
shall not have been finally terminated or the period within which
such proceedings may be initiated shall not have expired;
(11) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person
to facilitate the purchase, shipment or storage of such inventory or
other goods;
(12) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed
by law issued in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall
have been made in respect thereof;
(13) Liens issued or deposits made in the ordinary course of business
regarding workers' compensation, unemployment insurance and other
types of Social Security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith;
(14) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements,
including rights of offset and set off; and
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(15) Liens or assets of a Receivables Subsidiary arising regarding a
Qualified Receivables Transaction.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
other than intercompany Indebtedness; PROVIDED that:
(1) the principal amount, or accreted value, if applicable, of the
Permitted Refinancing Indebtedness does not exceed the principal
amount, or accreted value, if applicable, of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded, plus
all accrued interest thereon and the amount of all expenses and
premiums borrowed or issued in connection therewith, and with the
refinancing;
(2) the Permitted Refinancing Indebtedness has a Weighted Average Life to
Maturity equal to or greater than the remaining Weighted Average Life
to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded, PROVIDED, that this clause (2) shall
not apply to Senior Debt;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the
Notes, such Permitted Refinancing Indebtedness has a final maturity
date equal to or later than the final maturity date of, and is
subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and
(4) the Indebtedness is borrowed or issued either by the Company or by
the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"PRINCIPALS" means Vestar and its Affiliates, Suiza Foods Corporation and
its Affiliates, Ronald V. Davis, William L. Estes, Ronald E. Justice, Henry
Carter, Timothy W. Brasher and David M. Stulman.
"PURCHASE MONEY NOTE" means a promissory note evidencing a line of credit,
or evidencing other Indebtedness owed to the Company or any Restricted
Subsidiary regarding a Qualified Receivables Transaction, which note shall be
repaid from cash available to the maker of the note, other than amounts required
to be established as reserves under agreement, amounts paid to investors in
respect of interest, principal and other amounts owing to the investors and
amounts paid regarding the purchase of newly generated receivables.
"QUALIFIED RECEIVABLES TRANSACTION" means any transaction or series of
transactions that may be entered into by the Company or any Restricted
Subsidiary under which the Company or any Restricted Subsidiary may sell, convey
or otherwise transfer to (a) a Receivables Subsidiary (in the case of a transfer
by the Company or any Restricted Subsidiary) and (b) any other Person, in the
case of a transfer by a Receivables Subsidiary, or may grant a security interest
in, any accounts receivable, whether now existing or arising in the future, of
the Company or any Restricted subsidiary and any asset related thereto,
including all collateral securing such accounts receivable, and all guarantees
or other obligations in respect of such accounts receivable, proceeds of such
accounts receivable and other assets that are customarily transferred, or in
respect of which security interests are customarily granted, regarding an asset
securitization transaction involving accounts receivable.
"RECEIVABLES SUBSIDIARY" means a Wholly Owned Restricted Subsidiary, other
than a Subsidiary Guarantor, that engages in no activities other than regarding
the financing of accounts receivables and
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that is designated by the Management Committee of the Company (as provided
below) as a Receivables Subsidiary and as long as:
(1) no portion of the Indebtedness or any other Obligations, contingent
or otherwise, of which:
(a) is guaranteed by the Company or any other Restricted Subsidiary,
excluding guarantees of obligations, other than the principal of,
and interest on, Indebtedness, under Standard Securitization
Undertakings;
(b) is recourse to or obligates the Company or any other Restricted
Subsidiary in any way other than under standard Securitization
Undertakings; or
(c) subjects any property or asset of the Company or any other
Restricted Subsidiary contingently or otherwise, to the
satisfaction thereof, other than under Standard Securitization
Undertakings;
(2) with which neither the Company nor any other Restricted Subsidiary
has any material contract, agreement, arrangement or understanding,
except regarding a Purchase Money Note or Qualified Receivables
Transaction, other than on terms no less favorable to the Company or
such other Restricted Subsidiary than those that might be obtained at
the time from Persons that are not Affiliates of the Company, other
than fees payable in the ordinary course of business regarding
servicing accounts receivable; and
(3) to which neither the Company nor any other Restricted Subsidiary has
any obligation to maintain or preserve such entity's financial
condition or cause such entity to achieve a specified level of
operating results. Any such designation by the Management Committee
of the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolution of the Board of Directors
of the Company giving effect to such designation and an Officers'
Certificate certifying, to the best of such officer's knowledge and
belief after consulting with counsel, that such designation complied
with the foregoing conditions.
"RELATED PARTY" means:
(1) any controlling stockholder, 80% (or more) owned Subsidiary, or
immediate family member, in the case of an individual, of any
Principal;
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest; or
(3) any limited partner general partner.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SENIOR DEBT" means:
(1) all Indebtedness of an Issuer or any Subsidiary Guarantor outstanding
under Credit Facilities and all Hedging Obligations with respect
thereto, whether outstanding on the date of the Indenture or incurred
thereafter;
(2) any other Indebtedness of an Issuer or any Subsidiary Guarantor
permitted to be borrowed or issued under the terms of the Indenture,
unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in
right of payment to the Notes or any Subsidiary Guarantee; and
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(3) all Obligations regarding the items listed in the preceding clauses
(1) and (2), including any interest accruing subsequent to the filing
of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is
an allowed claim under applicable law.
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or owing
by an Issuer;
(2) any Indebtedness of an Issuer to any of its Subsidiaries or other
Affiliates;
(3) any trade payables;
(4) the portion of any Indebtedness that is borrowed or issued in
violation of the Indenture, but only to the extent so borrowed or
issued; or
(5) Non-Recourse Debt.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
under the Securities Act, as such Regulation is in effect on the date hereof.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations, warrantees,
covenants and indemnities entered into by the Company or any Restricted
Subsidiary that are reasonably customary in an accounts receivable transaction.
"STATED MATURITY" means, regarding any installment of interest or principal
on any series of Indebtedness, the date on which such payment of interest or
principal was scheduled to be paid in the original documentation governing such
Indebtedness, and shall not include any contingent obligations to repay, redeem
or repurchase any such interest or principal prior to the date originally
scheduled for the payment thereof.
"SUBSIDIARY" means, regarding any specified Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock
entitled, without regard to the occurrence of any contingency, to
vote in the election of directors, managers or trustees thereof is at
the time owned or controlled by such Person or one or more of the
other Subsidiaries of that Person, or a combination thereof; and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or one or more
Subsidiaries of such Person, or any combination thereof.
"SUBSIDIARY GUARANTORS" means each subsidiary that executes a Subsidiary
Guarantee in a manner that complies with the provisions of the Indenture and
their respective successors and assigns.
"TAX AMOUNT" means:
(1) for so long as Holdings is a pass-through entity for income tax
purposes and the sole asset of Holdings is its membership interest in
the Company (and prior to any distribution of any Tax Amount, the
Company delivers an officers' certificate to such effect), the tax
amount that Holdings is required to distribute to its members under
Section 6.4 of its Limited Liability Company Agreement as in effect
on the date of the Indenture, or
(2) if Holdings holds other assets in addition to its member interest in
the Company, the tax amount that Holdings is required to distribute
to its members under Section 6.4 of its
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Limited Liability Company Agreement less any amounts for taxes
related to assets other than the membership interests in the Company,
or
(3) if Holdings is no longer a pass-through entity for income tax
purposes, the combined federal, state and local income taxes that
would be paid by the Company if it were a separate entity and a
Delaware corporation filing separate tax returns regarding its
Taxable Income for the Period; PROVIDED, HOWEVER, that in determining
the Tax Amount, the effect thereon of any net operating loss
carryforwards or other carryforwards or tax attributes, such as
alternative minimum tax carryforwards, that would have arisen if the
Company were a Delaware corporation shall be taken into account.
Notwithstanding anything to the contrary, for purposes of this
clause (3), Tax Amount shall not include taxes resulting from the
Company's reorganization as or change in the status to a corporation.
"TAX DISTRIBUTION" means a distribution in respect of taxes to the members
of the Company under clause (7) of the second paragraph of the covenant
described above under the section "Covenants -- Restricted Payments."
"TAXABLE INCOME" means, regarding any Person for any period, the
hypothetical taxable income or loss of the Person for such period for federal
income tax purposes computed on the hypothetical assumption that such person is
a separate entity and a Delaware corporation.
"TOTAL ASSETS" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company, other than
Capital or any successor to Capital, that is designated by the Management
Committee of the Company as an Unrestricted Subsidiary under a Board Resolution,
but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with the Company or any Restricted Subsidiary of the Company unless
the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company;
(3) is a Person regarding which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or
preserve such Person's financial condition or to cause the Person to
achieve any specified levels of operating results;
(4) has not guaranteed or otherwise provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries;
and
(5) has at least one director on its Board of Directors that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the section
"-- Covenants -- Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary
91
<PAGE>
for purposes of the Indenture and any Indebtedness of the Subsidiary shall
considered to be incurred by a Restricted Subsidiary of the Company as of such
date and, if the Indebtedness is not permitted to be incurred as of such date
under the covenant described under the section "-- Covenants -- Additional
Indebtedness and Preferred Stock," the Company shall be in default of the
covenant. The Management Committee of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that the
designation shall be considered to be a borrowing or issuance of Indebtedness by
a Restricted Subsidiary of the Company of any outstanding Indebtedness of the
Unrestricted Subsidiary and such designation shall only be permitted if (1) the
Indebtedness is permitted under the covenant described under the section
"-- Covenants -- Additional Indebtedness and Preferred Stock," calculated on a
pro forma basis as if the designation had occurred at the beginning of the
four-quarter reference period; and (2) no Default or Event of Default would be
in existence following the designation.
"VESTAR" means Vestar Capital Partners, a New York general partnership.
"VOTING EQUITY INTERESTS" of any Person as of any date means the Capital
Stock of such Person that is at the time, or would be if such Person were a
Delaware corporation, entitled to vote in the election of the Management
Committee, Board of Directors or other governing body of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final
maturity, in respect thereof, by (b) the number of years, calculated
to the nearest one-twelfth, that will elapse between such date and
the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any specified Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which, other than directors' qualifying shares,
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
92
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
OVERVIEW
We summarize below the material U.S. federal income tax consequences of:
- the exchange of outstanding notes for exchange notes; and
- the ownership and sale of exchange notes by U.S. persons, based on current
U.S. federal income tax law.
Regarding the ownership and sale of exchange notes, this summary addresses only
exchange notes that were exchanged for outstanding notes that were purchased in
the initial offering at their issue price and that are held as capital assets.
This summary does not deal with special situations and does not represent a
detailed description of the U.S. federal income tax consequences applicable to
you if you are subject to special treatment under the U.S. federal income tax
laws--including, if you are a dealer in securities or currencies, a financial
institution, an insurance company, a tax exempt organization, a person holding
the exchange notes as part of a hedging, integrated or conversion transaction,
constructive sale or straddle, a trader in securities that has elected the
mark-to-market method of accounting for your securities or a U.S. person whose
functional currency is not the U.S. dollar.
The discussion below is based upon the provisions of the Internal Revenue
Code of 1986 and current regulations, rulings and judicial decisions. Those
authorities may be changed, perhaps retroactively, so as to result in U.S.
federal income tax consequences different from those discussed below. YOU SHOULD
CONSULT YOUR OWN TAX ADVISOR CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES TO
YOU AND ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
"United States person" means a beneficial owner of an exchange note that is:
- a citizen or resident of the United States;
- a corporation or partnership created or organized under the laws of the
United States or any political subdivision of the United States;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust that:
(1) is subject to the supervision of a court within the United States and
the control of one or more U.S. persons; or
(2) has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.
EXCHANGE OF OUTSTANDING NOTES FOR EXCHANGE NOTES
The following summary describes the material United States federal income
tax consequences of the exchange offer. The exchange of outstanding notes for
exchange notes in the exchange offer will not constitute a taxable event to
holders. Consequently, no gain or loss will be recognized by you upon receipt of
an exchange note, the holding period of the exchange notes will include the
holding period of the outstanding note and the basis of the exchange notes will
be the same as the basis of the outstanding note immediately before the
exchange.
IN ANY EVENT, YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF YOUR PARTICULAR SITUATIONS AS
WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
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<PAGE>
OWNERSHIP AND SALE OF EXCHANGE NOTES
Interest on an exchange note will generally be taxable to you as ordinary
income from domestic sources at the time it is paid or accrued in accordance
with your method of accounting for tax purposes.
Upon the sale, exchange, retirement or other disposition, which we refer to
as a "sale", of an exchange note, you will recognize gain or loss equal to the
difference between:
- the amount you realize upon the sale less an amount equal to any accrued
stated interest which will be taxable as interest if you did not
previously include that amount in income; and
- your tax basis in the exchange note.
That gain or loss will be capital gain or loss. Capital gains of individuals
derived from capital assets held for more than one year are eligible for reduced
rates of taxation. The deductibility of capital losses is subject to
limitations.
In general, information reporting requirements will apply to the payment of
principal and interest on the exchange notes and to the proceeds of sale of the
exchange notes made to you, unless you are an exempt recipient, such as a
corporation. A 31% backup withholding tax will apply to these payments if you
(1) fail to provide a taxpayer identification number, (2) fail to provide a
certification of exempt status or (3) fail to report in full dividend and
interest income.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against your United States federal income tax liability
provided the required information is furnished to the Internal Revenue Service.
94
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account under
the exchange offer must acknowledge that it will deliver a prospectus if it
resells any of the exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer if it resells
exchange notes received in exchange for outstanding notes where the outstanding
notes were acquired as a result of market-making activities or other trading
activities. To the extent that any broker-dealer participates in the exchange
offer and notifies us of this participation, or causes us to be notified in
writing, we have agreed that for a period of 180 days after the date of this
prospectus, that we will make this prospectus, as amended or supplemented,
available to that broker-dealer for use with any resale, and will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests these documents in the letter of
transmittal.
We will not receive any proceeds from the sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
under the exchange offer may be sold from time to time in one or more
transactions through any of the following methods:
- in the over-the-counter market;
- in negotiated transactions;
- through the writing of options on the exchange notes; or
- a combination of these methods of resale, at prevailing market prices at
the time of resale, at prices related to prevailing market prices or at
negotiated prices.
Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer or the purchasers or these exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account under the exchange offer and any broker or dealer that participates in a
distribution of the exchange notes may be considered to be an "underwriter"
within the meaning of the Securities Act of 1933, and any profit on any resale
of exchange notes and any commissions or concessions received by these persons
may be considered to be underwriting compensation under the Securities Act of
1933. The letter of transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be considered
to admit that it is an "underwriter" within the meaning of the Securities Act of
1933.
We have agreed to pay all expenses incident to the exchange offer, other
than commissions and concessions of any broker-dealers, subject to specified
prescribed limitations. In addition, we have agreed to indemnify the holders of
the outstanding notes against specified liabilities, including specified
liabilities that may arise under the Securities Act of 1933.
By its acceptance of the exchange offer, any broker-dealer that receives
exchange notes under the exchange offer hereby agrees to notify us prior to
using the prospectus in the sale or transfer of exchange notes, and acknowledges
and agrees that, upon receipt of notice from us of the happening of any event
which makes any statement in this prospectus untrue in any material respect or
which requires the making of any changes in this prospectus in order to make the
statements in this prospectus not misleading or which may impose upon us
disclosure obligations that may have a material adverse effect on us which
notice we agree to deliver promptly to that broker-dealer, that broker-dealer
will suspend its use of this prospectus until we have notified that
broker-dealer that delivery of this prospectus may resume and has furnished
copies of any amendment or supplement to the prospectus to that broker-dealer.
95
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information gives effect to the
transactions as if they had occurred on or at the beginning of the periods
presented. For more information on the transactions, see "The Transactions."
The contributions and mergers of the equity interest or assets of Reid
Plastics, Inc., Franklin Plastics, Inc., Plastic Containers and each of their
subsidiaries into Consolidated Container Company and its subsidiaries have been
accounted for using the purchase method of accounting. We refer to U.S. plastics
packaging assets of Franklin Plastics, Inc., Plastic Containers and each of
their subsidiaries as "Suiza Packaging." Under this method, Reid Plastics, Inc.
is considered the "acquiror" for accounting purposes. Accordingly, in the
unaudited pro forma financial information of Consolidated Container Company
contained in this prospectus, we refer to the contributions and mergers referred
to above as the acquisition of Suiza Packaging by Consolidated Container
Company, which is the successor to Reid Plastics, Inc. for accounting purposes.
The unaudited pro forma statements of operations for the year ended
December 31, 1998 and the nine months ended September 30, 1999 and 1998 give
effect to the acquisition of Suiza Packaging and the other transactions as if
they had occurred on January 1, 1998.
The pro forma adjustments are based on preliminary estimates of purchase
price allocations, available information and assumptions that the management of
Consolidated Container Company considers appropriate but which may be revised as
we receive additional information. The pro forma financial information does not
purport to represent what the results of operations of Consolidated Container
Company would actually have been if the transactions had, in fact, occurred on
the dates assumed and is not necessarily representative of Consolidated
Container Company's results of operations for any future period. The unaudited
pro forma financial information should be read in conjunction with the other
financial statements and notes to them included in this prospectus.
96
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL
THREE MONTHS -------------------------
ENDED SEPTEMBER SIX MONTHS ENDED
30, 1999 JUNE 30, 1999
--------------- ------------------------- ACQUISITION
CONSOLIDATED SUIZA AND OFFERING
CONTAINER REID PLASTICS PACKAGING ADJUSTMENTS PRO FORMA
--------------- ------------- --------- ------------ ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Net sales........................ $197.4 $85.4 $263.5 -- $546.3
Cost of goods sold............... 156.6 67.4 198.7 -- 422.7
------ ----- ------ ------- ------
Gross profit..................... 40.8 18.0 64.8 -- 123.6
Selling, general and
administrative expenses........ 14.7 7.5 26.9 -- 49.2
Amortization of goodwill......... 4.0 1.5 3.4 2.0 (a) 10.9
Restructuring charge............. 1.5 1.5
------ ----- ------ ------- ------
Operating income................. 20.5 9.0 34.5 (2.0) 62.0
Other income..................... 0.5 0.3 -- 0.8
Interest expense, net (b)........ 12.7 4.5 18.6 2.8 (c) 38.6
------ ----- ------ ------- ------
Income before income taxes....... 7.8 5.0 16.2 (4.8) 24.2
Income tax expense............... -- 2.9 7.7 (10.6)(d) --
Minority interest in
subsidiaries................... -- (0.3) -- -- (0.3)
------ ----- ------ ------- ------
Income before extraordinary
item........................... $ 7.8 $ 2.4 $ 8.5 $ 5.8 $ 24.5
====== ===== ====== ======= ======
OTHER DATA:
Depreciation and amortization.... 13.4 7.2 14.8 2.0 37.4
Capital expenditures............. 8.5 5.1 16.0 -- 29.6
Cash interest expense, net (e)... 11.9 4.5 19.0 0.7 36.1
</TABLE>
97
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(a) Pro forma adjustments to record the amortization of the additional goodwill
of approximately $163.5 million associated with the acquisition of Suiza
Packaging by Consolidated Container Company, over an amortization period of
40 years, which resulted in additional amortization expense for the period
of approximately $2.0 million.
(b) Represents interest expense, net of interest income.
(c) Pro forma adjustment to interest expense reflects interest on the proceeds
of the offering of the outstanding notes used to repay substantially all the
outstanding debt of Suiza Packaging and Reid Plastics, as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
Interest expense on borrowings under the senior credit
facility at an assumed weighted average rate of
7.03%................................................. $14.5
Interest expense on the outstanding notes at a rate of
10 1/8% each year..................................... 9.4
Amortization of deferred financing costs................ 1.7
Less existing pro forma interest expense on debt
repaid................................................ (22.8)
-----
Total............................................... $ 2.8
=====
</TABLE>
The effect of a 0.125% change in the interest rate on borrowings under
the senior credit facility would have resulted in an approximately
$0.3 million change in the pro forma interest expense adjustment.
(d) Pro forma adjustment to eliminate the amount of historical income taxes.
Consolidated Container Company is a limited liability company that is not
subject to corporate income taxes. Consolidated Container Company expects to
distribute cash to its sole member, Consolidated Container Holdings, to
allow its members to pay income taxes to the extent required.
(e) Cash interest expense, net excludes amortization of deferred financing fees.
98
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------------
HISTORICAL PRE-ACQUISITION HISTORICAL
------------------------- ------------------------------- ACQUISITION
SUIZA PLASTIC OTHER PRO FORMA AND OFFERING
REID PLASTICS PACKAGING CONTAINERS (A) BUSINESSES (B) ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------- --------- -------------- -------------- ----------- ------------ ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Net sales................. $141.5 $236.9 $108.9 $35.1 $ -- $ -- $522.4
Cost of goods sold........ 112.4 183.3 92.2 29.3 (1.4)(c) -- 415.8
------ ------ ------ ----- ------ ------- ------
Gross profit.............. 29.1 53.6 16.7 5.8 1.4 -- 106.6
Selling, general and
administrative
expenses................. 13.7 22.8 11.4 3.2 (1.5)(d)(e) -- 49.6
Amortization of
goodwill................. 2.1 3.6 0.2 -- 1.4 (e)(f) 3.1 (g) 10.4
------ ------ ------ ----- ------ ------- ------
Operating income.......... 13.3 27.2 5.1 2.6 1.5 (3.1) 46.6
Other income (expense).... 0.8 0.3 -- 0.4 (0.2)(h) -- 1.3
Interest expense, net
(i)...................... 7.9 17.5 5.0 0.3 4.8 (j) 3.3 (k) 38.8
------ ------ ------ ----- ------ ------- ------
Income (loss) before
income taxes............. 6.2 10.0 0.1 2.7 (3.5) (6.4) 9.1
Income tax (benefit)
expense.................. 3.4 4.0 (1.6) -- (0.1)(l) (5.7)(m) --
Minority interest in
subsidiaries............. -- -- -- -- -- -- --
------ ------ ------ ----- ------ ------- ------
Net income (loss)......... $ 2.8 $ 6.0 $ 1.7 $ 2.7 $ (3.4) $ (0.7) $ 9.1
====== ====== ====== ===== ====== ======= ======
OTHER DATA:
Depreciation and
amortization............. 11.7 11.1 5.6 1.6 -- 3.1 33.1
Capital expenditures...... 9.2 40.7 6.8 -- -- -- 56.7
Cash interest expense, net
(n)...................... 7.9 -- 4.8 0.3 3.9 -- 36.3
</TABLE>
99
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(a) Represents the pre-acquisition results of operations of Suiza Packaging's
acquisition of Plastic Containers in 1998 for the five months ended May 29,
1998.
(b) Represents the pre-acquisition results of operations of Suiza Packaging's
acquisitions in 1998 of (1) Vanguard Plastics for the two months ended
February 28, 1998, (2) California Plastics for the quarter ended March 31,
1998, (3) Hartford Plastics and Ocean Park Plastics for the six months ended
June 30, 1998, (4) Double R Plastics, Florence Plastics and New York
Plastics for the seven months ended July 31, 1998, and (5) Consolidated
Plastechs and Quality Container for the nine months ended September 30,
1998.
(c) Pro forma adjustments to eliminate (1) the excess of historical depreciation
expense of Plastic Containers and the Other Businesses over the pro forma
depreciation of the fair value of property and equipment and (2) rent
expense on acquired property previously leased from former shareholders,
which resulted in a decrease for the period of approximately $1.0 million
and $0.4 million in amounts charged to cost of goods sold.
(d) Pro forma adjustments to eliminate salaries and other benefits paid
primarily to former shareholders and officers of the Other Businesses of
$900,000, whose employment was either terminated (and not replaced) or
salaries and other benefits were reduced (supported by employment
agreements) or eliminated in contemplation of the purchase transaction.
(e) Pro forma adjustment to reclassify PCI other intangible amortization expense
of $600,000 which was classified as selling, general and administrative.
Subsequent to the acquisition by Suiza Packaging, such amortization was
reflected in goodwill amortization.
(f) Pro forma adjustments to record the amortization of goodwill associated with
Plastic Containers and the Other Businesses over an amortization period of
40 years, which resulted in additional amortization expense for the period
of approximately $800,000.
(g) Pro forma adjustments to record the amortization of the additional goodwill
of approximately $163.5 million associated with the acquisition of Suiza
Packaging by Consolidated Container Company over an amortization period of
40 years, which resulted in additional annual amortization expense for the
period of approximately $3.1 million.
(h) Pro forma adjustment of approximately $0.2 million to eliminate gains on the
sale of assets by some of the Other Businesses.
(i) Represents interest expense, net of interest income.
(j) Pro forma adjustment to interest expense on the senior notes and mezzanine
notes of Franklin Plastics Inc. payable to Suiza Foods to fund the purchases
of Plastic Containers and the Other Businesses, at assumed interest rates of
9.0% and 13.2%, net of the reduction of historical interest expense related
to the historical debt of the Other Businesses repaid, along with the
reduction of
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<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
interest expense for Plastic Container's fixed rate debt to a current market
yield of 8.6%, as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
Interest expense on mezzanine notes of Franklin
Plastics and Plastic Containers............... $4.6
Interest expense on senior notes of Franklin
Plastics...................................... 1.6
Effective reduction of interest rate on the 10%
Senior Secured Notes due 2006 of Plastic
Containers.................................... (0.8)
Less existing historical interest expense on
debt repaid................................... (0.6)
----
Total....................................... $4.8
====
</TABLE>
(k) Pro forma adjustment to interest expense to reflect interest on the proceeds
of the offering of the outstanding notes used to repay substantially all the
outstanding debt of Suiza Packaging and Reid Plastics, Inc. as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
Interest expense on borrowings under the senior
credit facility at an assumed weighted average
rate on 7.03%................................. $21.8
Interest expense on the outstanding notes at a
rate of 10 1/8% each year..................... 14.0
Amortization of deferred financing costs........ 2.5
Less existing pro forma interest expense on debt
repaid........................................ (35.0)
-----
$ 3.3
=====
</TABLE>
The effect of a 0.125% change in the interest rate on borrowings under the
senior credit facility would have resulted in an approximately $0.4 million
change in the pro forma interest expense adjustment.
(l) Pro forma adjustment to reflect pro forma income taxes for the acquisition
of Plastic Containers at an estimated effective tax rate of 38%, excluding
the effects of non-deductible goodwill, and to reflect pro forma income
taxes for the Other Businesses at an estimated effective tax rate of 40%, as
follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
Income tax adjustment for Plastic Containers...... $(0.8)
Income tax adjustment for Other Businesses........ 0.7
-----
Total....................................... $(0.1)
=====
</TABLE>
(m) Pro forma adjustment to eliminate the amount of income taxes. Consolidated
Container Company is a limited liability company that is not subject to
corporate income taxes. Consolidated Container Company expects to distribute
cash to its sole member, Consolidated Container Holdings, to allow its
members to pay income taxes to the extent required.
(n) Cash interest expense, net excludes amortization of deferred financing fees.
101
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------------
HISTORICAL PRE-ACQUISITION HISTORICAL
------------------------- ------------------------------- ACQUISITION
SUIZA PLASTIC OTHER PRO FORMA AND OFFERING
REID PLASTICS PACKAGING CONTAINERS (A) BUSINESSES (B) ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------- --------- -------------- -------------- ----------- ------------ ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Net sales................. $175.2 $367.9 $108.9 $35.3 $ -- $ -- $687.3
Cost of goods sold........ 144.7 283.1 92.2 29.5 (1.4)(c) -- 548.1
------ ------ ------ ----- ------ ------- ------
Gross profit.............. 30.5 84.8 16.7 5.8 1.4 -- 139.2
Selling, general and
administrative
expenses................. 15.2 33.1 11.4 3.2 (1.5)(d)(e) -- 61.4
Amortization of
goodwill................. 2.9 5.1 0.2 -- 1.4 (e)(f) 4.1 (g) 13.7
------ ------ ------ ----- ------ ------- ------
Operating income.......... 12.4 46.6 5.1 2.6 1.5 (4.1) 64.1
Other income (expense).... 1.3 (0.1) -- 0.4 (0.2)(h) -- 1.4
Interest expense, net
(i)...................... 10.5 26.8 5.0 0.3 4.8 (j) 4.2 (k) 51.6
------ ------ ------ ----- ------ ------- ------
Income (loss) before
income taxes............. 3.2 19.7 0.1 2.7 (3.5) (8.3) 13.9
Income tax (benefit)
expense.................. 2.8 9.5 (1.6) -- (0.1)(l) (10.6)(m) --
Minority interest in
subsidiaries............. 0.1 -- -- -- -- -- 0.1
------ ------ ------ ----- ------ ------- ------
Net income (loss)......... $ 0.3 $ 10.2 $ 1.7 $ 2.7 $ (3.4) $ 2.3 $ 13.8
====== ====== ====== ===== ====== ======= ======
OTHER DATA:
Depreciation and
amortization............. 16.0 17.3 5.6 1.7 (0.1) 4.1 44.6
Capital expenditures...... 12.7 63.7 6.8 -- -- -- 83.2
Cash interest expense, net
(n)...................... 10.5 27.3 4.8 0.3 3.9 1.2 48.3
</TABLE>
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<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
(a) Represents the pre-acquisition results of operations of Suiza Packaging's
acquisition of Plastic Containers in 1998 for the five months ended May 29,
1998.
(b) Represents the pre-acquisition results of operations of Suiza Packaging's
acquisitions in 1998 of (1) Vanguard Plastics for the two months ended
February 28, 1998, (2) California Plastics for the quarter ended March 31,
1998, (3) Hartford Plastics and Ocean Park Plastics for the six months ended
June 30, 1998, (4) Double R Plastics, Florence Plastics and New York
Plastics for the seven months ended July 31, 1998, (5) Consolidated
Plastechs for the nine months ended September 30, 1998 and (6) Quality
Container for the eleven months ended November 30, 1998.
(c) Pro forma adjustments to eliminate (1) the excess of historical depreciation
expense of Plastic Containers and the Other Businesses over the pro forma
depreciation of the fair value of property and equipment and (2) rent
expense on acquired property previously leased from former shareholders,
which resulted in a decrease for the period of approximately $1.0 million
and $0.4 million in amounts charged to cost of goods sold.
(d) Pro forma adjustments to eliminate salaries and other benefits paid
primarily to former shareholders and officers of the Other Businesses of
$900,000, whose employment was either terminated (and not replaced) or
salaries and other benefits were reduced (supported by employment
agreements) or eliminated in contemplation of the purchase transaction.
(e) Pro forma adjustment to reclassify PCI other intangible amortization expense
of $600,000 which was classified as selling, general and administrative.
Subsequent to the acquisition by Suiza Packaging, such amortization was
reflected in goodwill amortization.
(f) Pro forma adjustments to record the amortization of goodwill associated with
Plastic Containers and the Other Businesses over an amortization period of
40 years, which resulted in additional amortization expense for the period
of approximately $800,000.
(g) Pro forma adjustments to record the amortization of the additional goodwill
of approximately $163.5 million associated with the acquisition of Suiza
Packaging by Consolidated Container Company over an amortization period of
40 years, which resulted in additional annual amortization expense for the
period of approximately $4.1 million.
(h) Pro forma adjustment of approximately $0.2 million to eliminate gains on the
sale of assets by some of the Other Businesses.
(i) Represents interest expense, net of interest income.
(j) Pro forma adjustment to interest expense on the senior notes and mezzanine
notes of Franklin Plastics Inc. payable to Suiza Foods to fund the purchases
of Plastic Containers and the Other Businesses, at assumed interest rates of
9.0% and 13.2%, net of the reduction of historical interest expense related
to the historical debt of the Other Businesses repaid, along with the
reduction of
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<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
interest expense for Plastic Container's fixed rate debt to a current market
yield of 8.6%, as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
Interest expense on mezzanine notes of Franklin
Plastics and Plastic Containers............... $4.6
Interest expense on senior notes of Franklin
Plastics...................................... 1.6
Effective reduction of interest rate on the 10%
Senior Secured Notes due 2006 of Plastic
Containers.................................... (0.8)
Less existing historical interest expense on
debt repaid................................... (0.6)
----
Total....................................... $4.8
====
</TABLE>
(k) Pro forma adjustment to interest expense to reflect interest on the proceeds
of the offering of the outstanding notes used to repay substantially all the
outstanding debt of Suiza Packaging and Reid Plastics, Inc. as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
Interest expense on borrowings under the senior
credit facility at an assumed weighted average
rate on 7.03%................................. $29.0
Interest expense on the outstanding notes at a
rate of 10 1/8% each year..................... 18.7
Amortization of deferred financing costs........ 3.3
Less existing pro forma interest expense on debt
repaid........................................ (46.8)
-----
$ 4.2
=====
</TABLE>
The effect of a 0.125% change in the interest rate on borrowings under the
senior credit facility would have resulted in an approximately $0.5 million
change in the pro forma interest expense adjustment.
(l) Pro forma adjustment to reflect pro forma income taxes for the acquisition
of Plastic Containers at an estimated effective tax rate of 38%, excluding
the effects of non-deductible goodwill, and to reflect pro forma income
taxes for the Other Businesses at an estimated effective tax rate of 40%, as
follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
Income tax adjustment for Plastic Containers...... $(0.8)
Income tax adjustment for Other Businesses........ 0.7
-----
Total....................................... $(0.1)
=====
</TABLE>
(m) Pro forma adjustment to eliminate the amount of income taxes. Consolidated
Container Company is a limited liability company that is not subject to
corporate income taxes. Consolidated Container Company expects to distribute
cash to its sole member, Consolidated Container Holdings, to allow its
members to pay income taxes to the extent required.
(n) Cash interest expense, net excludes amortization of deferred financing fees.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PRO FORMA RESULTS OF OPERATIONS OF
CONSOLIDATED CONTAINER COMPANY LLC
OVERVIEW
As part of the transactions, Consolidated Container Company was created as a
new limited liability company to own, directly or through its subsidiaries, all
of the plastic packaging assets of Reid Plastics, Inc., a Delaware corporation
indirectly controlled by Vestar Capital Partners III, and substantially all of
the U.S. plastic packaging assets of Suiza Foods, which consisted of Franklin
Plastics, Inc. and Plastic Containers. As a result of this combination, we are a
leading domestic developer, manufacturer and marketer of rigid plastic
containers for many of the world's largest branded consumer products and
beverage companies.
Our broad container product line ranges in size from two ounce to six gallon
containers consisting of single and multiple layer plastic containers made from
a variety of plastic resins, including high density polyethylene ("HDPE"),
polycarbonate ("PC"), polypropylene ("PP"), polyethylene terephthalate ("PET")
and polyvinyl chloride ("PVC"). Because our broad range of product lines serves
customers in diverse industries and regions in the United States, we believe
that our net sales and cash flow are relatively stable, reducing our exposure to
particular market or regional economic cycles. We have grown net sales through
acquisitions and internal growth between 1996 and 1998 at a compounded annual
growth rate of approximately 58.0%. For the nine months ended September 30,
1999, we generated pro forma net sales of $546.3 million and pro forma EBITDA of
$100.5 million.
The plastic container industry has been undergoing consolidation for a
number of years, and we believe that the incentives favoring consolidation will
continue. As a leader in consolidation in the U.S. rigid plastic packaging
business, we made twelve acquisitions, including the acquisition of Plastic
Containers, in 1998 which increased our pro forma 1998 net sales by
$365.4 million and our pro forma 1998 EBITDA by $55.0 million.
Our primary raw materials consist of HDPE, PC, PP, PET and PVC resins.
Although net sales are affected by fluctuations in resin prices, our gross
profit is, in general, substantially unaffected by these fluctuations because
industry practice and contractual arrangements with our customers permit or
require us, over time, to pass through changes in resin prices by means of
changes in product pricing. Consequently, we believe that an analysis of gross
profit as a percentage of sales basis is not meaningful.
We plan to capitalize on our significant industry position to become the
preeminent supplier of rigid plastic containers in North America with a presence
in selected international markets. Our strategies for achieving this objective
include:
- expansion within the current customer base by cross-selling product and
service capabilities among our complementary customer bases of Reid
Plastics, Inc. and Suiza Packaging;
- realizing substantial cost reductions and operating synergies through the
combination of Reid Plastics, Inc. and Suiza Packaging;
- capitalizing on the continuing trend toward the conversion of glass, metal
and paper containers to plastic containers;
- entering new markets, which can now be serviced by our broad geographic
reach; and
- pursuing strategic acquisitions.
As a limited liability company, we will not pay U.S. federal income taxes
under the Internal Revenue Code. Similarly, as a limited liability company, our
parent, Consolidated Container Holdings, will not pay U.S. federal income taxes
under the provisions of the Internal Revenue Code. The
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<PAGE>
applicable income or loss is included in the tax returns of the members of
Consolidated Container Holdings. We will make tax distributions to Consolidated
Container Holdings to enable it to reimburse its members for their tax
obligations.
PRO FORMA RESULTS OF OPERATIONS
We list in the table below our pro forma results of operations,and related
percentages of net sales for the year ended December 31, 1998 and for the nine
months ended September 30, 1998 and 1999. The financial table and related
discussion should be read in conjunction with the "Unaudited Pro Forma Financial
Data" and the notes related to them appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
PRO FORMA RESULTS OF OPERATIONS
---------------------------------------------------------------
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------- -----------------------------------------
1998 1998 1999
------------------- ------------------- -------------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales...................................... $ 687.3 100.0% $522.4 100.0% $546.3 100.0%
Cost of goods sold............................. 548.1 79.7 415.8 79.6 422.7 77.4
------- ----- ------ ----- ------ -----
Gross profit................................... 139.2 20.3 106.6 20.4 123.6 22.6
Selling, general and administrative............ 75.1 10.9 60.0 11.5 60.1 11.0
Restructuring Charge........................... -- -- -- -- 1.5 0.2
------- ----- ------ ----- ------ -----
Operating income............................... 64.1 9.4 46.6 8.9 62.0 11.4
Other expense (income)......................... (1.4) (0.2) (1.3) (0.2) (0.8) (0.1)
Interest expense, net.......................... 51.6 7.5 38.8 7.4 38.6 7.1
------- ----- ------ ----- ------ -----
Income before income taxes..................... 13.9 2.0 9.1 1.7 24.2 4.4
Income tax expense (benefit)................... -- -- -- -- -- --
Minority interest in subsidiary................ 0.1 -- -- -- (0.3) (0.1)
------- ----- ------ ----- ------ -----
Income (loss) before extraordinary item........ $ 13.8 2.0% $ 9.1 1.7% $ 24.5 4.5%
======= ===== ====== ===== ====== =====
Pro forma EBITDA............................... $ 110.0 16.0% $ 81.0 15.5% $100.5 18.4%
======= ===== ====== ===== ====== =====
</TABLE>
Pro forma EBITDA represents pro forma earnings, including minority interest
and other income) before interest, income taxes, depreciation and amortization.
EBITDA is presented because it is a widely accepted financial indicator used by
some investors and analysts to analyze and compare companies on the basis of
operating performance. EBITDA is not intended to represent cash flows for the
periods presented, nor has it been presented as an alternative to operating
income as an indicator of operating performance. It should not be considered in
isolation or as a substitute for measures of performance prepared in a manner
that complies with generally accepted accounting principles and is not
indicative of operating income or cash flow from operations as determined under
generally accepted accounting principles. In addition, our calculation of EBITDA
is not necessarily comparable to other similarly titled captions of other
companies due to potential inconsistencies between methods of calculating it.
PRO FORMA NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTH
PERIOD ENDED SEPTEMBER 30, 1998
NET SALES. Net sales increased by 4.6% to $546.3 million for the nine month
period ended September 30, 1999 from $522.4 million for the comparable period
for 1998 on a pro forma basis. The increase was due to increased sales at Suiza
Packaging of $28.7 million primarily from operations, which began in the second
quarter of 1998. This increase was, offset in part, by a decline in sales of
$4.8 million at Reid Plastics.
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<PAGE>
GROSS PROFIT. Gross profit increased by 15.9% to $123.6 million for the
nine month period ended September 30, 1999 from $106.6 million for the
comparable period in 1998 on a pro forma basis. The increase was due to cost
reduction programs initiated at all locations in late 1998 together with
synergies recognized from acquisitions made in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses of $60.1 million for the nine month period ended
September 30, 1999 were relatively unchanged from the comparable period in 1999
on a pro forma basis. This was due to the consolidation of the Franklin
corporate offices, as well as the accounting and information systems functions,
with those of Suiza Packaging in the first quarter of 1999 and the consolidation
of the Reid corporate offices beginning in the third quarter of 1999, offset by
approximately $1.4 million of accelerated depreciation expense on some computer
systems that we will abandon in 2000.
OPERATING INCOME. Operating income increased by 33.0% to $62.0 million for
the nine month period ended September 30, 1999 from $46.6 million for the
comparable period in 1998 on a pro forma basis as a result of the factors
discussed above.
INTEREST EXPENSE, NET. Interest expense, net of $38.6 million for the nine
month period ended September 30, 1999 was relatively unchanged from the
comparable period in 1998 on a pro forma basis.
SEASONALITY
Due to the large portion of our business that is derived from the sale of
water, dairy and other beverage products, our financial results are typically
stronger in the second and third quarters of the year during the spring and
summer months when there is higher consumption of the end products related to
these sectors.
LIQUIDITY AND CAPITAL RESOURCES
Our principal uses of cash are for capital expenditures, working capital,
debt service and acquisitions. Funds for these purposes are primarily generated
from operations and borrowings under existing credit facilities. We generated
net cash from operating activities of approximately $52.1 million in 1998 and
approximately $9.8 million in the first nine months of 1999.
We made capital expenditures of approximately $83.2 million in 1998, on a
pro forma basis, and approximately $29.6 million in the nine months ended
September 30, 1999. Based on current information, we estimate that:
- in 1999, we will spend approximately $49.0 million on capital
expenditures, consisting of:
-- approximately $16.0 million on the maintenance of our plant, property
and equipment;
-- approximately $8.0 million on cost reduction programs; and
-- approximately $25.0 million on the expansion of our plant capacity; and
- in 2000, we will spend approximately $40.0 million on capital
expenditures, consisting of:
-- approximately $16.0 million on the maintenance of our plant, property
and equipment;
-- approximately $9.0 million on cost reduction programs; and
-- approximately $15.0 million on the expansion of our plant capacity.
As a limited liability company, we will not be liable for U.S. federal
income taxes under the Internal Revenue Code. Similarly, as a limited liability
company, our parent, Consolidated Container Holdings, will not be liable for
U.S. federal income taxes under the Internal Revenue Code. The
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<PAGE>
applicable income or loss will be included in the tax returns of the members of
Consolidated Container Holdings. We will make tax distributions to Consolidated
Container Holdings to enable it to reimburse its members for their tax
obligations.
As part of the transactions, we have borrowed and issued substantial amounts
of debt. At September 30, 1999, we had total debt of $603.3 million, of which
$412.5 million is senior to the outstanding notes, not including unused
commitments, and member's equity of $263.9 million and had a ratio of total debt
to pro forma EBITDA of 4.7x for the twelve months ended September 30, 1999.
Subject to restrictions in our senior credit facility and the indenture, we may
borrow or issue more debt for working capital, capital expenditures,
acquisitions and for other purposes. Our high level of combined debt could have
important consequences for you, including the following:
- it may make it more difficult for us to satisfy or refinance our
obligations regarding the outstanding notes and exchange notes and our
other debt;
- we may have difficulty borrowing money in the future for working capital,
capital expenditures, acquisitions or other purposes;
- we will need to use a large portion of the money that we earn to pay
principal and interest on borrowings under the senior credit facility, the
notes and on our other debt, which will reduce the amount of money
available to us to finance our operations, capital expenditures and other
business activities;
- we may have a much higher level of debt than our competitors, which may
put us at a competitive disadvantage;
- some of our debt has a variable rate of interest, which exposes us to the
risk of increased interest rates;
- borrowings under our senior credit facility will be secured and will
mature prior to the outstanding notes and the exchange notes;
- our high debt level makes us more vulnerable to economic downturns and
adverse developments in our business;
- our high debt level reduces our flexibility in responding to changing
business and economic conditions, including increased competition and
demand for new products which may require new technology and know-how in
the sectors in which we operate, which are undergoing consolidation and
other changes; and
- our high debt level limits our ability to implement our business strategy.
See "Risk Factors -- Substantial Leverage and Debt Service," "-- Contractual
Subordination" and "-- Structural Subordination."
The senior credit facility consists of a committed tranche A term loan
totaling $150.0 million, a committed tranche B term loan totaling
$235.0 million, an uncommitted tranche C term loan totaling $100.0 million,
which will only be available to us under some circumstances, and a committed
$90.0 million revolving credit facility. At September 30, 1999, we had
$62.5 million available for borrowings under the revolving credit facility,
subject to customary borrowing conditions. The revolving credit facility will
mature on July 2, 2005. The amortization schedule of the tranche A term loan
will require us to repay $3.75 million in 1999, $11.25 million in 2000,
$18.75 million in 2001, $26.25 million in 2002, $33.75 million in 2003,
$37.5 million in 2004 and $18.75 million in 2005. The tranche B term loan
requires amortization payments in equal annual installments of 1% of its initial
principal amount for each of the first six years after July 2, 1999 and the
amortization of the remaining amount in eight quarterly payments in the seventh
and eighth years after the closing of the senior credit facility. See
"Description of Senior Credit Facility."
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<PAGE>
Borrowings under the senior credit facility bear interest, at our option, at
either:
- a base rate, which will be the higher of 1/2 of 1% in excess of the
overnight federal funds rate and the prime lending rate of Bankers Trust
Company, plus a margin; or
- a eurodollar rate on deposits for one, two, three or six month periods or,
if and when available to all of the relevant lenders, nine or twelve month
periods, which are offered to Bankers Trust Company in the interbank
eurodollar market, plus the applicable interest margin.
The margin on base rate and eurodollar loans is based on a schedule that
corresponds to the leverage ratio of Consolidated Container Holdings and its
subsidiaries on a consolidated basis. Currently, we are paying the following
margins on amounts that we have borrowed:
- 0.75% for base rate loans and 1.75% for eurodollar rate loans for tranche
A term loans and revolving credit loans;
- 1.25% for base rate loans and 2.25% for eurodollar rate loans for tranche
B term loans; and
- a rate to be determined for tranche C terms loans, based on the agreement
between Consolidated Container Company and the lender or lenders providing
that loan.
In addition, Consolidated Container Company:
- pays a commitment fee on the unused commitments under the revolving credit
facility, ranging from 0.25% to 0.50% on an annual basis depending on the
same schedule of leverage ratios, payable quarterly in arrears;
- pays an annual administration fee to Bankers Trust Company, as
administrative agent; and
- paid, on the closing date of the senior credit facility, a commitment fee
equal to 3/8 of 1% each year of the total committed amount of the senior
credit facility from April 29, 1999 to and including that closing date.
RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivatives and Hedging
Activities ("SFAS No. 133"). SFAS No. 133 is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. SFAS No. 133 requires
companies to recognize all derivative instruments on their balance sheet as
either assets or liabilities measured at fair value. SFAS No. 133 also specifies
a new method of accounting for hedging transactions, prescribes the type of
items and transactions that may be hedged, and specifies detailed criteria to be
met to qualify for hedge accounting. We have not completed our evaluation of the
impact that the adoption of SFAS No. 133 will have on our financial statements.
YEAR 2000 COMPLIANCE
The Year 2000 problem is the result of computer programs and embedded chips
being written with two instead of four digits to define the applicable year. As
a result, computer programs and embedded chips that use date sensitive
information may recognize a date using "00" as the year 1900 rather than the
year 2000. If we, or third parties with whom we have a material relationship, do
not correct a material Year 2000 problem, the result could be an interruption
in, or a failure of, some normal business activities.
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<PAGE>
STATE OF READINESS
To prepare for the Year 2000, we formed a Year 2000 Task Force, in
conjunction with Suiza Foods, to identify the areas of the Company that will be
affected by the Year 2000 problem and to manage the process of:
- assessing Year 2000 compliance;
- analyzing possible solutions and implementing remedial programs; and
- testing these programs for each of our major business areas.
We summarize below each of these major business areas and out state of readiness
for them.
The first major area comprises the business information systems that support
the collection, processing and management of our internal data and recording
needs, including those regarding order entry and billing, accounts receivable,
accounts payable, product, customer and employee information, general ledger
entries and related accounting functions, among others. We have consolidated
essentially all of our business information systems to two third-party
enterprise resource planning software platforms with little or no customization.
We have received full certification of Year 2000 compliance by the applicable
vendors. We have implemented these platforms in most remote sites and have
completed the testing of these systems. The Year 2000 Task Force has completed
the assessment and remediation phases for the business information systems area.
The second major area is our manufacturing facilities. We have concluded the
assessment phase and are in the process of remediating this area. Because most
of our manufacturing facilities are not automated with date sensitive equipment,
we do not believe that this area poses a material threat of interruption due to
the Year 2000 problem. We have engaged an outside consulting firm with extensive
knowledge in embedded systems and process controls to assist in the
identification, testing, and remediation of all manufacturing facilities,
equipment and systems. We, or our third party consultant, has received responses
or necessary information from approximately 95% of all equipment vendors,
including a 100% response from those vendors which we consider critical. The
identification and remediation of all Year 2000 compliance issues regarding our
initial plants is substantially completed.
The third major area is our information technology infrastructure, including
hardware platforms, telecommunication equipment, operating systems and
supporting software. We have completed our assessment of this area and, as of
November 30, 1999, had remediated 95% of it, including embedded applications and
the networking of the hardware and software systems throughout our manufacturing
plants and offices. We have replaced antiquated hardware and have designed,
executed and tested the addition of new platforms and remote networking for all
systems. We expect that remediation and testing in this area will be completed
by approximately December 15, 1999.
The final major business area comprises our relationships with third
parties, including customers and suppliers of raw materials. The Year 2000 Task
Force has identified and prioritized our most important suppliers and customers
and has been communicating with them regarding their state of readiness and
interaction with our systems. We have performed detailed evaluations of the most
important third parties and we have developed contingency plans for this area.
We have received responses from 88% of all suppliers contacted, including a 95%
response from those third parties which we consider most important. As a result,
we believe that our most important third party suppliers are Year 2000
compliant.
CONTINGENCY PLANS
We have been developing contingency plans to address the most reasonably
likely worst case scenario resulting from the Year 2000 problem. These plans
include the retention of a limited number of outside consultants to assist our
need to respond to unforeseen issues and the implementation of
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<PAGE>
contingency plans. We have developed contingency plans for each of our
manufacturing facilities and expect to continue to implement these contingency
plans for our other major business areas until December 31, 1999. We estimate
that the total cost of implementing the contingency plans at approximately
$700,000, which is included in our estimate of the total costs required to
address Year 2000 issues, as noted below.
COSTS TO ADDRESS YEAR 2000 ISSUES
We estimate that the total cost of completing the Year 2000 project will be
approximately $4.7 million. This amount includes the implementation, training,
and testing costs related to the enterprise-wide software system, the full
replacement of antiquated hardware, software and local/wide area network
infrastructure and the costs to implement contingency plans, as noted above. As
of September 30, 1999, we had spent approximately $4.1 million on the Year 2000
project. We estimate that the remaining budgeted amount of $0.6 million will be
adequate to complete the Year 2000 project on a timely basis. We expect to fund
the cost of completing the Year 2000 project from cash flow from operations.
RISKS OF YEAR 2000 ISSUES
Our failure or the failure of material third party vendors and customers to
make our or their systems Year 2000 compliant could have a material adverse
impact on our business, including:
- our inability to order raw materials;
- the malfunctioning of our manufacturing or service processes;
- our inability to properly bill and collect payments from our customers;
and
- errors or omissions in accounting and financial data.
Although we recognize the risks involved, we believe that the steps we have
taken reduce our exposure to Year 2000 problems. The Year 2000 problem has,
however, inherent risks that are difficult to measure, including our ability to
adequately test all material remediated systems in a timely fashion, the
readiness of third party vendors and customers and our ability to execute
contingency plans. Accordingly, we cannot assure you that we will foresee all
Year 2000 problems or remediate them on a timely basis.
MARKET RISK SENSITIVE INSTRUMENTS
Our primary exposure to market risk is changing interest rates due to some
of our debt bearing a floating rate of interest. Our policy is to manage
interest rate risk by using a combination of fixed and floating rate debt. We
have not entered into any hedging or derivative transactions to hedge this debt
or otherwise. A 10% increase in interest rates at September 30, 1999 would not
have a material adverse effect on our results of operations, financial condition
or cash flows.
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF CONSOLIDATED CONTAINER
COMPANY LLC, SUCCESSOR TO REID PLASTICS, INC.
The following table presents selected historical financial data as of and
for the three months ended September 30, 1999 of Consolidated Container Company,
successor to Reid Plastics, and of Reid Plastics, preceding the acquisition of
Reid Plastics Holdings, the parent of Reid Plastics, by affiliates of Vestar
Capital Partners III on October 15, 1997, for each of the three years in the
period ended December 31, 1996 and the period from January 1, 1997 to
October 14, 1997 and the selected historical post-acquisition financial data for
the period from October 15, 1997 to December 31, 1997, the year ended
December 31, 1998, the nine months ended September 30, 1998 and the six months
ended June 30, 1999.
The selected historical financial data for the nine months ended
September 30, 1998, and the three months ended September 30, 1999 are unaudited,
and, in the opinion of the management of Consolidated Container Company, reflect
all adjustments consisting of normal recurring adjustments that are necessary to
present fairly the financial results for these periods. The selected historical
financial data do not purport to indicate results of operations as of any future
date or for any future period. The selected historical consolidated financial
data have been derived from and should be read in conjunction with the audited
and unaudited financial statements of Consolidated Container Company, successor
to Reid Plastics and the notes to them, "Use of Proceeds" and "Management's
Discussions and Analysis of Financial Condition and Results of Operations of
Consolidated Container Company, successor to Reid Plastics, Inc."
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<PAGE>
<TABLE>
PRE-ACQUISITION
---------------------------------------------- POST-ACQUISITION
PERIOD --------------------------------------------------
FROM PERIOD FROM
JANUARY 1, OCTOBER 15, SIX
1997 1997 NINE MONTHS MONTHS
YEAR ENDED DECEMBER 31, THROUGH THROUGH YEAR ENDED ENDED ENDED
--------------------------------- OCTOBER 13, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
1994 1995 1996 1997 1997 1998 1998 1999
-------- -------- -------- ---------- ----------- ----------- ----------- --------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $43.8 $105.5 $136.6 $164.7 $ 33.2 $175.2 $141.5 $ 85.4
Cost of goods sold...... 36.7 89.9 116.3 144.5 31.8 144.7 112.4 67.4
----- ------ ------ ------ ------ ------ ------ ------
Gross profit............ 7.1 15.6 20.3 20.2 1.4 30.5 29.1 18.0
Selling, general and
administrative
expenses.............. 4.6 10.3 13.3 14.1 3.4 18.1 15.8 9.0
Nonrecurring charges
(a)................... -- -- -- 9.1 -- -- -- --
----- ------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................ 2.5 5.3 7.0 (3.0) (2.0) 12.4 13.3 9.0
Other income
(expense)............. (0.3) 0.8 0.6 0.6 -- 1.3 0.8 0.5
Interest expense, net
(b)................... 1.3 4.0 4.8 6.3 1.9 10.5 7.9 4.5
----- ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes.......... 0.9 2.1 2.8 (8.7) (3.9) 3.2 6.2 5.0
Income tax expense
(benefit)............. 0.6 1.3 2.2 (1.2) (0.1) 2.8 3.4 2.9
Minority interest in
subsidiaries.......... (0.1) 0.2 0.2 0.3 0.1 0.1 -- (.3)
----- ------ ------ ------ ------ ------ ------ ------
Income (loss) before
extraordinary item.... 0.4 0.6 0.4 (7.8) (3.9) 0.3 2.8 2.4
Extraordinary item...... -- (0.1) -- -- -- -- -- (1.2)
----- ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $ 0.4 $ 0.5 $ 0.4 $ (7.8) $ (3.9) $ 0.3 $ 2.8 $ 1.2
===== ====== ====== ====== ====== ====== ====== ======
OTHER DATA:
EBITDA (c).............. $ 3.7 $ 10.6(d) $ 14.8 $ 19.0(d) $ 2.0 $ 29.6 $ 25.8 $ 17.0(d)
Net cash provided by
operating
activities............ 2.6 7.1 10.8 5.5 1.7 11.4 0.1 --
Net cash used in
investing
activities............ (3.5) (33.9) (43.2) (8.5) (4.5) (11.1) (8.0) (5.0)
Net cash provided by
(used in) financing
activities............ 1.0 29.0 35.3 (2.9) 6.6 0.7 8.0 4.4
Depreciation and
amortization.......... 1.4 4.9 7.7 12.6 4.1 16.0 11.7 7.2
Capital expenditures.... 2.9 5.7 5.9 9.3 4.8 12.7 9.2 5.1
Cash interest expense,
net (e)............... 1.3 3.8 4.5 6.3 1.9 10.5 7.9 4.5
Ratio of earnings to
fixed charges (f)..... 1.6x 1.5x 1.5x -- -- 1.3x 1.7x 1.9x
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and cash
equivalents........... $10.6 $ 3.7 $ 6.7 $ 0.7 $ 4.4 $ 5.4 $ 5.6 $ 10.6
Working capital......... 0.8 5.9 10.8 -- 20.6 14.0 27.9 24.0
Total assets............ 23.5 82.4 165.9 -- 235.4 219.9 236.6 984.0
Total debt.............. 12.9 37.7 98.0 -- 123.9 121.5 129.6 603.9
Total stockholders'
equity (deficit)...... (0.5) 19.9 19.8 -- 54.5 51.2 57.3 256.0
<S> <C>
-----------
THREE
MONTHS
ENDED
SEPTEMBER 30,
1999
-----------
INCOME STATEMENT DATA:
Net sales............... $ 197.4
Cost of goods sold...... 156.6
--------
Gross profit............ 40.8
Selling, general and
administrative
expenses.............. 18.8
Nonrecurring charges
(a)................... 1.5
--------
Operating income
(loss)................ 20.5
Other income
(expense)............. --
Interest expense, net
(b)................... 12.7
--------
Income (loss) before
income taxes.......... 7.8
Income tax expense
(benefit)............. --
Minority interest in
subsidiaries.......... --
--------
Income (loss) before
extraordinary item.... 7.8
Extraordinary item...... --
--------
Net income (loss)....... $ 7.8
========
OTHER DATA:
EBITDA (c).............. $ 35.4(d)
Net cash provided by
operating
activities............ 9.8
Net cash used in
investing
activities............ (8.8)
Net cash provided by
(used in) financing
activities............ (0.6)
Depreciation and
amortization.......... 13.4
Capital expenditures.... 8.5
Cash interest expense,
net (e)............... 11.9
Ratio of earnings to
fixed charges (f)..... 1.5x
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and cash
equivalents........... $ 10.9
Working capital......... 36.5
Total assets............ 1,008.0
Total debt.............. 603.3
Total stockholders'
equity (deficit)...... 263.8
</TABLE>
(FOOTNOTES APPEAR ON THE FOLLOWING PAGE)
113
<PAGE>
(FOOTNOTES FOR TABLE ON PRIOR PAGE)
(a) Nonrecurring charges consisted of the write-off of some assets because of
the consolidation of plants, which occurred prior to October 14, 1997 and
severences related to excess personnel recorded in the three months ended
September 30, 1999. These amounts have not been included in EBITDA for the
same periods.
(b) Represents interest expense, net of interest income.
(c) EBITDA represents earnings,including minority interest and other income
before interest, income taxes, and depreciation and amortization. EBITDA is
presented because it is a widely accepted financial indicator used by some
investors and analysts to analyze and compare companies on the basis of
operating performance. EBITDA is not intended to represent cash flows for
the periods presented, nor has it been presented as an alternative to
operating income as an indicator of operating performance. It should not be
considered in isolation or as a substitute for measures of performance
prepared according to generally accepted accounting principles and is not
indicative of operating income or cash flow from operations as determined
under generally accepted accounting principles. In addition, our calculation
of EBITDA is not necessarily comparable to other similarly titled captions
of other companies due to potential inconsistencies between methods of
calculating it.
(d) Represents Adjusted EBITDA for the period. Adjusted EBITDA represents EBITDA
as adjusted to give effect to extraordinary items because of the early
extinguishment of debt for the year ended December 31, 1995 and the six
months ended June 30, 1999 and nonrecurring charges because of the
consolidation of plants and excess headquarter personnel which occurred
prior to October 14, 1997, for the period from January 1, 1997 through
October 14, 1997 and for the three months ended September 30, 1999,
respectively. We have calculated Adjusted EBITDA as follows:
<TABLE>
<CAPTION>
THREE MONTHS
SIX MONTHS ENDED
YEAR ENDED PERIOD FROM JANUARY 1, 1997 ENDED JUNE 30, SEPTEMBER 30,
DECEMBER 31, 1995 THROUGH OCTOBER 14, 1997 1999 1999
------------------ ---------------------------- --------------- -------------
<S> <C> <C> <C> <C>
EBITDA................... $10.5 $ 9.9 $15.8 $33.9
Consolidation Savings.... -- 9.1 -- 1.5
Extraordinary Item....... 0.1 -- 1.2 --
----- ----- ----- -----
Adjusted EBITDA........ $10.6 $19.0 $17.0 $35.4
===== ===== ===== =====
</TABLE>
(e) Cash interest expense excludes amortization of deferred financing fees.
(f) For purposes of determining the ratio of earnings to fixed charges,
"earnings" is defined as income (loss) before income taxes and extraordinary
item plus fixed charges. "Fixed charges" consist of interest expense on all
debt, amortization of deferred financing costs and one-third of rental
expense on operating leases, representing that portion of rental expense
which Reid Plastics, Inc. that is attributable to interest. Earnings were
insufficient to cover fixed charges for the year ended December 31, 1997 by
$12.6 million.
114
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF CONSOLIDATED CONTAINER COMPANY LLC, SUCCESSOR TO
REID PLASTICS, INC.
OVERVIEW
Prior to the closing of the transactions, Reid Plastics, Inc. was a leading
developer, manufacturer and marketer of rigid plastic containers for bottled
water, milk and fruit juices and also manufactures plastic containers for the
institutional food, chemical and automotive sectors of the U.S. plastic
packaging industry. Reid Plastics, Inc. has over 1,000 customers, including well
known companies, such as McKesson Water Products, Perrier Group of America,
Procter & Gamble and Suntory Water Group. In 1998, Reid Plastics, Inc. sold over
1.0 billion containers using primarily three resins, HDPE, PC and PET. Its
product line included:
- one, three, five and six gallon PC water bottles;
- HDPE bottles in sizes ranging from half pint to ten quarts for water,
milk, juice and industrial chemicals;
- PET containers for bottled water, food and other beverages; and
- dispensing valves and other injection molded water cooler components.
Reid Plastics, Inc. operated 25 facilities in North America with eight
located throughout California, three in Canada and the balance throughout the
United States and Mexico.
Between 1996 and 1998, the financial results of Reid Plastics, Inc. were
affected by several factors. In 1996, Reid Plastics, Inc. completed two
strategic acquisitions. In November 1996, Reid Plastics, Inc. acquired Stewart
Walker, expanding Reid Plastics, Inc.'s offering of HDPE containers to the food
and automotive sectors and PET bottles for the other beverage and food sectors.
Also in November 1996, Reid Plastics purchased PCI Demopolis, a leading regional
supplier of HDPE blow molded plastic containers to the dairy, juice, water,
industrial and other sectors.
In October 1997, an affiliate of Vestar Capital Partners III purchased a
controlling interest in Reid Plastics Holdings, the parent and owner of Reid
Plastics, Inc. During this sale process, which began in early 1997, Reid
Plastics, Inc.'s net sales and gross profit decreased.
Following the acquisition by an affiliate of Vestar Capital Partners III,
Reid Plastics, Inc. undertook a reorganization to cut costs, optimize its plant
network and integrate various prior acquisitions. As a result, in the fourth
quarter of 1997 and in 1998, Reid Plastics, Inc. began to consolidate and
rationalize its manufacturing plants, increase capacity utilization of its
plants and distribution system, resulting, in part, in lower transportation
costs, hire senior managers and retain outside consultants to manage the process
described above.
In 1998 and the first six months of 1999, Reid Plastics, Inc.'s net sales
decreased due to decreases in the price of HDPE, one of its principal plastic
resins. Although net sales are affected by fluctuations in resin prices, Reid
Plastics, Inc.'s gross profit is, in general, substantially unaffected by these
fluctuations because industry practice and contractual arrangements with
customers permit or require Reid Plastics, Inc. over time to pass through
changes in resin prices by means of changes in product pricing.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTH PERIOD
ENDED SEPTEMBER 30, 1998
NET SALES. Net sales increased by 297.9% to $197.4 million for the three
month period ended September 30, 1999 from $49.6 million for the comparable
period in 1998. The increase was due to the
115
<PAGE>
inclusion of $146.1 million attributable to the acquisition of Suiza Packaging
in 1999. Reid Plastics net sales increased by $1.7 million due to stronger sales
across its businesses, particularly in its water and dairy segments.
GROSS PROFIT. Gross profit increased by 223.8% to $40.9 million for the
three month period ended September 30, 1999 from $12.6 million for the
comparable period in 1998. The increase was due to the acquisition of Suiza
Packaging in 1999 as well as cost reduction efforts initiated at all locations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by 183.3% to $18.7 million for the three month
period ended September 30, 1999 from $6.6 million for the comparable period in
1998. The increase was due to the acquisition of Suiza Packaging in 1999 and
accelerated depreciation on computer systems which we expect to abandon in 2000.
OPERATING INCOME. Operating income increased by 241.7% to $20.5 million for
the three month period ended September 30, 1999 from $6.0 million for the
comparable period in 1998 as a result of the factors discussed above, offset by
a restructuring charge of $1.5 million in the three months ended September 30,
1999 relating to the closure of the Reid corporate offices following the
transactions.
INTEREST EXPENSE, NET. Interest expense, net increased 370.4% to
$12.7 million for the three month period ended September 30, 1999 from
$2.7 million for the comparable period in 1998 due to the acquisition of Suiza
Packaging together with the higher debt levels following the transactions.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1998
NET SALES. Net sales increased by 100% to $282.8 million for the nine month
period ended September 30, 1999 from $141.5 million for the comparable period
for 1998. The increase was due primarily to the acquisition of Suiza Packaging
in 1999. The net sales included after July 2, 1999 of $146.4 million were
partially offset by a decline in sales of $4.8 million at Reid Plastics. A
portion of the net sales decline at Reid Plastics was attributable to a location
purchased by the Franklin Plastics division of Suiza Packaging in 1998.
GROSS PROFIT. Gross profit increased by 102.0% to $58.8 million for the
nine month period ended September 30, 1999 from $29.1 million for the comparable
period in 1998. The increase was due to the inclusion of $28.3 million of gross
profit attributable to the acquisition of Suiza Packaging in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses increased by 75.5% to $27.8 million for the nine month
period ended September 30, 1999 from $15.8 million for the comparable period in
1998. The increase was due to the inclusion of the selling, general and
administrative expenses incurred by Suiza Packaging after July 2, 1999 and
accelerated depreciation of computer systems which we expect to abandon in 2000.
OPERATING INCOME. Operating income increased by 121.8% to $29.5 million for
the nine month period ended September 30, 1999 from $13.3 million for the
comparable period in 1998 as a result of the acquisition of Suiza Packaging
offset by the restructuring charge recorded in September 1999 relating to the
closure of the Reid corporate offices following the transactions.
INTEREST EXPENSE, NET. Interest expense, net increased by 117.7% to
$17.2 million for the nine month period ended September 30, 1999 from
$7.9 million for the comparable period in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET SALES. Net sales decreased by 11.5% to $175.2 million in 1998 from
$197.9 million in 1997. The decrease was partially due to a reduction in the
price of HDPE resin in 1998, which was passed on over time to customers in the
form of lower selling prices, lower sales volume because of the closure of
plants in Calgary, Alberta and Riverside, California and a reduction in business
at the Albuquerque, New Mexico facility.
116
<PAGE>
GROSS PROFIT. Gross profit increased by 41.2% to $30.5 million in 1998 from
$21.6 million in 1997. The increase was primarily attributable to improved
management of operating expenses following the acquisition of a controlling
interest in Reid Plastics Holdings by an affiliate of Vestar Capital Partners
III, including a reduction of $2.5 million in labor and overhead expenses
associated with the consolidation of several manufacturing facilities. In
particular, Reid Plastics, Inc. consolidated its Monrovia, California facility
into its Samuelson, California facility, closed its Calgary, Alberta facility
(moving its equipment into the City of Industry (Willow), California facility),
closed its Sacramento, California facility (moving its business into its Tracy,
California facility) and reduced activity at its Albuquerque, New Mexico and
Riverside, California facilities. As part of the 1997 acquisition of a
controlling interest in Reid Plastics Holdings by an affiliate of Vestar Capital
Partners III, Reid Plastics, Inc. established a reserve to account for some
leases and plants which it expected to eliminate, close or consolidate with
others, which had the effect of reducing cost of sales by $1.1 million. The
lease and other expenses associated with these facilities had been expensed in
the prior period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased by 3.4% to $18.1 million in 1998 from
$17.5 million in 1997. The increase resulted primarily from increased costs of
hiring management, the relocation of corporate offices to Diamond Bar,
California and the cost of hiring consulting services in 1998.
NONRECURRING CHARGES. In October 1997, Reid Plastics, Inc. recorded
$9.1 million of nonrecurring charges related to the consolidation and closure of
some warehousing, manufacturing and administrative facilities.
OPERATING INCOME (LOSS). Operating income (loss) increased to
$12.4 million in 1998 from ($5.0) million in 1997. The increase was the result
of the factors discussed above.
OTHER INCOME. Other income increased by 116.7% to $1.3 million in 1998 from
$0.6 million in 1997. The increase was primarily attributable to an increase in
profitability of Reid Plastics, Inc.'s joint ventures in Colombia and the
Dominican Republic.
INTEREST EXPENSE, NET. Interest expense, net increased by 28.0% to
$10.5 million in 1998 from $8.2 million in 1997. The increase was due to higher
average outstanding borrowings under its credit agreement.
NET INCOME (LOSS). In 1998, Reid Plastics, Inc. recorded net income of
$0.3 million compared to a net loss of ($11.7) million in 1997. The increase was
primarily the result of the factors discussed above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales increased by 44.9% to $197.9 million in 1997 from
$136.6 million in 1996. The increase was due primarily to (1) the inclusion of
the full year results for Stewart Walker and PCI Demopolis, which were acquired
in November 1996, and (2) higher purchase prices for HDPE resin, which resulted
in higher selling prices to customers. The acquisitions referred to above were
accounted for using the purchase method of accounting, under which the financial
results of an acquired entity are included from the date of acquisition.
GROSS PROFIT. Gross profit increased by 6.4% to $21.6 million in 1997 from
$20.3 million in 1996. The increase was due primarily to the inclusion of the
full year results for Stewart Walker and PCI Demopolis which was offset, in
part, by an increase in depreciation expense to $11.7 million in 1997 from
$5.1 million in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased by 31.6% to $17.5 million in 1997 from
$13.3 million in 1996. The increase was due primarily to the addition of
overhead expenses associated with Stewart Walker and PCI Demopolis and a
$2.6 million increase in amortization expense resulting from additional goodwill
associated with these acquisitions.
117
<PAGE>
NONRECURRING CHARGES. In October 1997, Reid Plastics, Inc. recorded
$9.1 million of nonrecurring charges related to the rationalization and closing
of some warehousing, manufacturing and administrative facilities.
OPERATING INCOME (LOSS). Operating income (loss) decreased to ($5.0)
million in 1997 from $7.0 million in 1996. The decrease was the result of the
factors discussed above.
OTHER INCOME. Other income of $0.6 million in 1997 was unchanged from the
same amount in 1996.
INTEREST EXPENSE, NET. Interest expense, net increased by 70.8% to
$8.2 million in 1997 from $4.8 million in 1996. The increase was due to
increased borrowings primarily to fund the November 1996 acquisitions of Stewart
Walker and PCI Demopolis, and the acquisition of a controlling interest in Reid
Plastics Holdings by an affiliate of Vestar Capital Partners III in
October 1997.
NET INCOME (LOSS). Reid Plastics, Inc. recorded a net loss of ($11.7)
million in 1997 and net income of $0.4 million in 1996. The change was primarily
a result of the factors discussed above.
118
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF SUIZA PACKAGING
The following table presents selected historical financial data of Suiza
Packaging preceding the acquisition of Plastics Management Group, the
predecessor of Franklin Plastics, Inc., by Suiza Foods for each of the three
years in the period ended September 30, 1996 and for the ten months ended
July 31, 1997, and the selected historical post-acquisition financial data of
Suiza Packaging for the five months ended December 31, 1997, for the year ended
December 31, 1998 and for the six months ended June 30, 1998 and 1999. The
selected historical post-acquisition financial data for the year ended
December 31, 1998 and the six months ended June 30, 1998 and 1999 include the
operations of twelve businesses purchased by Suiza Packaging in 1998 from the
respective acquisition dates (including the significant acquisition of Plastic
Containers on May 29, 1998). Franklin Plastics, Inc. was purchased by Suiza
Foods on July 31, 1997. Financial data subsequent to that date is referred to as
post-acquisition. The selected historical post-acquisition financial data for
the six months ended June 30, 1998 and 1999 are unaudited, and, in the opinion
of management of Consolidated Container Company, reflect all adjustments
consisting of normal recurring adjustments that are necessary to present fairly
the financial results for these periods. The selected historical financial data
do not purport to indicate results of operations as of any future date or for
any future period. The selected historical financial data have been derived from
and should be read in conjunction with the audited and unaudited financial
statements of Suiza Packaging and the notes to them, "Use of Proceeds" and
"Management's Discussions and Analysis of Financial Conditions and Results of
Operations of Suiza Packaging."
<TABLE>
<CAPTION>
POST-ACQUISITION
PRE-ACQUISITION ------------------------------------------------------
------------------------------------------------
TEN MONTHS FIVE MONTHS
SEPTEMBER 30 JULY 31,
THROUGH THROUGH YEAR ENDED SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JULY 31, DECEMBER 31, DECEMBER 31, JUNE 30,
------------------------------- --------------- --------------- --------------- --------------------
1994 1995 1996 1997 1997 1998 1998 1999
--------- --------- --------- --------------- --------------- --------------- --------- ---------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................ $ 38.4 $ 67.1 $ 80.1 $ 89.6 $ 49.7 $ 367.9 $ 114.6 $ 263.5
Cost of goods sold....... 33.0 61.4 67.6 79.7 39.0 83.1 89.4 198.7
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............. 5.4 5.7 12.5 9.9 10.7 84.8 25.2 64.8
Selling, general and
administrative
expenses............... 1.2 1.0 2.6 1.9 6.3 38.2 13.0 30.3
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income......... 4.2 4.7 9.9 8.0 4.4 46.6 12.2 34.5
Other income (expense)... 0.1 0.3 (0.4) (0.2) -- (0.1) -- .3
Interest expense, net
(a).................... 0.3 0.6 1.1 1.5 4.7 26.8 8.4 18.6
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes........... 4.0 4.4 8.4 6.3 (0.3) 19.7 3.8 16.2
Income tax expense....... 0.1 0.1 0.2 0.4 0.2 9.5 1.8 7.7
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)........ $ 3.9 $ 4.3 $ 8.2 $ 5.9 $ (0.5) $ 10.2 2.0 8.5
========= ========= ========= ========= ========= ========= ========= =========
OTHER DATA:
EBITDA (b)............... $ 6.6 $ 7.1 $ 13.6 $ 12.8 $ 6.6 $ 63.8 17.1 49.6
Net cash provided by
(used by) operating
activities............. 5.8 5.7 13.1 9.0 9.2 26.7 2.1 21.2
Net cash used in
investing activities... (0.6) (3.3) (29.5) (14.8) (145.4) (142.5) (59.6) (14.8)
Net cash provided by
(used in) financing
activities............. (5.3) (2.4) 17.1 5.0 136.4 117.1 58.2 (3.5)
Depreciation and
amortization........... 2.3 2.1 4.1 5.0 2.2 17.3 4.9 14.8
Capital expenditures..... 11.8 8.2 29.4 14.7 9.3 63.7 17.8 16.0
Cash interest expense,
net (c)................ 0.3 0.6 1.1 1.5 4.7 27.3 8.5 19.0
Ratio of earnings to
fixed charges (d)...... 5.0x 3.5x 4.4x 3.0x -- 1.6x 1.4x 1.8x
</TABLE>
119
<PAGE>
(TABLE CONTINUED FROM AND FOOTNOTES FROM TABLE ON PRIOR PAGE)
<TABLE>
<CAPTION>
POST-ACQUISITION
PRE-ACQUISITION ------------------------------------------------------
------------------------------------------------
TEN MONTHS FIVE MONTHS
SEPTEMBER 30 JULY 31,
THROUGH THROUGH YEAR ENDED SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JULY 31, DECEMBER 31, DECEMBER 31, JUNE 30,
------------------------------- --------------- --------------- --------------- --------------------
1994 1995 1996 1997 1997 1998 1998 1999
--------- --------- --------- --------------- --------------- --------------- --------- ---------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(at end of period):
Cash and cash
equivalents............. $ 0.1 $ 0.2 $ 0.8 $ -- $ 0.3 $ 1.7 $ 0.9 $ --
Working capital........... (5.8) (4.3) (23.1) 2.5 (5.7) (22.2) 6.7 --
Total assets.............. 13.5 17.6 46.3 57.9 158.9 591.9 540.9 --
Total debt................ 6.3 7.0 27.7 38.7 108.8 404.7 372.8 --
Total preferred stock..... -- -- -- -- 22.7 72.6 65.8 --
Total common stockholders'
equity.................. 1.8 3.9 7.5 9.2 3.0 13.3 11.3 --
</TABLE>
- ------------------------
(a) Represents interest expense, net of interest income.
(b) EBITDA represents earnings (including minority interest and other income)
before interest, income taxes, depreciation and amortization. EBITDA is
presented because it is a widely accepted financial indicator used by some
investors and analysts to analyze and compare companies on the basis of
operating performance. EBITDA is not intended to represent cash flows for
the period, nor has it been presented as an alternative to operating income
as an indicator of operating performance. It should not be considered in
isolation or as a substitute for measures of performance prepared according
to generally accepted accounting principles and is not indicative of
operating income or cash flow from operations as determined under generally
accepted accounting principles. In addition, our calculation of EBITDA is
not necessarily comparable to other similarly titled captions of other
companies due to potential inconsistencies between methods of calculating
it.
(c) Cash interest expense, net excludes amortization of deferred financing fees
and other non-cash interest expense.
(d) For purposes of determining the ratio of earnings to fixed charges,
"earnings" is defined as income (loss) before income taxes plus fixed
charges. "Fixed charges" consist of interest expense on all debt,
amortization of deferred financing costs and one-third of rental expense on
operating leases, representing that portion of rental expense which Suiza
Packaging considered to be attributable to interest. Earnings were
insufficient to cover fixed charges for the five months ended December 31,
1997 by $0.3 million.
120
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF SUIZA PACKAGING
OVERVIEW
Prior to the closing of the transactions, Suiza Packaging included the
operations of Franklin Plastics, Inc. and Plastic Containers. Franklin Plastics,
Inc. was acquired by Suiza Foods in July 1997. Plastic Containers and its
immediate parent, Continental Can Company, were acquired by Suiza Foods in
May 1998. Both of these acquisitions were accounted for using the purchase
method of accounting, and the related accounting adjustments, including
goodwill, were pushed down and are reflected in the combined financial
statements of Suiza Packaging as of their respective acquisition dates. The
combined financial statements of Suiza Packaging for the periods before
July 31, 1997 were prepared using the historical basis of accounting for
Plastics Management Group, the predecessor of Suiza Packaging. Because of the
application of the purchase method of accounting, as of the respective
acquisition dates of Franklin Plastics, Inc. and Plastic Containers, the
operating results of Suiza Packaging and its predecessor are presented using
different bases of accounting that affect the comparability of their operating
results.
Prior to the closing of the transactions, Suiza Packaging was a leading
domestic developer, manufacturer and marketer of rigid plastic containers for
many of the world's largest branded consumer products and beverage companies.
Suiza Packaging's product line consisted of single and multi-layer containers
made from a variety of plastic resins including HDPE, PP, PET and PVC in sizes
ranging from two ounces to five gallons.
Suiza Packaging's primary raw materials consisted of HDPE, PP, PET and PVC
resins. Although net sales were affected by fluctuations in resin prices, Suiza
Packaging's gross profit was, in general, substantially unaffected by these
fluctuations because industry practice and its contractual arrangements with
customers permitted or required it, over time, to pass through changes in resin
prices by means of changes in product pricing. Consequently, Suiza Packaging
believed that an analysis of the gross profit on a percentage of sales basis was
not meaningful.
During 1998, in addition to the Plastic Containers acquisition, Suiza
Packaging completed the acquisition of 11 other plastic packaging businesses
funded primarily with borrowings from Suiza Foods.
The year ended December 31, 1997 results of operations data has been derived
from the unaudited pre-acquisition financial records of Suiza Packaging for the
quarter ended March 31, 1997 and the audited pre and post acquisition financial
statements of Suiza Packaging for the four months ended July 31, 1997 and the
five months ended December 31, 1997.
RESULTS OF OPERATIONS
SIX MONTHS PERIOD ENDED JUNE 30, 1999 COMPARED TO SIX MONTH PERIOD ENDED
JUNE 30, 1998
NET SALES. Net sales increased by 219.9% to $263.5 million for the six
month period ended June 30, 1999 from $114.6 million for the comparable period
for 1998. The increase was primarily attributable to the inclusion of entities
which Suiza Packaging acquired after March 31, 1998, including Plastic
Containers, Liquitane, Rostan Corporation and Consolidation Plastechs and as the
commencement of operations at six new locations after March 31, 1998.
GROSS PROFIT. Gross profit increased by 157.1% to $64.8 million of the six
month period ended June 30, 1999 from $25.2 million for the comparable period in
1998. The increase is primarily a result of the inclusion of Plastic Containers
in 1999, which accounted for $26.1 million of the gross profit for that period.
Gross profit for the Franklin Plastics, Inc. operations increased from
$20.1 million in the
121
<PAGE>
first six months of 1999 to $38.7 million compared to the first months of 1998
due to the inclusion of the businesses which were acquired after March 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by 133.1% to $30.3 million for the six month
period ended June 30, 1999 from $13.0 million for the comparable period in 1998.
The increase was due to the inclusion of $12.4 million of operating expenses of
Plastic Containers that were included in the first six months of 1999, together
with $1.7 million of amortization of the goodwill recorded for the acquisitions
completed after March 31, 1998. Operating expenses related to the Franklin
Plastics, Inc. operations were $5.4 million higher due to expenses related to
the integration of the acquired businesses.
OPERATING INCOME. Operating income increased by 182.7% to $34.5 million for
the six month period ended June 30, 1999 from $12.2 million for the comparable
period in 1998. The increase was due to the factors described above.
INTEREST EXPENSE, NET. Interest expense, net increased by 121.4% to
$18.6 million for the six month period ended June 30, 1999 from $ 8.4 million
for the comparable period in 1998. The increase was due to an increased level of
debt relating to the business acquired, including Plastic Containers.
NET INCOME. Net income increased by 325% to $8.5 million for the six month
period ended June 30, 1999 from $2.0 million for the six month period ended
June 30, 1998. The increase was due to the factors described above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET SALES. Net sales increased by 218.0% to $367.9 million in 1998 from
$115.7 million in 1997. The increase in net sales is primarily attributable to
the inclusion of Plastic Containers, which was acquired in May 1998, together
with the acquisition of eleven additional plastic packaging businesses during
1998. Net sales attributable to acquired businesses, including Plastic
Containers, were $221.1 million. In addition, $4.4 million of the increase in
net sales resulted from new plant openings in 1998, and $6.2 million of the
increase from 1997 to 1998 was due to the inclusion for a full year of the
operations of four plants that we opened during 1997.
GROSS PROFIT. Gross profit increased by 371.1% to $84.8 million in 1998
from $18.0 million in 1997. The increase in gross profit was attributable to the
inclusion of the operations acquired during 1998 as well as the inclusion for a
full year in 1998 of plants that we opened during 1997. Of the total gross
profit of $84.8 million in 1998, $30.7 million was from Plastic Containers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by 409.3% to $38.2 million in 1998 from
$7.5 million in 1997. The increase resulted primarily from the addition of the
businesses acquired, including $15.0 million of operating expenses at Plastic
Containers and $3.3 million of plant rationalization and realignment costs
related to the integration of the businesses acquired and $5.1 million related
to the amortization of goodwill recorded for the businesses acquired.
OPERATING INCOME. Operating income increased by 343.8% to $46.6 million in
1998 from $10.5 million in 1997. The increase in operating income is primarily
attributable to the factors discussed above.
INTEREST EXPENSE, NET. Interest expense, net increased by 362.1% to
$26.8 million in 1998 from $5.8 million in 1997 due to the interest expense
relating to the higher amount of debt relating to the businesses acquired in
1998. Interest expense attributable to the Plastic Containers acquisition was
$11.4 million.
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NET INCOME. Net income increased by 148.8% to $10.2 million in 1998 from
$4.1 million in 1997 due to the factors discussed above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996
NET SALES. Net sales increased by 44.4% to $115.7 million in 1997 from
$80.1 million in 1996. The increase in net sales was due primarily to the
inclusion of a full year's results of operation in 1997 of four operating
facilities that we acquired in late 1996.
GROSS PROFIT. Gross profit increased by 44.0% to $18.0 million in 1997 from
$12.5 million in 1996. The increase resulted primarily from the inclusion of the
full year of operations for four new facilities in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by 188.5% to $7.5 million in 1997 from
$2.6 million in 1996. The increase was due primarily to the increase in the
number of plants operating in 1997 compared to 1996 and the amortization of
goodwill related to acquisitions. These increases were offset, part, by reduced
corporate charges due to the establishment of a corporate administrative
function in 1997, which costs were less than the amounts previously charged by
the predecessor parent company.
OPERATING INCOME. Operating income increased by 6.1% to $10.5 million in
1997 from $9.9 million in 1996. The $0.6 million increase in 1998 was
attributable to the factors discussed above.
INTEREST EXPENSE, NET. Interest expense, net increased by 427.3% to
$5.8 million in 1997 from $1.1 million in 1996 due to the interest on the debt
from Suiza Foods' acquisition of Franklin Plastics, Inc. and the formation of
Suiza Packaging.
NET INCOME. For reasons discussed above, net income decreased by 50.0% to
$4.1 million in 1997 from $8.2 million in 1996.
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SELECTED HISTORICAL PRE-ACQUISITION FINANCIAL DATA
OF PLASTIC CONTAINERS, INC.
The following table presents selected historical financial data of Plastic
Containers, preceding its acquisition by Suiza Foods on May 29, 1998, for each
of the four years in the period ended December 31, 1997 and the five months
ended May 29, 1998. The post-acquisition historical financial data of Plastic
Containers for the seven month period ended December 31, 1998 and the unaudited
six months ended June 30, 1999 is included in the historical financial data of
Suiza Packaging for those periods. The selected historical pre-acquisition
financial data do not purport to indicate results of operations as of any future
date or for any future period. The selected historical pre-acquisition financial
data have been derived from and should be read in conjunction with the audited
financial statements of Plastic Containers and the notes to them, "Use of
Proceeds" and "Management's Discussions and Analysis of Financial Conditions and
Results of Operations of Suiza Packaging."
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED DECEMBER 31, ENDED MAY 29,
----------------------------------------- -------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................................... $230.5 $277.1 $267.8 $279.6 $108.9
Cost of goods sold............................ 192.6 237.7 224.8 234.2 92.2
Gross profit.................................. 37.9 39.4 43.0 45.4 16.7
------ ------ ------ ------ ------
Selling, general and administrative
expenses.................................... 29.3 30.0 35.3 27.8 11.6
------ ------ ------ ------ ------
Operating income.............................. 8.6 9.4 7.7 17.6 5.1
Other expense................................. 0.4 0.3 0.4 0.6 --
Interest expense, net (a)..................... 11.6 11.6 12.8 12.1 5.0
------ ------ ------ ------ ------
Income (loss) before income taxes and
extraordinary item.......................... (3.4) (2.5) (5.5) 4.9 0.1
Income tax benefit............................ 1.6 2.5 1.9 1.0 1.6
------ ------ ------ ------ ------
Income (loss) before extraordinary item....... (1.8) -- (3.6) 5.9 1.7
Extraordinary item -- loss on early
extinguishment of debt...................... (0.2) (0.2) (7.3) -- --
Cumulative effect of accounting change........ (0.5) -- -- -- --
------ ------ ------ ------ ------
Net income (loss)............................. $ (2.5) $ (0.2) $(10.9) $ 5.9 $ 1.7
====== ====== ====== ====== ======
OTHER DATA:
EBITDA (b).................................... $33.3(c) $33.1(c) $28.7(c) $29.9 $ 10.7
Net cash provided by operating activities..... 17.6 12.5 24.5 21.3 14.0
Net cash provided by (used in) investing
activities.................................. (14.9) (30.3) (10.5) (29.7) (13.9)
Net cash provided by (used in) financing
activities.................................. (5.5) 16.5 (3.3) (1.3) (0.3)
Depreciation and amortization................. 25.1 24.0 21.4 12.9 5.6
Capital expenditures.......................... 15.0 30.7 21.2 11.1 6.8
Cash interest expense, net (d)................ 11.6 11.6 12.7 11.4 4.8
Ratio of earnings to fixed charges (e)........ -- -- -- 1.3x 1.0x
BALANCE SHEET DATA (at end of period):
Cash and cash equivalents..................... $ 2.7 $ 1.4 $ 12.2 $ 2.5 $ 2.3
Working capital............................... 24.2 0.2 25.3 29.9 23.4
Total assets.................................. 209.3 219.6 205.7 204.9 207.3
Total debt.................................... 105.5 105.4 130.0 129.0 128.7
Total stockholders' equity.................... 37.7 37.5 14.2 20.1 16.5
</TABLE>
(FOOTNOTES TO TABLE APPEAR ON FOLLOWING PAGE)
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(FOOTNOTES FROM TABLE ON PRIOR PAGE)
(a) Represents interest expense, net of interest income.
(b) EBITDA represents earnings, including minority interest and other income,
before interest, income taxes, depreciation and amortization and
extraordinary items and the cumulative effect of an accounting change.
EBITDA is presented because it is a widely accepted financial indicator used
by some investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA is not intended to represent cash flows for
the periods presented, nor has it been presented as an alternative to
operating income as an indicator of operating performance. It should not be
considered in isolation or as a substitute for measures of performance
prepared according to generally accepted accounting principles and is not
indicative of operating income or cash flow from operations as determined
under generally accepted accounting principles. In addition, our calculation
of EBITDA is not necessarily comparable to other similarly titled captions
of other companies due to potential inconsistencies between methods of
calculating it.
(c) Represents Adjusted EBITDA for the period. Adjusted EBITDA represents EBITDA
as adjusted to give effect to extraordinary items regarding the early
extinguishment of debt for the years ended December 31, 1994, 1995, and 1996
and the cumulative effect of an accounting change for the year ended
December 31, 1994. We have calculated Adjusted EBITDA as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
EBITDA....................... 32.6 32.9 21.4
Extraordinary item........... 0.2 0.2 7.3
Cumulative effect of
accounting change.......... 0.5 -- --
---- ---- ----
Adjusted EBITDA............ 33.3 33.1 28.7
==== ==== ====
</TABLE>
(d) Cash interest expense, net excludes amortization of deferred financing fees.
(e) For purposes of determining the ratio of earnings to fixed charges,
"earnings" is defined as income (loss) before income taxes plus fixed
charges. "Fixed charges" consist of interest expense on all debt,
amortization of deferred financing costs and one-third of rental expense on
operating leases, representing that portion of rental expense which Plastic
Containers considered to be attributable to interest. Earnings were
insufficient to cover fixed charges for the years ended December 31, 1994,
1995, and 1996 by $3.4 million, $2.5 million and $5.5 million.
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<PAGE>
BUSINESS
We are a leading domestic developer, manufacturer and marketer of rigid
plastic containers for many of the world's largest branded consumer products and
beverage companies. In 1998, we sold over 4 billion containers to the dairy,
water, other beverage, food, household chemical and personal care, automotive
and agricultural and industrial chemical sectors. Our broad container product
line ranges in size from two ounce to six gallon containers and consists of
single and multi-layer plastic containers made from a variety of plastic resins,
including HDPE, PC, PP, PET and PVC. Because our broad range of product lines
serves customers in diverse industries and regions in the United States, we
believe that our net sales and cash flow are relatively stable, reducing our
exposure to particular market or regional economic cycles. We have grown net
sales through acquisitions and internal growth between 1996 and 1998 at a
compounded annual growth rate of approximately 58.0%.
We serve our customers with a wide range of manufacturing capabilities and
services through a nationwide network of 71 strategically located manufacturing
facilities and through a nationally recognized research, development and
engineering center. In addition, we have five international manufacturing
facilities in Canada, Puerto Rico and Mexico. Twenty-eight of our manufacturing
facilities are located on-site at our customers' plants. On-site facilities
enable us to work more closely with these customers, to facilitate just-in-time
inventory management, to eliminate costly shipping and handling charges, to
reduce working capital needs and to foster the development of long-term
manufacturing and distribution relationships. Our nationally recognized
research, development and engineering center creates innovative product designs
for our customers and process improvements in the manufacture of our containers.
Our customers rely on our design and technical expertise because package design
is a critical component in many of their marketing programs. Having been among
the first to use the higher output wheel manufacturing process, we continue to
be an industry leader in production technologies for plastic containers by:
- innovating new products, such as patented insulated handle designs for
microwaveable table syrup bottles, containers for liquid juice
concentrates and reformable containers, which permit reheating after being
filled without distortion to the container; and
- efficiently manufacturing containers with specialized features, such as
multiple barrier layers, in-mold labeling and "window-stripes," which are
see-through stripes that permit visual measurement of the container's
contents.
Approximately 74% of our pro forma net sales for the quarter ended
March 31, 1999 were from products in which, we believe, we had a leading
position. We summarize in the table below operating information about the
principal plastic products in which we held a leading position in the United
States in the first quarter of 1999.
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<TABLE>
<CAPTION>
PRO FORMA
NET SALES FOR
THE QUARTER
ENDED PERCENTAGE PRINCIPAL PRODUCTS
MARCH 31, OF TOTAL RESIN TOP TEN PACKAGED
PRODUCT CATEGORY 1999 NET SALES TYPES CUSTOMERS IN OUR PLASTIC CONTAINERS
- ---------------- ------------- ---------- ----------------- ------------- -------------------------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C> <C> <C>
Dairy................ $ 38.2 22.9% HDPE, PET Dean Foods, - 1 gallon milk
Suiza Foods - 1 quart milk
- Half gallon milk
- Single-serve milk
Water................ 23.5 14.1 HDPE, PC, McKesson, - 1, 3, 5, and 6 gallon
PET Perrier, water
Suntory - 10 quart water
Other Beverages...... 26.0 15.6 HDPE, PET Minute Maid - Chilled juices
- Fruit drinks
Food................. 17.6 10.5 HDPE, PP, Procter & - Condiments
PET Gamble
Household Chemical &
Personal Care...... 23.8 14.2 HDPE, Procter & - Dishwashing soap
PVC, PET Gamble - Household cleaners
- Haircare products
Automotive........... 14.8 8.9 HDPE Mobil, - 1 quart motor oil
Pennzoil- - 1 gallon anti-freeze
Quaker State - 1 gallon windshield
wash fluid
Agricultural,
Industrial &
Other.............. 23.2 13.8 HDPE, PP Scotts - Insect repellants
Company - Weed killers
- Fertilizers
Total................ $167.1 100.0%
====== ======
</TABLE>
COMPETITIVE STRENGTHS
We believe the following contribute to our position as a leading domestic
developer, manufacturer and marketer of rigid plastic containers:
LEADING SHARES IN STABLE MARKETS. We believe that we are a leading domestic
supplier of HDPE and PC containers to the dairy, water, other beverage, food,
household chemical and personal care, automotive and agricultural and industrial
and other sectors. Our customers operate, in general, in developed and stable
businesses that industry analysts believe will enjoy moderate but steady growth
for the next several years. We attribute our leadership positions primarily to
our broad and innovative product lines, well-established customer relationships,
high level of customer service, low-cost manufacturing capabilities,
technological expertise and ability to offer value-added services, such as
logistics support, inventory management, warehousing and advanced planning
assistance.
ADVANCED MANUFACTURING, DESIGN AND ENGINEERING CAPABILITIES. Our national
network of 71 manufacturing plants and over 600 operating lines permit us to
apply our broad range of manufacturing and design capabilities across a wide
geographic area to provide our customers with products targeted to their
specific needs. Our national manufacturing network enables us to:
- compete effectively for contracts that require low or high volume runs,
multiple distribution points and varied product and resin types;
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- make frequent, timely product deliveries to our customers, many of which
have implemented just-in-time inventory management techniques;
- respond quickly to our customers' frequently changing needs for production
capacity in new product and resin types and in new regions; and
- minimize transportation costs.
We believe our sophisticated manufacturing capabilities are characterized by
varied and flexible manufacturing technologies, as evidenced by our broad
product offering which ranges from single layer HDPE bottles for the water and
dairy sectors to multiple layer containers manufactured with a high degree of
design and engineering complexity. In addition, our nationally recognized
research, development and engineering center has provided us with over 100
patents for bottle designs, increased process output at selected plants by 25%,
designed automatic on-line testing equipment and robotic product handling
equipment, developed advanced bottle trimming techniques and brought to market
many innovative products.
SIGNIFICANT ON-SITE PRESENCE. We have 28 on-site manufacturing facilities
at customer locations. On-site plants enable us to work more closely with
customers at these plants, to facilitate just-in-time inventory management, to
generate significant savings opportunities through process re-engineering, to
eliminate costly packing, shipping and handling charges, to reduce working
capital and to foster the development of long-term customer relationships.
Further, we generally install additional capacity at our on-site facilities that
permits us to service additional local customers.
LONG-TERM CUSTOMER RELATIONSHIPS. We enjoy long-term relationships
averaging over 20 years with our ten largest customers, which accounted for
approximately 48% of our pro forma net sales in 1998. We believe our strong
record of maintaining customers is attributable to our design and technical
manufacturing capabilities, high level of customer service and competitive
pricing. In 1998, we renewed 13 of our 14 long-term, contractual arrangements
which were subject to renewal.
ECONOMIES OF SCALE. We believe that our competitive success is due, in
part, to our having capitalized on economies of scale to lower costs in a number
of critical functions as a result of:
- our manufacturing and technology expertise and large volume of production,
allowing us to manufacture at a lower unit cost than many of our
competitors;
- our position as one of the largest purchasers of bottle-grade plastic
resins in the world, providing us with a reliable supply of resins and
allowing us to offer our customers competitively priced products; and
- our nationwide network of geographically diverse manufacturing plants,
giving us greater opportunities to optimize transportation costs and
realize distribution efficiencies.
EXPERIENCED AND MOTIVATED MANAGEMENT TEAM. We are lead by an experienced
team of senior officers and managers with a record of achieving profitable
growth, maintaining long relationships with blue chip customers, integrating
acquisitions and successfully bringing to market new container designs and
manufacturing processes. Our top eight senior officers and managers average over
20 years of experience in the packaging and consumer packaged goods industries.
Our top eight senior officers and managers hold directly or through other
interests, or have options to acquire, a total of approximately 13% of the
equity interests in Consolidated Container Holdings and will have the
opportunity to acquire up to an additional 5.5% of the equity interests in
Consolidated Container Holdings through a management option plan.
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<PAGE>
BUSINESS STRATEGY
We intend to capitalize on our significant industry position to become the
preeminent supplier of rigid plastic containers in North America with a presence
in selected international markets. We seek to achieve this objective through the
continued implementation of the following strategies:
BROADEN OUR CUSTOMER RELATIONSHIPS. The combination of Reid Plastics, Inc.
and Suiza Packaging into Consolidated Container Company provides us with the
opportunity to increase our customer base by selling a broader line of products
across a wider geographic network. In addition, we plan to expand our position
with existing customers by cross-selling our broad product and service
capabilities among the complementary customer bases of Reid Plastics, Inc. and
Suiza Packaging. For example, we believe that we will be able to effectively
cross-sell Reid Plastics, Inc.'s ten quart water bottle to Suiza Packaging's
customer base. We intend to take advantage of our national manufacturing
capabilities to grow with our existing customers as they expand their businesses
domestically, and we also plan to grow with our existing customers in selected
international markets. In addition, we believe that our vendor management
programs foster long-term customer relationships, and we will seek opportunities
to initiate these programs with new and existing customers.
REALIZE COST SAVINGS AND OPERATING SYNERGIES. By combining Reid Plastics,
Inc. and Suiza Packaging into Consolidated Container Company, we expect to
realize substantial cost savings and operating synergies by:
- rationalizing manufacturing facilities and eliminating redundant corporate
functions;
- optimizing our nationwide manufacturing network to lower transportation
costs, maximize capacity utilization and expand product distribution;
- sharing the best practices of our most efficient manufacturing facilities,
which we believe will lead to increased efficiencies and lower
company-wide costs; and
- leveraging our nationally recognized research, development and engineering
center to improve designs and process engineering throughout the newly
combined entity.
CAPITALIZE ON PLASTIC CONVERSION TRENDS. We intend to take advantage of our
position as a leading manufacturer and marketer of plastic containers to
continue to capitalize on the industry trend toward the conversion of glass,
metal and paper containers to plastic containers. We believe that opportunities
exist to convert half gallon milk containers and consumer single-serve milk
bottles, each of which is still mainly packaged in paper cartons. Similarly, we
expect that demand for plastic containers for food products will grow as new
barrier technologies and other innovations permit plastic to supplant glass and
metal in many applications, such as for the packaging of mayonnaise, soups,
tomato based products and jams and jellies. In addition, we believe that we are
well positioned to capitalize on the growth of hot-fill PET containers for food
and beverages. Currently, we are working with several customers to develop new
HDPE and PET containers for food and beverage products that have traditionally
been packaged in other materials, such as paper, metal and glass.
PURSUE STRATEGIC ACQUISITIONS. Strategic acquisitions have been, and, we
believe, will continue to be an important element in our growth and in our
efforts to capitalize on consolidation trends in the plastic packaging industry.
We plan to pursue selected strategic acquisitions to strengthen our customer
base, broaden our geographic presence and product lines, enhance our production
capabilities and provide significant operating synergies. We believe that we can
apply our core manufacturing strengths, broad product line, distribution
capabilities and experienced management team to improve the results of the
acquired entities. As a leading consolidator in the U.S. rigid plastic packaging
business, we made twelve acquisitions, including the acquisition of Plastic
Containers, in 1998 that increased our pro forma net sales by $365.4 million and
our pro forma EBITDA by $55.0 million.
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PRINCIPAL PRODUCT CATEGORIES
We summarize below our seven principal product categories.
DAIRY. We believe that we are a leading manufacturer of dairy containers
using HDPE and PET. Our principal products in this sector include one gallon and
half gallon HDPE bottles, which we sell primarily to dairies for sale through
retail channels. We have worked with our customers to innovate several products
in this sector, including single-serve HDPE and PET milk containers and
"sleeved" milk bottles. On a pro forma basis, our dairy products generated
approximately 22.9% of our net sales for the quarter ended March 31, 1999.
WATER. We believe that we are a leading manufacturer of water containers
using HDPE and PC in the United States and Canada. Our principal products in
this sector include one and ten quart HDPE bottles, which we sell primarily to
water producers for sale through retail channels, and three, five and six gallon
PC bottles for the bulk packaging of water for water coolers. On a pro forma
basis, our water products generated approximately 14.1% of our net sales for the
quarter ended March 31, 1999.
OTHER BEVERAGE. We believe that we are a leading manufacturer of plastic
containers for other beverages, including chilled juices. We also manufacture a
wide variety of containers for other beverage products using HDPE and PET,
consisting of high value-added technically advanced containers for products such
as fruit juices and fruit drinks. We manufacture a wide array of products in
this sector, ranging from six to 96 ounce HDPE bottles for fruit drinks and
multiple layer one gallon HDPE containers for fruit juice. On a pro forma basis,
our other beverage products generated approximately 15.6% of our net sales for
the quarter ended March 31, 1999.
FOOD. We manufacture a wide range of food containers using HDPE, PP and PET
for a variety of food products, such as ketchup, maple syrup, edible oil and
salsa. We have manufactured many innovative products, such as squeezable ketchup
bottles, high-gloss salsa containers and reformable containers, which permit
reheating after the filling process without distortion to the container and
which are used for infant formula. In 1998, our food and other beverage
containers consisted of approximately 56% single layer containers and 44%
multiple layer containers with barrier properties. On a pro forma basis, our
food products generated approximately 10.5% of our net sales for the quarter
ended March 31, 1999.
HOUSEHOLD CHEMICALS & PERSONAL CARE. Our containers for household chemicals
products, made mainly from HDPE and also from PET, are used for laundry
detergents, hard surface cleaners, dishwashing liquids, bleaches and fabric
softeners. Our containers for personal care products, made from HDPE and PVC,
are used for containers for shampoos, conditioners and other hair care products.
On a pro forma basis, our household chemicals and personal care products
generated approximately 14.2% of our net sales for the quarter ended March 31,
1999.
AUTOMOTIVE. We believe that we are a leading supplier of plastic containers
to the automotive industry. We manufacture primarily one quart HDPE bottles for
motor oil and one gallon HDPE containers for anti-freeze and windshield wash
solvent. On a pro forma basis, our automotive products generated approximately
8.9% of our net sales for the quarter ended March 31, 1999.
AGRICULTURAL, INDUSTRIAL & OTHER. We manufacture containers for use by
industrial and agricultural manufacturers for products such as insect
repellents, high strength cleaners packaged for commercial and industrial use
and fertilizers. Our Conolene-TM- process creates chemical-resistant
Conolene-TM- containers, which are leading products in this sector. Our other
products in this category include containers for medical supplies and
pharmaceutical supplies, shipping crates, water cooler valves and bottle caps.
On a pro forma basis, our agricultural, industrial and other products generated
approximately 13.8% of our net sales for the quarter ended March 31, 1999.
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<PAGE>
INDUSTRY
Industry analysts estimate that the U.S. rigid plastic containers segment of
the total U.S. packaging industry had sales of approximately $10 billion in
1997. In 1997, 27.5 billion units of plastic bottles and jars for the sectors in
which we compete, were shipped by U.S. manufacturers, having grown by an annual
rate of 5.8% from 15.7 billion units in 1987. Industry analysts estimate that
shipments of plastic bottles and jars in the sectors in which we compete, will
increase by 4.5% annually to 34.2 billion units in 2002. The plastic containers
segment consists of the packaging of soft drinks, dairy products, water, fruit
beverages (principally juices made from frozen concentrate, shelf stable juices
and chilled ready-to-serve juices), alcoholic beverages, other non-alcoholic
beverages (such as iced teas and isotonic sports drinks), food, household
chemicals, pharmaceuticals, automotive chemicals and personal care products. In
general, these sectors are mature and are characterized by moderate but stable
unit growth, increasing competition, increasing emphasis on technological
innovations and product line extensions and pricing pressure which is manifested
in customer demand for lower unit costs. Growth in these sectors is influenced
largely by macroeconomic factors, the state of the general economy and the
demand for consumer staples, such as food and beverages, which account for over
three quarters of the demand for plastic containers. In 1997, plastic bottles
and jars were made 46% from HDPE, 44% from PET and 10% from other resins.
INDUSTRY TRENDS. Over the past several years, the plastic container
business has been characterized by two major trends: the conversion of
containers made from glass, metal and paper products to containers made from
plastic resins, and the consolidation of container manufacturers and the
customers they serve. Although many products which were previously packaged in
glass, metal or paper containers have converted to the use of plastic
containers, such as many food and beverage products and one quart motor oil, we
believe that opportunities exist for continued conversion for select products,
such as half gallon, quart and single-serve milk products, chilled juice
products, mayonnaise, tomato-based products, soups and jams and jellies. We
believe this trend is a result of several factors, including increasing consumer
preference for plastic containers due to their lighter weight, shatter
resistance, resealability and ease of opening and dispensing, container product
innovations and product line extensions by branded consumer products companies
which use unique plastic containers to differentiate their products to
consumers. As a result, container customers often seek new technologies, such as
multiple layer plastic containers with strong barrier properties, improved
performance features, such as squeezable plastic bottles, and innovative resins.
In addition, there is evidence to suggest that there is increasing competition
between HDPE and PET, as some containers made from HDPE are now being made with
PET.
Although the U.S. rigid plastic container industry has been undergoing
consolidation for a number of years, we believe that this trend will continue
for two reasons. First, the industry remains largely fragmented. In 1997, there
remained approximately 120 non-captive plastic container blow-molders in the
United States with annual revenues of at least $5 million each, of which ten had
revenues in excess of $250 million. Second, we believe that the incentives
favoring consolidation will continue. These incentives include economies of
scale in manufacturing and purchasing, an increasing preference by customers to
reduce the number of their suppliers, an increased demand for manufacturing
capacity across a broadening range of product and resin types, the need to
reduce the cost of transportation and the increasing technical, design and
manufacturing sophistication required to produce high quality containers at
competitive prices. We believe that the U.S. rigid plastic container business
will continue to evolve to support fewer participants who can provide a broad
range of container and resins types, innovations in products and technologies
and related services to regional, national and international customers.
MAJOR SECTORS OF THE U.S. RIGID PLASTIC CONTAINER MARKET. We summarize
below each of the sectors of the U.S. rigid plastic container business in which
we compete, except for our agricultural, industrial
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and other sectors, for which industry data is not readily available. All
estimates and forecasts that we note below were made in 1997 or were based on
1997 data, unless otherwise indicated.
DAIRY. In 1997, 6.3 billion units of plastic milk bottles were shipped by
U.S. manufacturers, having increased from approximately 5.0 billion units in
1987. While per capita consumption of milk is expected to decrease, industry
data suggests that shipments of milk containers will increase by 2.4% annually
to 7.1 billion units in 2002. Industry analysts also forecast that plastic
containers will continue to supplant paper and glass containers in this sector
because of their light weight, resistance to breaking, convenient handles,
easily resealable caps and reduced leakage problems, although paperboard cartons
continue to have cost advantages over plastic bottles in general. As a result,
we anticipate that plastic containers will be increasingly used to package milk
in half gallon, quart, pint and half pint sizes. HDPE is the favored plastic in
this sector because of its processing ease, low cost and suitable barrier
properties, but PET is making noticeable inroads, particularly in the smaller
sized containers. This sector is also highly fragmented, with captive production
by regional dairies accounting for the majority of the supply. Industry data
indicates that consolidation of plastic container manufacturers will continue to
be an important trend.
WATER. In 1997, 3.4 billion units of plastic bottled water were shipped by
U.S. manufacturers, having increased from 300 million units in 1987. Data for
this sector does not include information regarding bulk refillable PC water
dispensers. Industry analysts estimate that sales of plastic water containers
will increase by 8.4% annually to 5.1 billion units in 2002, a higher growth
rate than most other sectors of the plastic containers market. Industry data
suggests that this growth will be supported by two principle factors. First, per
capita consumption of bottled water is expected to grow from twelve gallons per
person in 1997 to fourteen gallons per person by 2002, increasing the demand for
all types of bottled water packaging. Industry analysts suggest that this
forecast is based on concerns about contamination of municipal water supplies,
growing awareness of the superior taste of bottled water, an increase in the
popularity of bottled water as a healthy alternative beverage, its rising
availability in vending machines and other new outlets and new product
introductions. Second, sales of plastic water bottles will continue to increase
due to the growing popularity of PET bottles in smaller sizes and the
expectation that plastic containers will continue to supplant glass containers
because of their superior strength, reusability and light weight. Factors that
could limit the growth of bottled water include competition from bottled water
in reusable bulk containers, water purified by home devices and a slowdown in
the general economy. PC and HDPE containers have largely captured the water
market for one gallon sizes and larger. PET is used primarily for single-serve
bottles.
OTHER BEVERAGE. The portion of this sector in which we compete principally
consists of containers for fruit beverages, which include packaging for
refrigerated fruit juices, shelf-stable juice drinks and juices made from frozen
concentrate (collectively, "fruit beverages"). In 1997, there were approximately
1.1 billion units of plastic containers for fruit beverages shipped by U.S.
manufacturers, having increased from approximately 500 million units in 1987.
Industry analysts estimate that sales of plastic containers for fruit beverages
will increase by 6.4% annually to 1.5 billion units in 2002, slightly above the
estimated growth rate of 4.5% for shipments of fruit beverages themselves.
Factors supporting the growth of plastic containers for fruit juices include the
popularity of fruit juices as healthy beverages, the expansion of fruit drinks
which consumers have been more readily accepting as "anytime" yet healthy
beverages and the conversion of non-plastic containers for shelf-stable fruit
juices, particularly in larger sizes, where plastics are most cost effective.
Factors limiting growth include the continued popularity of glass containers for
some beverage products, the insufficiency of some barrier and hot-fill
technologies for fruit drinks and the cost of resins compared to glass. HDPE is
the primary resin used to package orange juice, which is the most widely
consumed fruit beverage on a per capita basis. PET is the primary resin used to
package shelf-stable fruit drinks because of its clarity, impact resistance and
hot-fill applications.
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FOOD. In 1997, 6.9 billion units of plastic containers for food products,
including plastic bottles and jars, were shipped by U.S. manufacturers, having
increased from 2.4 billion units in 1987. This is a mature sector whose growth
is, in general, affected by macroeconomic factors and gradual changes in
consumer preferences. Industry analysts estimate that sales of these plastic
containers for food products will increase by 6.8% annually to 9.6 billion units
in 2002. Factors supporting this growth include sales increases of underlying
food products (such as prepared and ethnic foods, soups and canned specialties),
export sales and advances in multiple layer and barrier technology and other
product innovations. We believe that there will be further conversions to
plastic containers for selected food products, such as condiments, toppings,
mayonnaise, tomato-based products, soups and jams and jellies. Factors
constraining growth in this sector include the maturity of their end-use markets
and the already high degree of penetration of plastics.
AUTOMOTIVE. In 1997, 3.3 billion units of plastic containers for automotive
chemicals were shipped by U.S. manufacturers, having increased from 2.7 billion
in 1987. This sector includes containers for motor oil (which constituted
approximately 2.1 billion of the total 3.3 billion units shipped in 1997),
antifreeze, coolants, transmission fluids, engine treatments, waxes, windshield
washer fluids and other external care products. Industry data estimates that
sales of plastic containers for this sector will increase by 1.2% annually to
3.5 billion units in 2002. Industry analysts believe that sales of plastic
containers for motor oil are expected to decline to 2.0 billion units by 2002
due to several factors, including consumers' increased use of longer lasting
motor oils, which must be changed less frequently, and the proliferation of
affordable, quick lube chains and other convenience oriented channels, which
purchase engine oils in bulk containers. Industry analysts expect, however, that
these declines will be offset in large part by slightly increasing sales of
plastic containers for other automotive products. This sector has largely
converted to HDPE containers from composite cans.
HOUSEHOLD CHEMICALS AND PERSONAL CARE. The household chemicals portion of
this sector includes plastic containers for detergents, various household
cleaners, polishes and waxes. In 1997, 4.9 billion units of plastic containers
for these products were shipped by U.S. manufacturers, having increased from
3.8 billion in 1987. Industry data estimates that sales of plastic containers
for these products will increase by 2.3% annually to 5.5 billion units in 2002.
Industry analysts estimate that this slow rate of growth is due to the maturity
of the end-use markets for these products and the fact that plastics have
largely supplanted other packaging media in most applications. Industry data
suggests that HDPE will remain the primary resin in our portion of this sector
because of its superior stress crack and chemical resistance.
The personal care business in which we participate consists primarily of
plastic packaging for hair care products, such as shampoos, conditioners and
other products. In 1997, 1.6 billion units of plastic containers for these
products were shipped, having increased from 1.0 billion units in 1987. Industry
data estimates that containers for these products will grow by 3.5% annually to
1.9 billion units in 2002. Factors supporting growth include the increasing
popularity of smaller sized containers and hair colorant kits which incorporate
several small plastic bottles. Factors limiting growth include the popularity of
larger sized containers, rising demand for reusable containers and the fact that
plastics have largely supplanted other packaging media in most applications.
Industry analysts expect that HDPE will remain the most widely used resin,
although PVC and PET appear to be continuing to make advances.
PRODUCTS
We currently design, manufacture and market containers for the dairy, water,
other beverage, food, household chemical and personal care, automotive and
agricultural, industrial and other businesses with HDPE, PC, PP, PET and PVC. We
summarize below the uses of these resins and some of their major
characteristics.
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HDPE. We manufacture beverage containers for dairy, water, other beverage,
automotive and household chemical, such as laundry detergents and dishwashing
liquids, products in HDPE. HDPE is relatively durable and flexible, moisture,
stress crack resistant and translucent in its natural state yet can be colored
easily. Our HDPE containers can be made with a single layer or up to six layers
of plastic for specialized uses. Multiple layer containers can have a layer of
resin with barrier properties. They can also include a layer of recycled
materials or may reduce cost by limiting the use of colorant to the single
exterior layer. Our Conolene-TM- processed HDPE containers are treated with
fluorine/ nitrogen gas, making them suitable for storing insecticides and
chemicals which would otherwise cause a standard HDPE container to degrade over
time. Our Lamicon-TM- brand of HDPE container consists of up to six layers,
including a barrier layer of ethyl vinyl alcohol, reducing oxygen permeability
and making it suitable for use for food products, which are subject to spoiling
or deterioration if exposed to oxygen.
PC. We principally manufacture three, five and six gallon water bottles in
PC. PC is a hard, clear, strong, long-lasting, reusable and scratch resistant
plastic. Due to their unique strength and durability, PC products are the most
highly engineered and most expensive of the plastic resin products used in our
containers.
PP. We manufacture containers for food products, such as ketchup, maple
syrup, salad dressing and salsa in PP. PP is naturally translucent, moisture,
heat and impact resistant, light weight and has strong barrier and performance
properties. PP containers can be manufactured either with a single layer or with
multiple layers with barrier properties.
PET. We manufacture single-serve milk containers, smaller water bottles,
other beverages and selected food containers in PET. PET is clear, light weight,
shatter-resistant and has strong barrier properties. We expect that PET
containers will continue to replace metal and glass packaging due, in part, to
the discovery of new processing techniques compatible with the hot-fill process.
PVC. We manufacture bottles for some personal care products in PVC. PVC is
moderately oxygen-permeable, highly abrasion resistant, versatile, elastic,
glossy, chemical resistant and is used for containers requiring clarity.
CUSTOMERS
Our customers include many of the major branded consumer products companies
and most bottled water companies, national juice producers, large food concerns,
regional dairies, chemical and automotive product manufacturers in the United
States. For the year ended December 31, 1998, our largest customer, Procter &
Gamble, accounted for approximately 15% of our pro forma net sales and our
largest ten customers accounted for approximately 48% of our pro forma net
sales.
For the year ended December 31, 1998, on a pro forma basis, our top ten
customers were Dean Foods, McKesson Water Products, Minute Maid, Mobil Oil,
Pennzoil Products/Quaker State, Perrier Group of America, Procter & Gamble,
Scotts Company, Suiza Foods and Suntory Water Group. We estimate that we have
done business with each such customer (or their predecessors) for over ten
years, except Dean Foods, which has been a customer for seven years, and Suiza
Foods, which has been a customer for four years, and that we have enjoyed
long-term relationships with these customers for over 20 years on average.
In many cases, we are the sole supplier of substantially all of our
customers' container requirements for specific products or particular container
sizes. In addition, we often have more than one contract with a particular
customer because we have individual contracts for specific products or container
sizes or, in some circumstances, separate contracts with one or more operating
divisions of a single customer. See "Risk Factors -- Concentration of
Customers."
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COMPETITION
We face substantial competition throughout our product lines from a number
of well-established businesses operating nationally and from firms operating
regionally. Our primary national competitors include American National Can,
Crown Cork & Seal, Graham Packaging, Liquid Container, Liqui-Box,
Owens-Illinois, Plastipak and Silgan. Several of these competitors are larger
and have greater financial and other resources than us. In addition, we face
substantial competition from a number of captive packaging operations with
significant in-house bottling and blow-molding capacity, such as Perrier Group
of America, Kroger and Dean Foods.
We believe that our long-term success is largely dependent on our ability to
continue to:
- attract and maintain new customers;
- develop product innovations and improve our production technology;
- offer our customers competitively priced products that meet their design
and performance criteria;
- provide superior service to our customers;
- accurately anticipate and respond to important trends in the packaging
industry, which is continuing to undergo conversion to plastic from other
materials and consolidation; and
- reduce our cost structure.
MARKETING
Substantially all of our sales are made through the direct efforts of our
sales personnel. We conduct sales activities from our corporate headquarters in
Dallas, Texas and from various field sales offices located throughout the
geographic territories in which we operate. In addition to our other sales and
marketing efforts, we provide our customers with in-house support staff and
24-hour, seven days a week, year round customer service.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering constitute an important part of our
business. We undertake these efforts through approximately 70 employees at our
research, development and engineering center in Elk Grove, Illinois. We believe
that the research, development and engineering center makes us a leader in the
innovation and design of new products, product enhancements and manufacturing
technologies and processes. As a result of this effort, we:
- hold over 100 patents for bottle designs;
- have increased process output by 25% in some plants over the past five
years;
- have substantially improved our quality controls; and
- have innovated several new products and processes, such as:
-- reformable design containers;
-- Conolene-TM- fluorine treated barrier bottles, for use in
applications where the contents would otherwise permeate an untreated
plastic containers;
-- Lamicon-TM- multiple layer oxygen barrier bottles, for use in
applications where the contents would be harmed by prolonged exposure
to oxygen;
-- in-mold labeling; and
-- layer engineering.
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We spent approximately $9.0 million on research, development and engineering
on a pro forma basis in 1998. We believe that continuing product and
manufacturing innovations are important to meeting customers' needs and lowering
unit costs, thus permitting us to remain competitive in the plastic container
market. We expect to spend approximately $8.5 million on research, development
and engineering in 1999 and have spent approximately $6.0 in the first nine
months of 1999.
INTELLECTUAL PROPERTY
We have developed a number of trademarks and patents for use in our business
and are continually developing new trademarks and patents. In addition, we also
hold licenses for the use of several registered trademarks from third parties.
Because our trademarks, brand names and patented packaging designs create
goodwill and results in product differentiation, we believe that these assets
are important to our business. Although we hold various trademarks and patents,
we believe that our business is not dependent on any one of these patents or
trademarks. We have registered our trademarks and patents and have made all
filings necessary under applicable federal laws to maintain these registrations.
As long as we continue to use each of our trademarks and make necessary filings
as required by law, our rights to these trademarks could be indefinite. The
duration of our patents ranges from one to seventeen years, with the expiration
dates for our patents spread evenly throughout this period of time.
In addition, we rely on proprietary know-how, continuing technological
innovation and other trade secrets to develop products and maintain our
competitive position. We attempt to protect our proprietary know-how and our
other trade secrets by executing, when appropriate, confidentiality agreements
with our customers and employees. Although we cannot assure you that our
competitors will not discover comparable or the same knowledge and techniques
through independent development or by other, legal means, we believe that our
business, as a whole, is not dependent on these matters.
MANUFACTURING AND DISTRIBUTION
MANUFACTURING At June 30, 1999, we operated over 600 blow-molding
production lines and six injection molding machines (which are used to produce
closures, water cooler parts, crates, overcaps, valves and collars).
Blow molding is the technique used to convert plastic into bottles and
containers by either extrusion or stretch blow molding, depending on the desired
container attributes. 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 are mounted to
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.
Extrusion blow molding can be used to process many different resin types. By
contrast, stretch blow molding is either a one-stage or a two-stage process by
which a test-tube type pre-form is made by injection molding and then heated,
stretched and filled with compressed air to fill the mold and form the bottle.
This process provides enhanced physical clarity and gas barrier properties and
is generally used for PET bottles but can also be used for PP bottles. This
technique can be adapted for either low volume production runs of specialty
applications, such as widemouthed jars, or high volume runs of commodity
applications.
Thirty of our production lines are set up so that multiple extruders deposit
a single parison into a single mold, thus producing a multiple layer bottle.
Most of these lines are also capable of applying an in-mold label. We were among
the first to develop and use a wheel manufacturing technology that permits our
wheels to operate at higher speeds and to more efficiently manufacture
containers with one or more special features, such as multiple layers, in-mold
labeling and fluorination. In most cases, we are actively involved with our
customers in the design and manufacture of new packaging features, including for
special wheel molds.
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Twenty-eight of our manufacturing facilities are located on-site at customer
plants. On-site plants enable us to work more closely with customers at these
plants, to facilitate just-in-time inventory management, to generate significant
savings opportunities through process re-engineering, to eliminate costly
packing, shipping and handling charges, to reduce working capital and to foster
the development of long-term customer relationships. Further, we generally
install additional capacity at our on-site facilities that permits us to service
additional local customers.
We believe that capital investment to maintain and upgrade property, plant
and equipment is important to remain competitive. We spent $16.4 million in 1998
on a pro forma basis on capital expenditures. Based on current information, we
estimate that:
- in 1999, we will spend approximately $49.0 million on capital
expenditures, consisting of:
-- approximately $16.0 million on the maintenance of our plant, property
and equipment;
-- approximately $8.0 million on cost reduction programs; and
-- approximately $25.0 million on the expansion of our plant capacity; and
- in 2000, we will spend approximately $40.0 million on capital
expenditures, consisting of:
-- approximately $16.0 million on the maintenance of our plant, property
and equipment;
-- approximately $9.0 million on cost reduction programs; and
-- approximately $15.0 million on the expansion of our plant capacity.
DISTRIBUTION At our 43 stand-alone domestic plants, we ship our products by
common carrier to our customers. In general, these plants are located within a
250 to 300 mile radius of the customers for which we manufacture containers. At
each of our 28 on-site plants, our operations are usually integrated with the
customer's manufacturing operations so that we can make deliveries, as needed,
directly to the customer's conveyor lines.
RAW MATERIALS
Our principal raw materials include HDPE, PC, PP, PET and PVC resins, and we
use other materials in our manufacturing operations, such as ethyl vinyl
alcohol, resin colorant, corrugated boxes, shipping materials, pallets and
labels, among others, and inks. It is our practice to obtain raw materials from
several sources in order to ensure an economical, adequate and timely supply,
and we are not dependent on any single supplier for any of these materials.
Although we believe our access to raw materials is generally reliable, we cannot
assure you that we will have an uninterrupted supply of raw materials at
competitive prices. While our net sales are affected by fluctuations in resin
prices, our gross profit over time is substantially unaffected by these changes
because industry practice and our contractual arrangements with our customers
permit or require us to pass through these changes. We may not, however, always
be able to pass through these changes in a timely manner. Based on our
experience, we believe that adequate quantities of these materials will be
available to supply our customers' needs, but we cannot assure you of that. See
"Risk Factors -- Exposure to Fluctuations in Resin Prices and Dependence on
Resin Supplies."
FACILITIES
We use various owned and leased properties located throughout the United
States, Puerto Rico, Mexico and Canada for our manufacturing plants, corporate
headquarters, technical center and sales offices. At September 30, 1999, we had
76 manufacturing plants, 17 of which we owned and 59 of which we leased.
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We list in the table below the location of our active manufacturing and
other facilities (by region in the United States and by country and, within
region and country, in alphabetical order) and some related information at
September 30, 1999.
<TABLE>
<CAPTION>
SIZE IN OWNED OR
LOCATION OF FACILITIES SQUARE FEET LEASED PRINCIPAL USE ON-SITE
- ---------------------- ----------- -------- ------------------------------- --------
<S> <C> <C> <C> <C>
NORTHEAST
Monroe, Connecticut.......... 1,000 Leased Sales Office
New Britain, Connecticut..... 5,500 Leased Manufacturing X
Windsor, Connecticut......... 58,000 Leased Manufacturing
Poland Springs, Maine........ 13,000 Leased Manufacturing X
Franklin, Massachusetts...... 55,000 Leased Manufacturing
Franklin, Massachusetts...... 24,300 Leased Manufacturing X
Lynn, Massachusetts.......... 12,000 Leased Manufacturing X
Marlborough, Massachusetts... 4,600 Leased Manufacturing X
Hampstead, New Hampshire..... 42,000 Owned Manufacturing
Burlington, New Jersey....... 6,500 Leased Manufacturing X
Elizabeth, New Jersey........ 40,000 Owned Manufacturing
Hillside, New Jersey......... 34,200 Leased Manufacturing
Cranbury, New Jersey......... 62,000 Owned Manufacturing
Batavia, New York............ 21,700 Leased Manufacturing
Rensselaer, New York......... 4,500 Leased Manufacturing X
Rochester, New York.......... 65,000 Owned Manufacturing
Allentown, Pennsylvania...... 80,000 Leased Manufacturing X
Berwick, Pennsylvania........ 197,000 Owned Manufacturing
Brenigsville, Pennsylvania... 8,500 Leased Manufacturing
Lancaster, Pennsylvania...... 18,100 Leased Manufacturing X
Leetsdale, Pennsylvania...... 42,000 Leased Manufacturing
New Castle, Pennsylvania..... 92,000 Owned Manufacturing
Oil City, Pennsylvania....... 96,000 Owned Manufacturing
Penn Township Kelton, Manufacturing
Pennsylvania............... 36,400 Leased
Verona, Pennsylvania......... 90,200 Leased Manufacturing
York, Pennsylvania........... 30,900 Leased Manufacturing
MID-ATLANTIC
Baltimore, Maryland.......... 151,000 Owned Manufacturing
Newell, West Virginia........ 50,000 Leased Manufacturing X
SOUTHEAST
Lakeland, Florida............ 218,000 Leased Manufacturing
Miami, Florida............... 4,800 Leased Manufacturing
St. Petersburg, Florida...... 2,500 Leased Manufacturing X
Tampa, Florida............... 22,500 Leased Manufacturing
Zephyr Hills, Florida........ 7,400 Leased Manufacturing X
Greensboro, North Carolina... 30,000 Leased Manufacturing
Mechanicsville, Virginia..... 11,000 Leased Manufacturing X
Atlanta, Georgia............. 85,000 Leased Manufacturing
McDonough, Georgia........... 4,000 Leased Manufacturing X
SOUTH
Demopolis, Alabama........... 4,000 Leased Warehouse
Demopolis, Alabama........... 98,000 Owned Manufacturing
Fort Smith, Arkansas......... 150 Leased Sales Office
West Memphis, Arkansas....... 67,000 Leased Manufacturing
</TABLE>
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<TABLE>
<CAPTION>
SIZE IN OWNED OR
LOCATION OF FACILITIES SQUARE FEET LEASED PRINCIPAL USE ON-SITE
- ---------------------- ----------- -------- ------------------------------- --------
<S> <C> <C> <C> <C>
Louisville, Kentucky......... 4,000 Owned Manufacturing
Kentwood, Louisiana.......... 10,000 Leased Manufacturing X
Monroe, Louisiana............ 3,300 Leased Manufacturing X
Conroe, Texas................ 3,000 Leased Manufacturing X
Dallas, Texas (2 Manufacturing
facilities)................ 31,000 Leased X
Dallas, Texas................ 9,000 Leased Corporate Office
Fort Worth, Texas............ 8,000 Leased Manufacturing X
Houston, Texas............... 80,000 Leased Manufacturing
Katy, Texas.................. 10,000 Leased Manufacturing X
Sherman, Texas............... 110,000 Leased Manufacturing
The Woodlands, Texas......... 1,000 Leased Sales Office
MID-WEST
Caseyville, Illinois......... 11,700 Leased Manufacturing
Chicago, Illinois............ 27,000 Leased Manufacturing X
DuPage, Illinois............. 104,000 Leased Manufacturing
Elk Grove, Illinois.......... 183,000 Leased Manufacturing
Elk Grove, Illinois.......... 79,000 Leased RD&E Center
Hutchinson, Kansas........... 2,000 Leased Manufacturing X
Lenexa, Kansas............... 173,000 Leased Manufacturing
Omaha, Nebraska.............. 6,000 Leased Accounting Center
Springdale, (Cincinnati), Manufacturing
Ohio....................... 130,000 Leased X
Cincinnati, Ohio............. 1,000 Leased Sales Office
Columbus, Ohio............... 8,600 Leased Manufacturing X
WEST
Phoenix, Arizona............. 59,760 Leased Manufacturing
Phoenix Warehouse, Arizona... 44,000 Owned Warehouse
Anaheim, California.......... 59,000 Leased Manufacturing
City of Industry (Railroad), Manufacturing
California................. 22,000 Leased X
City of Industry (Samuelson), Manufacturing
California................. 135,100 Leased
City of Industry (Willow), Manufacturing
California................. 56,000 Leased
Diamond Bar, California...... 19,000 Leased Corporate Office
Fairfield, California........ 66,000 Owned Manufacturing
Ontario, California.......... 40,000 Leased Manufacturing X
Riverside, California........ 17,000 Leased Manufacturing X
Santa Ana, California........ 103,000 Owned Manufacturing
Tracy, California............ 160,000 Owned Manufacturing
Union City, California....... 15,000 Leased Manufacturing X
Westminister, California..... 11,100 Leased Manufacturing
Albuquerque, New Mexico...... 33,000 Owned Manufacturing
Tukwila, Washington.......... 50,700 Leased Manufacturing
Vancouver, Washington........ 43,800 Owned Manufacturing
Vancouver, Washington........ 35,000 Leased Warehouse
</TABLE>
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<TABLE>
<CAPTION>
SIZE IN OWNED OR
LOCATION OF FACILITIES SQUARE FEET LEASED PRINCIPAL USE ON-SITE
- ---------------------- ----------- -------- ------------------------------- --------
<S> <C> <C> <C> <C>
CANADA
Richmond, British Columbia... 35,203 Leased Manufacturing
Winnipeg, Manitoba........... 7,400 Leased Manufacturing
Mississauga, Ontario......... 34,800 Leased Manufacturing
MEXICO
Mexico City.................. 24,300 Leased Manufacturing
PUERTO RICO
Caguas....................... 47,000 Owned Manufacturing
</TABLE>
SEASONALITY
Our shipment volume of containers for bottled water, and our employment of
temporary/seasonal workers, is typically higher in the second and third quarters
principally due to the seasonal nature of the bottled water industry, in which
demand is stronger between May and September. Consequently, we normally build
inventory of products for our water products during the first quarter in
anticipation of seasonal demand during the second and third quarters. To a
lesser extent, our shipment volume of containers for milk and other beverage
products is also seasonal.
EMPLOYEES
At September 30, 1999, we employed over 4,800 people. Approximately 1,150 of
these employees were hourly workers covered by collective bargaining agreements,
which expire between 1999 and 2002. We have renewed the six collective
bargaining agreements that had expirations in 1999. Given the seasonality of the
bottled water industry, we expect to continue to employ full time and temporary
and seasonal workers during the peak production months of May through September.
We have not had any material labor disputes in the past five years and consider
our relations with employees to be good.
ENVIRONMENTAL MATTERS
In the United States and in the other countries in which we operate, we are
subject to national, state, provincial and/or local laws and regulations that
impose limitations and prohibitions on the discharge and emission of, and
establish standards for the use, disposal, and management of, some kinds of
materials and waste, and impose liability for the costs of investigating and
cleaning up, and damages resulting from, present and past spills, disposals, or
other releases of hazardous substances or materials. Environmental laws and
regulations can be complex and may change often. Compliance with these laws and
regulations can require significant capital expenditures, and violations may
result in substantial fines and penalties. In addition, environmental laws in
the United States, such as the Comprehensive Environmental Response,
Compensation and Liability Act, impose liability on several grounds for the
investigation and cleanup of contaminated soil, groundwater, and buildings, and
for damages to natural resources, at a wide range of properties. For example,
contamination at properties formerly owned or operated by us, as well as at
properties we currently own or operate, and properties to which hazardous
substances were sent by us, may result in liability for us under these
environmental laws and regulations. As a manufacturer, we also have an inherent
risk of liability under environmental laws and regulations regarding ongoing
operations.
In addition, a number of governmental authorities in the United States and
in other countries have considered or are expected to consider legislation aimed
at reducing the amount of disposed plastic wastes. These programs have included,
for example, mandating rates of recycling and/or the use of recycled materials,
imposing deposits or taxes on plastic packaging material, and/or requiring
retailers or manufacturers to take back packaging used for their products. This
legislation, as well as voluntary initiatives similarly aimed at reducing the
level of plastic wastes, could reduce the demand for some
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plastic packaging, result in greater costs for plastic packaging manufacturers
or otherwise impact our business. Some consumer products companies (including
some of our customers) have responded to these governmental initiatives and to
perceived environmental concerns of consumers by, for example, using bottles
made in whole or in part of recycled plastic.
Although compliance with environmental laws and regulations requires ongoing
expenditures and remediation activities, our 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 1998
and are not expected to be material in 1999. We believe that we are in material
compliance with all federal, state and local environmental laws and regulations
and are currently not engaged in any remediation activities required by
governmental regulatory authorities.
LEGAL PROCEEDINGS
We are a party to various litigation matters arising in the ordinary course
of our business. We cannot estimate with certainty the ultimate legal and
financial liability of this litigation but believe, based on our examination of
these matters, experience to date and discussions with counsel, that the
ultimate liability will not be material to our business or results of
operations.
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THE TRANSACTIONS
OVERVIEW
The private offering of the outstanding notes was part of a series of
simultaneous transactions which closed on July 2, 1999. These transactions
resulted in the creation of Consolidated Container Company, a new Delaware
limited liability company and its parent, Consolidated Container Holdings, a
Delaware limited liability company. Because of the contributions and mergers
described below, Consolidated Container Company now owns, or holds directly or
through subsidiaries, all of the assets of Reid Plastics, Inc., formerly
controlled by Vestar Capital Partners III and substantially all of the U.S.
plastic packaging assets of Suiza Foods. Before the closing of the transactions,
Suiza Foods operated its plastics packaging business as a division, known as
Suiza Packaging, which consisted of a majority owned subsidiary, Franklin
Plastics, Inc., its subsidiaries and Plastic Containers.
The transactions consisted of the following:
- the following contributions and mergers:
-- the contribution by Reid Plastics Holdings of its subsidiary, Reid
Plastics, Inc., and Reid Plastics, Inc.'s subsidiaries to a new
subsidiary of Consolidated Container Company, Reid Plastics Group LLC
and its subsidiaries, and the merger of these entities;
-- the contribution by Suiza Foods of substantially all of the plastic
packaging assets of Franklin Plastics, Inc., its subsidiary, to
Consolidated Container Company by the merger of the subsidiaries of
Franklin Plastics, Inc. into Consolidated Container Company; and
-- the merger of Plastic Containers into a new subsidiary of
Consolidated Container Company, Plastic Containers LLC;
- the contribution of $60.8 million in cash by Vestar Packaging, a newly
formed Delaware limited liability company controlled by Vestar Capital
Partners III, to Consolidated Container Holdings;
- the offering of the outstanding notes;
- the execution by Consolidated Container Company of a new senior credit
facility and the borrowing of $412.5 million under it;
- the consent solicitation and tender offer by Plastic Containers for its
outstanding 10% Senior Secured Notes due 2006, of which approximately
$121.3 million in total principal amount were outstanding at March 31,
1999, in which all of the holders of these notes tendered them;
- the repayment of substantially all of the outstanding debt of Reid
Plastics, Inc. and Franklin Plastics, Inc., the redemption of the
preferred stock of Franklin Plastics, Inc. plus the payment of a portion
of accrued interest and dividends on the debt and preferred stock of
Franklin Plastics, Inc.; and
- the payment of fees and expenses regarding the above, including the fees
and expenses of the initial purchasers, the lenders, the trustee and our
lawyers, accountants and printing company.
As a result of the closing of the transactions, Vestar Packaging owns 20.5%
and Reid Plastics Holdings owns 30.5% of Consolidated Container Holdings, and
Suiza Foods and minority shareholders of Franklin Plastics, Inc., through
Franklin Plastics, Inc., together own 49% of Consolidated Container Holdings.
Consolidated Container Holdings owns all of the member units in Consolidated
Container Company, which itself owns the former packaging assets of Franklin
Plastics, Inc. and its subsidiaries. The remainder of the combined businesses
are held through two subsidiaries of Consolidated Container Company, Reid
Plastics Group LLC and Plastic Containers LLC and their subsidiaries.
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CONTRIBUTION AND MERGER AGREEMENT
Prior to the contributions and mergers described above, Suiza Foods
restructured the ownership of its U.S. plastic packaging subsidiaries by taking
the following steps (in order):
- Suiza Foods contributed the capital stock of Franklin Plastics, Inc. to
Continental Can Company, Inc.
- Continental Can Company contributed the stock of Plastic Containers to
Franklin Plastics, Inc. to allow Franklin Plastics, Inc. to acquire the
ownership of Plastic Containers.
- After obtaining the consents of the holders of the 10% Senior Secured
Notes due 2006 of Plastic Containers in the consent solicitation, Plastic
Containers merged into Plastic Containers LLC, a Delaware limited
liability company, and Continental Plastic Containers Inc., merged into
Continental Plastic Containers LLC, a Delaware limited liability company.
The contributions and mergers were made under a Contribution and Merger
Agreement dated as of April 29, 1999 among Suiza Foods, Franklin Plastics, Inc.,
Suiza Foods' domestic plastics subsidiaries, Vestar Packaging, Reid Plastics
Holdings, Reid Plastics, Inc.'s domestic plastic subsidiaries, Reid Plastics
Group LLC, Consolidated Container Holdings and Consolidated Container Company.
We summarize below the contributions, mergers and related payments:
- Vestar Packaging, which is controlled by Vestar Capital Partners III,
received 20.5% of the member units in Consolidated Container Holdings in
exchange for its contribution of $60.8 million in cash to Consolidated
Container Holdings.
- Reid Plastics Holdings, which is indirectly controlled by Vestar Capital
Partners III, received 30.5% of the member units in Consolidated Container
Holdings in exchange for causing:
-- Reid Plastics, Inc. and each of its domestic subsidiaries to merge
into Reid Plastics Group;
-- Reid Plastics, Inc.'s Canadian subsidiaries to become wholly owned
subsidiaries of Reid Plastics Group; and
-- Reid Plastics, Inc.'s equity interest in its Mexican joint venture,
Reid Mexico, S.A. de C.V., to become interests of Reid Plastics
Group.
- Franklin Plastics, Inc., which is controlled by Suiza Foods, received 49%
of the member units in Consolidated Container Holdings in exchange for:
-- its contribution of the limited liability company interests of
Plastic Containers to Consolidated Container Company;
-- the contribution of substantially all of the plastic packaging assets
of Franklin Plastics, Inc., to Consolidated Container Company by the
merger of the subsidiaries of Franklin Plastics, Inc., into
Consolidated Container Company;
- the repayment of substantially all of the outstanding debt of Franklin
Plastics, Inc., the redemption of the preferred stock of Franklin
Plastics, Inc. and the payment of a portion of the accrued interest and
dividends on these amounts, which collectively totaled $372.5 million,
based on amounts owed to Suiza Foods and minority shareholders of Franklin
Plastics, Inc.
As a result of these contributions and mergers:
- Consolidated Container Holdings owns all of the interests in Consolidated
Container Company;
- Consolidated Container Company owns the former packaging assets of
Franklin Plastics, Inc. and its subsidiaries; and
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- Reid Plastics Group and Plastic Containers, two new subsidiaries of
Consolidated Container Company, contains the former subsidiaries and joint
venture investments of Reid Plastics, Inc. and Plastic Containers and its
former subsidiaries.
The contribution and merger agreement contains various customary
representations, warranties, covenants and conditions. Most representations and
warranties expire eighteen months after the closing of the transactions. Those
representations and warranties pertaining to violations of legal or regulatory
requirements terminate upon the tolling of the applicable statute of
limitations. Representations and warranties relating to the capitalization of
the parties that are being contributed and merged into Consolidated Container
Company or its subsidiaries (Reid Plastics, Inc. and its domestic subsidiaries,
Franklin Plastics, Inc. and Plastics Containers), brokers and finders fees and
the absence of liabilities of Consolidated Container Holdings and Consolidated
Container Company terminate upon the tolling of the applicable statute of
limitations.
For claims related to a breach of some representations, warranties,
covenants or obligations contained in the contribution and merger agreement,
indemnification will be available to some parties suffering damages. Subject to
some limitations and qualifications, an indemnified party will receive, at the
option of the party required to provide indemnification, either cash, which will
be mandatory in some specified circumstances, or preferred units issued by
Consolidated Container Holdings, in each case only if these damages in total
exceed $5 million. The preferred units of Consolidated Container Holdings are
described under "Certain Relationships and Related Party Transactions -- Limited
Liability Company Agreement of Consolidated Container Holdings."
Consolidated Container Holdings and/or Consolidated Container Company have
entered into the following agreements:
- an amended and restated limited liability company agreement of
Consolidated Container Holdings regarding its governance and related
matters, including the form of a registration rights agreement among Reid
Plastics Holdings and the holders of the member units in Consolidated
Container Holdings in the event that there is a possible initial public
offering of equity interests in Consolidated Container Holdings;
- a limited liability company agreement of Consolidated Container Company
regarding its governance and related matters;
- four supply agreements with Suiza Foods to supply Suiza Foods with some
HDPE bottles, PET bottles and bottle components in the continental United
States and Canada;
- a trademark license agreement with Continental Can Company, a wholly owned
subsidiary of Suiza Foods, granting Consolidated Container Company a
non-exclusive license to use some of its trademarks for its plastic
operations;
- an assumption agreement under which Consolidated Container Holdings and
Consolidated Container Company will assume some obligations of Reid
Plastics Holdings;
- an option plan under which Consolidated Container Holdings to provide its
senior managers with options to acquire member units in itself;
- an option plan to replace options that some persons, including former
employees of Suiza Packaging, held in Franklin Plastics, Inc. with new
options to purchase member units in Consolidated Container Holdings; and
- a transition services agreement with Suiza Foods for the supply of office
and other services before we obtain these services from other sources.
In addition, on April 29, 1999, Consolidated Container Holdings,
Consolidated Container Company and Vestar Capital Partners, a New York general
partnership and an affiliate of Vestar
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Capital Partners III, entered into an agreement relating to the management of
Consolidated Container Holdings and Consolidated Container Company, which
contemplates the payment of fees and expenses owed to Vestar Capital Partners
following the closing of the Transactions. For a more complete description of
the agreements listed above, see "Management" and "Certain Relationships and
Related Party Transactions."
FRANKLIN REPLACEMENT OPTIONS. Following the closing of the transactions,
Consolidated Container Holdings offered the holders of options to purchase
shares of common stock in Franklin Plastics, Inc. replacement options to
purchase member units in Consolidated Container Holdings. These holders accepted
the offer. The Franklin Plastics, Inc. options were exchanged at their
equivalent economic value for options to purchase member units in Consolidated
Container Holdings. If the replaced options are exercised, a corresponding
number of member units of Consolidated Container Holdings then held by Franklin
Plastics, Inc. will be cancelled. If these options are exercised, they would
represent approximately 4.65% of the total member units of Consolidated
Container Holdings on a fully diluted basis. Peter M. Bernon, William L. Estes,
Ronald E. Justice, Henry Carter, Timothy W. Brasher and David M. Stulman, each
of whom received replaced options which, in total, represent options to purchase
268,878 member units of Consolidated Container Holdings, have become members of
the management committee and/or officers of Consolidated Container Holdings and
Consolidated Container Company. For more information regarding the beneficial
ownership of the member units of Consolidated Container Holdings, see "Security
Ownership of Certain Beneficial Owners and Management," and for more information
regarding other options to purchase member units of Consolidated Container
Holdings, see "Management -- Option Plan."
CONSENT SOLICITATION AND TENDER OFFER FOR 10% SENIOR SECURED NOTES DUE 2006
Concurrently with the offering of the outstanding notes, Plastic Containers
conducted a consent solicitation and a tender offer for its outstanding 10%
Senior Secured Notes due 2006, $121.3 million in total principal amount of which
were outstanding at March 31, 1999. Holders of all of these notes tendered their
notes on the closing of the consent solicitation and tender offered for them. As
a result, all of these notes have been retired and cancelled.
FINANCINGS
Simultaneously with the closing of the contributions and mergers, the
Consolidated Container Company and Consolidated Container Capital issued the
outstanding notes and Consolidated Container Company entered into the
$475.0 million senior credit facility and borrowed $412.5 million under it at
the closing of the transactions. See "Capitalization" and "Description of Senior
Credit Facility."
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MANAGEMENT
MANAGEMENT COMMITTEE AND EXECUTIVE OFFICERS
Consolidated Container Company is managed by its sole member, Consolidated
Container Holdings. Consolidated Container Holdings is managed by a management
committee consisting of eight members. Two of the members were appointed by
Vestar Packaging, two of the members were appointed by Reid Plastics Holdings,
Vestar Packaging and Reid Plastics Holdings mutually appointed a fifth member,
one of the members was appointed by Franklin Plastics, one of whom is Peter M.
Bernon, one member is the chief executive officer of Consolidated Container
Holdings, who currently is William L. Estes, and one member is B. Joseph Rokus,
currently the Chairman of the Boards of Directors of Reid Plastics Holdings and
Reid Plastics, Inc. In addition, Franklin Plastics, Inc. has the right to
designate one additional member of the management committee under the limited
liability company agreement of Consolidated Container Holdings. See "Certain
Relationships and Related Party Transactions -- Limited Liability Company
Agreement of Consolidated Container Holdings -- Management."
The executive officers and members of the management committee of
Consolidated Container Holdings and their ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Ronald V. Davis........................... 52 Chairman of the Management Committee
Peter M. Bernon........................... 47 Vice Chairman of the Management Committee
B. Joseph Rokus........................... 45 Vice Chairman of the Management Committee
William L. Estes.......................... 52 President and Chief Executive Officer and
a
Member of the Management Committee
Ronald E. Justice......................... 54 Executive Vice President of Operations
Henry Carter.............................. 49 Executive Vice President of Sales and
Marketing
Timothy W. Brasher........................ 40 Senior Vice President, Chief Financial
Officer
and Secretary
David M. Stulman.......................... 52 Vice President of Human Resources
William G. Bell........................... 52 Member of the Management Committee
James P. Kelley........................... 44 Member of the Management Committee
Leonard Lieberman......................... 70 Member of the Management Committee
John R. Woodard........................... 35 Member of the Management Committee
</TABLE>
RONALD V. DAVIS has served as Chairman of the management committee since the
closing of the transactions. Prior to the transactions and since December 1998,
Mr. Davis has served as President and Chief Executive Officer of Reid Plastics
Holdings. Currently, Mr. Davis is also Chairman of Davis Capital LLC, a private
equity investment company, which he founded in 1994. Mr. Davis founded The
Perrier Group of America and, between 1979 and 1992, he served as its President
and Chief Executive Officer. From 1992 to 1994, he served as Chairman of the
Board of Directors for Perrier Group of America, Inc. He currently serves on the
Boards of Directors of Celestial Seasonings and FMAC. Mr. Davis received a B.A.
from California State University and an M.B.A. from the University of Southern
California.
PETER M. BERNON has served a Vice Chairman of the management committee since
the closing of the transactions. Prior to the transactions and since 1997,
Mr. Bernon served as Vice Chairman of Suiza Packaging. Mr. Bernon is the founder
of Franklin Plastics, Inc. and has been its President since 1997. From 1986 to
1997, Mr. Bernon served as Chairman of Garelick Farms. Mr. Bernon received a
B.A. from Babson College.
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B. JOSEPH ROKUS has served as a Vice Chairman of the management committee
since the closing of the transactions. Prior to the transactions and since
December 1998, Mr. Rokus has served as Chairman of the Boards of Directors of
Reid Plastics Holdings and Reid Plastics, Inc. Between 1993 and December 1998,
Mr. Rokus served as President and Chief Executive Officer of Reid Plastics
Holdings and Reid Plastics, Inc. He serves on the Boards of Trustees of the
International Bottled Water Association and Pepperdine University and also
serves as a director of Corporate First Travel Agency. Mr. Rokus received a B.S.
from Pepperdine University and an M.B.A. from the University of Southern
California.
WILLIAM L. ESTES has served as President and Chief Executive Officer of
Consolidated Container Holdings and as a member of the management committee
since the closing of the transactions. Prior to the transactions and since 1998,
Mr. Estes served as President and Chief Executive Officer of Suiza Packaging.
Between November 1996 and February 1998, Mr. Estes served as President and Chief
Operating Officer of McKesson Corporation's McKesson-Carrollton operations.
Between January 1994 and November 1996, Mr. Estes served in various capacities
with Foxmeyer Health Corporation, most recently as President and Chief Operating
Officer. Between October 1991 and December 1993, Mr. Estes served as Vice
President and Chief Operating Officer of The Body Shop, Inc. Between 1983 and
1991, Mr. Estes served in various capacities with Pepsico, Inc., primarily with
its Frito-Lay, Inc. subsidiary. Mr. Estes is also a director of Kevco Inc.
Mr. Estes received a B.A. in mechanical engineering from the University of
Illinois and an M.B.A. from the Wharton School of Business.
RONALD E. JUSTICE has served as Executive Vice President of Operations of
Consolidated Container Holdings since the closing of the transactions. Prior to
the transactions and since 1998, Mr. Justice served as Executive Vice President
of Suiza Packaging. Between July 1995 and September 1998, Mr. Justice served as
Senior Vice President of Operations of The Scotts Company. Between 1992 and
1995, Mr. Justice served as Corporate Vice President of Operations of
Continental Baking. Prior to joining Continental Baking, Mr. Justice served in
various operations positions with Frito-Lay, Inc. and Procter & Gamble.
Mr. Justice is also a director of Premium Standard Farms, a division of
Continental Grain. Mr. Justice received a B.S. from the University of Oklahoma
and a M.S. from the University of Texas at Dallas.
HENRY CARTER has served as Executive Vice President of Sales and Marketing
of Consolidated Container Holdings since the closing of the transactions. Prior
to the transactions and since 1998, Mr. Carter served as Executive Vice
President of Suiza Packaging. Mr. Carter served as President of Lawson Mardon
Wheaton Inc. between 1997 and 1998, Executive Vice President of Dorsey Trailers
Company between 1996 and 1997 and President and various other positions of
Constar International between 1977 and 1996. Mr. Carter received a B.S. from the
University of Illinois.
TIMOTHY W. BRASHER has served as Senior Vice President, Chief Financial
Officer and Secretary of Consolidated Container Holdings since the closing of
the transactions. Prior to the transactions and since February 1999,
Mr. Brasher has served as Chief Financial Officer of Suiza Packaging. From
February 1998 to February 1999, Mr. Brasher served as Chief Financial Officer
and Chief Operating Officer of Virtual Village Holdings, Inc. Between 1993 and
1998, Mr. Brasher served as Vice President and Chief Financial Officer of Buena
Vista Home Entertainment, a division of The Walt Disney Company. Prior to 1993,
Mr. Brasher served as Executive Vice President and Chief Financial Officer of
Hinderliter Industries, Inc. Mr. Brasher received a B.B.A. from the University
of North Texas.
DAVID M. STULMAN has served as Vice President of Human Resources of
Consolidated Container Holdings since the closing of the transactions. Prior to
the transactions and since 1996, Mr. Stulman has served as Vice President-Human
Resources of Continental Plastic Containers and Continental Carribean
Containers. Between 1973 and 1987, he worked for Continental Can in various
human resources positions. Between 1988 and June 1993, Mr. Stulman served as
Corporate Director of Human Resources of Amphenol Corporation. Between
June 1993 and November 1995, he served as Vice
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President-Human Resources of Pirelli Armstrong Tire Corporation. Mr. Stulman
received a B.S. from Towson State University.
WILLIAM G. BELL has served as a member of the management committee since the
closing of the transactions. Mr. Bell has been the owner and President of Aqua
Filter Fresh, Inc. since 1980, President of Bell Sales, Inc. since 1980 and the
Executive Vice President of Tyler Mountain Water Co. Inc. since 1985. Mr. Bell
is a director of Reid Plastics Holdings, Aqua Filter Fresh, Alpine Spring
Water, Inc., Wissahickon Spring Water Company and Bell Sales, Inc. Mr. Bell
currently serves as Vice Chairman of the International Bottled Water
Association, an organization he has been affilated with since 1989.
JAMES P. KELLEY has served as a member of the management committee since the
closing of the transactions. Mr. Kelley is a Managing Director of Vestar Capital
Partners and was a founding partner of Vestar Capital Partners at its inception
in 1988. Mr. Kelley is a director of Celestial Seasonings, Reid Plastics
Holdings and Westinghouse Air Brake Company, companies in which Vestar Capital
Partners III or an affiliate has or had a significant equity interest.
Mr. Kelley received a B.S. from the University of Northern Colorado, a J.D. from
the University of Notre Dame and an M.B.A. from Yale University.
LEONARD LIEBERMAN has served as a member of the management committee since
the closing of the transactions. Mr. Lieberman was the Chief Executive Officer
of Supermarkets General Corporation between 1983 and 1987 and of Outlet
Communications Inc. in 1991. Since before 1995, Mr. Lieberman has served as a
consultant to Vestar Capital Partners III and its affilates. Currently, Mr
Lieberman is a director of Advanced Organics, Russell-Stanley Holdings,
Celestial Seasonings, Republic New York Corporation, Reid Plastics Holdings,
Republic National Bank of New York, Sonic Corp. and Nice Pak Products, Inc.
Vestar Capital Partners III or an affiliate has or had a significant equity
interest in Advanced Organics, Celestial Seasonings, Russell-Stanley Holdings
and Reid Plastics Holdings, Mr. Lieberman received a B.A. from Yale University,
a J.D. from Columbia University and participated in the Advanced Management
Program at Harvard Business School.
JOHN R. WOODARD has served as a member of the management committee since the
closing of the transactions. Mr. Woodard is a Managing Director of Vestar
Capital Partners and joined Vestar Capital Partners in 1998. Between March 1996
and February 1998, he served as a Managing Director of The Blackstone Group.
From 1990 to March 1996, Mr. Woodard was a Vice President of Vestar Capital
Partners. Mr. Woodard is also a director of Reid Plastics Holdings, a company in
which Vestar Capital Partners III has a significant equity interest.
Mr. Woodard received a B.A. from Williams College.
Except as described in this section, there are no arrangements or
understandings between any member of the management committee or executive
officer and any other person under which that person was elected or appointed to
his position.
MANAGEMENT COMMITTEE COMPENSATION
All members of the management committee are reimbursed for their usual and
customary expenses incurred in attending all management committee and committee
meetings. Members of the management committee who are also employees of
Consolidated Container Holdings, Vestar Capital Partners or Suiza Foods do not
receive remuneration for serving as members of the management committee. Each
other member of the management committee will receive customary compensation of:
- $2,500 for each meeting of the management committee attended in person;
and
- $3,750 for each calendar quarter of service as a member of the management
committee.
Following the closing of the transactions, the management committee
established a compensation committee, comprised of Messrs. Davis, as chairman,
Bell, Kelley and the additional member of the management committee that Franklin
Plastics, Inc. will designate in the future. In addition, the
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management committee established an audit committee, comprised of
Messrs. Lieberman, as chairman, Bernon, Rokus and Woodard.
OPTION PLAN
Following the closing of the transactions, Consolidated Container Holdings
adopted a 1999 Unit Option Plan to provide some of its senior managers and other
key employees with options to acquire up to 596,206, or 5.5% on a fully diluted
basis of the, member units of Consolidated Container Holdings. Under the option
plan, Consolidated Container Holdings granted options to some of these senior
managers that represent that right to acquire, in total, 573,953 member units of
Consolidated Container Holdings. The exact pricing, performance criteria,
vesting terms and redemption of options granted under this plan are governed by
individual unit option agreements between the employee and Consolidated
Container Holdings and, if the options are exercised, the terms of the options
will be governed by special unit acquisition, ownership and redemption
agreements. In addition to the options to purchase member units in Consolidated
Container Holdings that were granted to some of our senior managers under the
option plan, these senior managers also hold options to purchase, in total,
276,315 member units of Consolidated Container Holdings that were exchanged for
their Franklin Plastics, Inc. options as described under "The
Transactions -- Contribution and Merger Agreement -- Franklin Replacement
Options." The compensation committee will administer the option plan.
LIQUIDITY EVENT BONUS PLAN
Following the closing of the transactions, the management committee of
Consolidated Container Holdings adopted a bonus plan for some of its officers,
other key employees and outside consultants. If a liquidity event, as defined in
the bonus plan, were to occur, then the management committee of Consolidated
Container Holdings will establish a bonus pool of cash equal to a formula based
on the appreciation in value of the member units of Consolidated Container
Holdings. As defined in the bonus plan, a liquidity event includes:
- the sale of substantially all of the member units of Consolidated
Container Holdings held by Vestar Packaging and its affiliates;
- the sale of substantially all of the assets of Consolidated Container
Holdings; or
- an initial public offering of 50% or more of the member units of
Consolidated Container Holdings.
Those awarded grants under the bonus plan will share the bonus pool.
Consolidated Container Holdings will make bonus payments, however, only if
(1) a liquidity event occurs and (2) specified rates of return are realized by
Vestar Packaging and its affiliates on their investment in Consolidated
Container Holdings. The management committee or the compensation committee of
Consolidated Container Holdings will administer the bonus plan. To date,
Consolidated Container Holdings has not made any awards under the bonus plan.
EMPLOYMENT AGREEMENTS
As of July 5, 1999, Consolidated Container Company entered into an
employment agreement with Peter M. Bernon. The employment agreement provides
that Mr. Bernon will be employed as an Executive Vice President of Consolidated
Container Company at an annual base salary of $325,000 for a term of two years,
subject to his earlier termination without "cause", which includes willful
misconduct, refusal to perform his duties and his conviction of a felony, or his
resignation for "good reason," which includes a reduction in his salary, annual
bonus opportunity or other benefits, a relocation of his principal place of
employment and his removal from his position with Consolidated Container
Company. Mr. Bernon is entitled to a bonus of up to 100% of his base salary at
the discretion of the management committee of Consolidated Container Holdings
and to participate in any
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executive bonus plan and all employee benefit plans maintained by Consolidated
Container Company. In the event that Consolidated Container Company terminates
Mr. Bernon without cause or he resigns for good reason before the employment
agreement expires, Mr. Bernon will be entitled to receive:
- any payments and benefits provided under any plans or programs in which he
participated before the termination;
- the salary and bonus he would otherwise have received through the end of
his term of employment;
- a cash lump sum payment for unused vacation and unpaid other compensation;
and
- continued employee medical and life insurance plans for the remainder of
the term of the employment agreement.
In the event of his death or permanent disability, Mr. Bernon will be
entitled to a reduced compensation package. In addition, Mr. Bernon has agreed
not to disclose any confidential information regarding Consolidated Container
Company and its affiliates.
As of July 2, 1999, Consolidated Container Company entered into an
employment agreement with William L. Estes. The employment agreement provides
that Mr. Estes will be employed as the Chief Executive Officer of Consolidated
Container Company at an annual base salary of $400,000 for a term of five years,
subject to his earlier termination without "cause", which includes willful
misconduct and his conviction of a felony, or his resignation for "good reason,"
which includes a reduction in his salary or other benefits and his removal from
his position with Consolidated Container Company. Mr. Estes is entitled to a
bonus of up to 100% of his base salary at the discretion of the management
committee of Consolidated Container Holdings, to participate in any executive
bonus plan and all employee benefit plans maintained by Consolidated Container
Company and, under some circumstances, an additional payment to offset negative
tax effects on his benefits. In the event that Consolidated Container Company
terminates Mr. Estes without cause or he resigns for good reason before the
employment agreement expires, Mr. Estes will be entitled to receive:
- any payments and benefits provided under any plans or programs in which he
participated before the termination;
- the salary and bonus he would otherwise have received;
- a cash lump sum payment for unused vacation and unpaid other compensation;
and
- continued employee medical and life insurance plans for the remainder of
the term of the employment agreement.
In the event of his death or permanent disability, Mr. Estes will be
entitled to a reduced compensation package. In addition, Mr. Estes agreed not to
disclose any confidential information regarding Consolidated Container Company
and its affiliates and not to be engaged in, in any capacity, in any business
that competes with Consolidated Container Company or solicit any person who was
employed by Consolidated Container Company and its affiliates during the twelve
months preceding that solicitation for a period of eighteen months after the
date of his termination of employment. In exchange for agreeing to be bound by
these covenants, Mr. Estes will receive payments during the eighteen month
period equal to one and one-half times the executive's base salary and an annual
target bonus.
As of July 5, 1999, Consolidated Container Company entered into an
employment agreement with Ronald E. Justice. The employment agreement provides
that Mr. Justice will be employed as an Executive Vice President of Consolidated
Container Company at an annual base salary of $230,000 for a term of two years,
subject to his earlier termination without "cause", which includes willful
misconduct, failure to perform his duties and his conviction of a felony, or his
resignation for "good reason," which includes a reduction in his salary, annual
bonus opportunity or other benefits, a
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relocation of his principal place of employment and his removal from his
position with Consolidated Container Company. Mr. Justice is entitled to a bonus
of up to 80% of his base salary at the discretion of the management committee of
Consolidated Container Holdings, to participate in any executive bonus plan and
all employee benefit plans maintained by Consolidated Container Company and,
under some circumstances, an additional payment to offset negative tax effects
on his benefits. In the event that Consolidated Container Company terminates
Mr. Justice without cause or he resigns for good reason before the employment
agreement expires, Mr. Justice will be entitled to receive:
- any payments and benefits provided under any plans or programs in which he
participated before the termination;
- the salary and bonus he would otherwise have received over a twelve month
period;
- a cash lump sum payment for unused vacation and unpaid other compensation;
and
- continued employee medical and life insurance plans for the remainder of
term of the employment agreement.
In the event of his death or permanent disability, Mr. Justice will be
entitled to a reduced compensation package. In addition, Mr. Justice agreed not
to disclose any confidential information regarding Consolidated Container
Company and its affiliates and not to be engaged in, in any capacity, in any
business that competes with Consolidated Container Company or solicit any person
who was employed by Consolidated Container Company and its affiliates during the
twelve months preceding that solicitation for a period of twenty four months
after the date of his termination of employment. In exchange for agreeing to be
bound by these covenants, Mr. Justice will receive payments during the two year
period equal to one times the executive's base salary and an annual target
bonus.
As of July 5, 1999, Consolidated Container Holdings entered into an
employment agreement with Henry Carter. The employment agreement provides that
Mr. Carter will be employed as the Executive Vice President of Consolidated
Container Company at an annual base salary of $230,000 for a term of two years,
subject to his earlier termination without "cause", which includes willful
misconduct, failure to perform his duties and his conviction of a felony, or his
resignation for "good reason," which includes a reduction in his salary, annual
bonus opportunity or other benefits, a relocation from his principal place of
employment and his removal from his position with Consolidated Container
Company. Mr. Carter is entitled to a bonus of up to 80% of his base salary at
the discretion of the management committee of Consolidated Container Holdings,
to participate in any executive bonus plan and all employee benefit plans
maintained by Consolidated Container Company and, under some circumstances, an
additional payment to offset negative tax effects on his benefits. In the event
that Consolidated Container Company terminates Mr. Carter without cause or he
resigns for good reason before the employment agreement expires, Mr. Carter will
be entitled to receive:
- any payments and benefits provided under any plans or programs in which he
participated before the termination;
- the salary and bonus he would otherwise have received over a twelve month
period;
- a cash lump sum payment for unused vacation and unpaid other compensation;
and
- continued employee medical and life insurance plans for the remainder of
the term of the employment agreement.
In the event of his death or permanent disability, Mr. Carter will be
entitled to a reduced compensation package. In addition, Mr. Carter agreed not
to disclose any confidential information regarding Consolidated Container
Company and its affiliates and not to be engaged in, in any capacity, in any
business that competes with Consolidated Container Company or solicit any person
who was employed by Consolidated Container Company and its affiliates during the
twelve months preceding that solicitation for a period of twenty four months
after the date of his termination of employment. In exchange for agreeing to be
bound by these covenants, Mr. Carter will receive payments during the two year
period equal to one times the executive's base salary and an annual target
bonus.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Consolidated Container Holdings is the beneficial owner of all of the member
units of Consolidated Container Company, and its address is 2515 McKinney
Avenue, Suite 850, Dallas, Texas 75201. Consolidated Container Company is the
beneficial owner of all of the shares of common stock of Consolidated Container
Capital, and its address is 2515 McKinney Avenue, Suite 850, Dallas, Texas
75201.
We provide below information concerning the beneficial ownership of the
member units and the economic interest in Consolidated Container Holdings at
September 30, 1999 by:
- each person known by us to be the beneficial owner of more than 5% of the
member units of Consolidated Container Holdings;
- each member of the management committee who is a holder of member units in
Consolidated Container Holdings; and
- the officers and members of the management committee of Consolidated
Container Holdings as a group.
<TABLE>
<CAPTION>
NUMBER OF MEMBER UNITS PERCENTAGE OF MEMBER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED (A) UNITS OUTSTANDING (A)
- ------------------------------------ ---------------------- ---------------------
(UNITS IN THOUSANDS)
<S> <C> <C>
5% EQUITY HOLDERS:
Vestar Packaging LLC (b)........................... 2,050 20.5%
Seventeenth Street Plaza 1225 17th Street, Suite
1660
Denver, Colorado 80202
Reid Plastics Holdings, Inc. (c)................... 3,050 30.5%
Seventeenth Street Plaza
1225 17th Street, Suite 1660
Denver, Colorado 80202
Franklin Plastics, Inc. (d)........................ 4,900 49.0%
1199 West Central Street
Franklin, Massachusetts 02038
OFFICERS AND MANAGEMENT COMMITTEE MEMBERS:
Ronald V. Davis (b)(c)............................. -- --
Peter M. Bernon (d)(e)............................. -- --
B. Joseph Rokus (c)................................ -- --
William L. Estes (e)(f)............................ -- --
Ronald E. Justice (e).............................. -- --
Henry Carter (e)................................... -- --
Timothy W. Brasher (e)............................. -- --
David M. Stulman (g)............................... -- --
William G. Bell.................................... -- --
James P. Kelley (b)................................ -- --
Leonard Lieberman (b).............................. -- --
John R. Woodard (b)................................ -- --
ALL OFFICERS AND MEMBERS OF THE MANAGEMENT COMMITTEE
AS A GROUP (12 persons)(h):........................ -- --
</TABLE>
(FOOTNOTES APPEAR ON THE FOLLOWING PAGE)
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(FOOTNOTES TO TABLE ON PRIOR PAGE)
- ------------------------
(a) The amounts and percentage of member units beneficially owned are
reported on the basis of regulations of the Securities and Exchange Commission
governing the determination of beneficial ownership of securities. Under the
regulations, a person is considered to be a "beneficial owner" of a security if
that person has or shares "voting power," which includes the power to vote or to
direct the voting of that security, or "investment power," which includes the
power to dispose of or to direct the disposition of that security. A person is
also considered to be a beneficial owner of any securities of which that person
has a right to acquire beneficial ownership within 60 days. Under these rules,
more than one person may be considered a beneficial owner of the same securities
and a person may be considered to be a beneficial owner of securities as to
which he has no economic interest.
(b) Vestar Packaging LLC, a Delaware limited liability company, is 69.4%
owned by Vestar Capital Partners III, L.P., 4.9% owned by Vestar Reid LLC, 1.1%
owned by Davis Capital LLC, 8.0% owned by BT Capital Investors, L.P., an
affiliate of Deutsche Bank Securities Inc., 8.0% by DLJ Private Equity Partners
Fund, L.P., DLJ Fund Investment Partners II, L.P., DLJ Private Equity Employees
Fund, L.P. and DLJ Capital Partners I, LLC, each an affiliate of Donaldson,
Lufkin & Jenrette Securities Corporation, and some employees of Donaldson,
Lufkin & Jenrette Securities Corporation, 0.16% owned by Leonard Lieberman,
0.05% owned by John R. Woodard and 8.4% owned by other persons. Vestar Reid LLC,
a Delaware limited liability company, is 94.2% owned by Vestar Capital Partners
III, L.P., 3.3% owned by Davis Capital LLC and 2.5% owned by other persons.
Davis Capital LLC, a Delaware limited liability company, is 100% owned by Ronald
V. Davis and his affiliates. In addition, each of James P. Kelley and John R.
Woodard is a Vice President of Vestar Associates Corporation III. Vestar
Associates Corporation III is the sole general partner of Vestar Associates III,
L.P. Vestar Associates III, L.P. is the sole general partner of Vestar Capital
Partners III, L.P. and Vestar Capital Partners III, L.P. controls Vestar
Packaging LLC, which owns 20.5% of the member units in Consolidated Container
Holdings, and is the 94.2% owner of Vestar Reid LLC, which owns 82.6% of Reid
Plastics Holdings, Inc., which, in turn, owns 30.5% of the member units in
Consolidated Container Holdings. Mr. Lieberman owns 0.03% of Vestar Capital
Partners III, L.P., in addition to his ownership of 0.16% of Vestar Packaging
LLC. Mr. Davis, as an owner of Vestar Packaging LLC, Mr. Lieberman, as an owner
of Vestar Capital Partners III, L.P. and an owner of Vestar Packaging LLC,
Mr. Kelley, as an executive officer of Vestar Associates Corporation III, and
Mr. Woodard, as an executive officer of Vestar Associates Corporation III and as
an owner of Vestar Packaging LLC, may be considered to share beneficial
ownership of Vestar Packaging LLC's member units of Consolidated Container
Holdings LLC. Each of these individuals disclaims this beneficial ownership.
(c) Reid Plastics Holdings, Inc., a Delaware corporation, is 82.6% owned by
Vestar Reid LLC, 13.8% owned by B. Joseph Rokus, with options to purchase an
additional 2.4% on a fully diluted basis, 2.8% owned by Davis Capital LLC, with
options to purchase an additional 2.6% on a fully diluted basis, and 3.6% owned
by others. Vestar Reid LLC, a Delaware limited liability company, is 94.2% owned
by Vestar Capital Partners III, L.P., 3.3% owned by Davis Capital LLC and 2.5%
owned by other persons. Davis Capital LLC, a Delaware limited liability company,
is 100% owned by Ronald V. Davis and his affiliates. Mr. Rokus, as a direct
owner of Reid Plastic Holdings Inc., and Mr. Davis, as a direct and as an
indirect owner of Reid Plastics Holdings, Inc., may be considered to share
beneficial ownership of Reid Plastic Holdings, Inc.'s member units of
Consolidated Container Holdings LLC. Messrs. Rokus and Davis disclaim this
beneficial ownership.
(d) Franklin Plastics, Inc., a Delaware corporation, is 88% owned by Suiza
Foods Corporation, 6% owned by Peter M. Bernon and 6% owned by Alan J. Bernon,
the brother of Peter M. Bernon. Peter M. Bernon, as an owner of Franklin
Plastics, Inc., may be considered to share beneficial ownership of Franklin
Plastics, Inc.'s member units of Consolidated Container Holdings LLC.
Mr. Bernon disclaims this beneficial ownership.
(FOOTNOTES CONTINUED ON THE FOLLOWING PAGE)
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(FOOTNOTES CONTINUED FROM PRIOR PAGE)
(e) Peter M. Bernon, William L. Estes, Ronald E. Justice, Henry Carter,
Timothy W. Brasher and David M. Stulman were among a group of former employees
of Suiza Packaging who were granted options to purchase the member units of
Consolidated Container Holdings LLC as a replacement for options of an
equivalent economic value in common stock of Franklin Plastics, Inc. as
described under "The Transactions -- Contribution and Merger
Agreement -- Franklin Replacement Options." Mr. Bernon holds presently
exercisable options to purchase 18,334 member units of Consolidated Container
Holdings LLC. Mr. Estes holds presently exercisable options to purchase 55,018
member units of Consolidated Container Holdings LLC. Mr. Justice holds presently
exercisable options to purchase 9,802 member units of Consolidated Container
Holdings LLC. Mr. Carter holds presently exercisable options to purchase 4,901
member units of Consolidated Container Holdings LLC.
(f) William L. Estes owns 6,000 shares of common stock of Suiza Foods
Corporation, or less than 0.01% of the common stock of Suiza Foods Corporation
at September 30, 1999. Suiza Foods Corporation owns 88% of the common stock of
Franklin Plastics, Inc. As an indirect owner of Franklin Plastics, Inc.,
Mr. Estes may be considered to share beneficial ownership of Franklin
Plastics, Inc.'s member units of Consolidated Container Holdings LLC. Mr. Estes
disclaims this beneficial ownership.
(g) David M. Stulman owns presently exercisable options to purchase 4,572
shares of common stock of Suiza Foods Corporation, or less than 0.01% of the
common stock of Suiza Foods Corporation at September 30, 1999. Suiza Foods
Corporation owns 88% of the common stock of Franklin Plastics, Inc. As an
indirect owner of Franklin Plastics, Inc., Mr. Stulman may be considered to
share beneficial ownership of Franklin Plastics, Inc.'s member units of
Consolidated Container Holdings LLC. Mr. Stulman disclaims this beneficial
ownership.
(h) The officers and members of the management committee of Consolidated
Container Holdings LLC as a group own, in total, presently exercisable options
to purchase 88,055 member units of Consolidated Container Holdings LLC.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
WE SUMMARIZE BELOW THE MATERIAL TERMS AND PROVISIONS OF THE MATERIAL
AGREEMENTS AND ARRANGEMENTS OF CONSOLIDATED CONTAINER COMPANY AS WELL AS THOSE
IN EXISTENCE PRIOR TO THE CLOSING OF THE TRANSACTIONS THAT RELATE TO THE
BUSINESSES WHICH WERE CONTRIBUTED TO CONSOLIDATED CONTAINER COMPANY IN THE
TRANSACTIONS.
LIMITED LIABILITY COMPANY AGREEMENT OF CONSOLIDATED CONTAINER HOLDINGS
Simultaneously with the closing of the transactions, Vestar Packaging, Reid
Plastics Holdings and Franklin Plastics, Inc. entered into a limited liability
agreement of Consolidated Container Holdings, the sole member of Consolidated
Container Company. The limited liability company agreement of Consolidated
Container Holdings provides for its management, non-compete arrangements,
transfer restrictions and related matters. We summarize its material provisions
below.
MANAGEMENT
The management committee of Consolidated Container Holdings has general
powers of supervision, direction and control over the business of Consolidated
Container Holdings and, through Consolidated Container Holdings, Consolidated
Container Company and its subsidiaries. The management committee consists of
eight members, two of whom were appointed by Vestar Packaging, two of whom were
appointed by Reid Plastics Holdings, one of whom was appointed mutually by
Vestar Packaging and Reid Plastics Holdings, one of whom was appointed by
Franklin Plastics, Inc., Peter M. Bernon, one of whom is the chief executive
officer of Consolidated Container Holdings, who currently is William Estes, and
one of whom is B. Joseph Rokus, currently the Chairman of the Boards of
Directors of Reid Plastics Holdings and Reid Plastics, Inc. In addition,
Franklin Plastics, Inc. has the right to designate one additional member of the
management committee under the limited liability company agreement of
Consolidated Container Holdings. The management committee may be expanded to
appoint independent members, so long as Vestar Packaging and Reid Plastics
Holdings continue to designate a majority of the members of the management
committee.
A majority of the members of the management committee and the affirmative
vote of at least one Suiza Foods-appointed member of the management committee
and one Vestar Packaging-appointed member of the management committee is
required for some decisions by the management committee. These decisions
include:
- issuing any equity securities, other than private offerings for less than
$50 million and issuances under Consolidated Container Holdings' option
plan;
- accepting or requiring additional capital contributions;
- incurring debt, other than amounts permitted as of the closing date of the
transactions, in excess of $80 million;
- selling or pledging all or substantially all of Consolidated Container
Company's assets;
- acquiring any business or assets in excess of $80 million;
- selling any operations or assets in excess of $80 million;
- entering into or amending any agreement with a member or its affiliate;
and
- expanding the scope of business beyond the plastic packaging business.
NON-COMPETITION ARRANGEMENTS
Each of the members of Consolidated Container Holdings is subject to a
non-competition arrangement limiting its ability to compete in the business for
plastic packaging products and plastic
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bottles for dairy, water or juice in the same geographical area served by
Consolidated Container Holdings and its subsidiaries. In general, these
geographic areas are in the United States and Canada. The non-competition
arrangements will terminate after five years or, if earlier, upon either of
Vestar Packaging (together with Reid Plastics Holdings) or Franklin Plastics,
Inc. owning less than 10% of the member units of Consolidated Container
Holdings. The following exceptions apply to these non-competition arrangements:
- Suiza Foods may continue to operate its Puerto Rico plastic operations,
which it currently owns and which are not being contributed to
Consolidated Container Company.
- Affiliates of Suiza Foods may manufacture plastic packaging products
solely for their own use.
- As part of future acquisitions, Suiza Foods may operate any plastic
packaging operations that it acquires and that constitute 50% or less of
the revenue of that acquired business, provided that Suiza Foods:
-- offers to sell the competing plastic packaging operations to
Consolidated Container Company within six months of that acquisition;
and
-- sells the competing plastic packaging operations to an unaffiliated
third party within twelve months of that acquisition, if an agreement
with Consolidated Container Company cannot be reached.
- Affiliates of Vestar Packaging may continue to own and operate
Russell-Stanley Holdings. Russell-Stanley Holdings is a manufacturer and
marketer of plastic and steel industrial containers and a provider of
related container services in the United States and Canada. It is
controlled by Vestar Capital Partners III and its affiliates.
- Vestar Packaging and its affiliates may make (a) a non-controlling equity
investment in a competing business if that equity investment is for less
than $75 million and (b) a non-controlling, non-equity investment in a
competing business.
- Vestar Packaging and its affiliates, excluding Reid Plastics Holdings, may
operate any plastic packaging operations that either:
-- constitute 50% or less of the revenue of that acquired business and
generate less than $25 million in revenue for the twelve month period
prior to that acquisition;
-- constitute 50% or less of the revenue of that acquired business,
provided that Vestar Packaging or its appropriate affiliate (a) offers
to sell the competing plastic packaging operations to Consolidated
Container Company within six months of that acquisition and (b) sells
the competing plastic packaging operations to an unaffiliated
third-party within twelve months of that acquisition, if an agreement
with Consolidated Container Company cannot be reached; or
-- is in a product category for which Consolidated Container Company and
its subsidiaries have less than $25 million in revenues.
PREFERRED UNITS
Consolidated Container Holdings may issue preferred units to its members to
compensate them for the payment of some tax distributions to other members, to
satisfy some indemnification claims, as described under "The Transactions --
Contribution and Merger Agreement," and in other circumstances. If issued, the
preferred units will be issued at a liquidation value determined by reference to
the value of the event causing the issuance of the preferred units and will
accrue distribution rights at an annual rate of 12.5%. Upon the issuance of the
preferred units, the capital contributions of all of the holders of member units
of Consolidated Container Holdings will be reduced
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retroactively and proportionally by the amount of the total liquidation value of
the preferred units which are issued.
Consolidated Container Holdings may optionally redeem any preferred units
which are issued at a redemption price equal to the liquidation value plus any
accrued but unpaid distribution rights of these preferred units, subject to the
restrictions contained in the agreements governing our debt. Consolidated
Container Holdings is required to redeem all issued preferred units prior to any
redemption of other units upon:
- a sale of all or substantially all of the assets of Consolidated Container
Holdings;
- an initial public offering of Consolidated Container Holdings; or
- the merger of Consolidated Container Holdings into Reid Plastics Holdings
in anticipation of an initial public offering of Reid Plastics Holdings as
described below, causing the issuance of the preferred units.
Subject to some limitations, Reid Plastics Holdings, Vestar Packaging or
Franklin Plastics, Inc. may choose to convert any preferred units that they hold
into member units upon the exercise of Reid Plastics Holdings' or Vestar
Packaging's right of first offer or Franklin Plastics, Inc.'s tag-along rights
discussed below under "-- Transfer Restrictions -- Right of First
Offer/Tag-Along Rights."
Any amendment of the limited liability company agreement of Consolidated
Container Holdings which would adversely affect the rights of holders of
preferred units requires the approval of a majority of the holders of any
outstanding preferred units. Holders of preferred units, if any, will have no
other voting rights.
PREEMPTIVE AND ANTI-DILUTION RIGHTS
Each of Franklin Plastics, Inc., Reid Plastics Holdings and Vestar Packaging
has preemptive rights, subject to some exceptions, to allow it to maintain its
percentage ownership in the event Consolidated Container Holdings issues
additional equity interests. Franklin Plastics, Inc., Reid Plastics Holdings and
Vestar Packaging also have anti-dilution rights, subject to some exceptions, in
the event Consolidated Container Holdings issues any equity interests for less
than fair market value. The preemptive and anti-dilution rights will terminate
upon an initial public offering of Consolidated Container Holdings or any
successor to it.
TRANSFER RESTRICTIONS
The members of Consolidated Container Holdings are restricted in
transferring their interests in Consolidated Container Holdings prior to four
years after the execution of the limited liability company agreement, except for
some limited exceptions which permit transfers to affiliates and pledges to some
lenders. After the fourth anniversary of the execution of the limited liability
company agreement, these parties will have the following rights:
- RIGHT OF FIRST OFFER/TAG-ALONG RIGHTS. If either Reid Plastics Holdings or
Vestar Packaging desires to sell any of its member units and preferred
units, it will be required to offer the member units and the preferred
units first to Franklin Plastics, Inc. If Franklin Plastics, Inc. declines
to purchase these units, Reid Plastics Holdings or Vestar Packaging can
sell these units to a third party on substantially similar terms. Franklin
Plastics, Inc. will then have tag-along rights regarding that sale for a
proportionate number of these units.
- DRAG-ALONG RIGHTS. If either Reid Plastics Holdings or Vestar Packaging
proposes to sell all of its member units and Franklin Plastics, Inc.
declines to exercise first offer rights, Reid Plastics Holdings or Vestar
Packaging can compel Franklin Plastics, Inc. to sell all of its member
units to the proposed purchaser.
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- PUT RIGHTS. If an initial public offering of Consolidated Container
Holdings has not occurred within four years after the closing of the
transactions, then Franklin Plastics, Inc. will have the right to offer to
sell all of its member units and preferred units, if any, to Reid Plastics
Holdings or Vestar Packaging at fair market value. If Reid Plastics
Holdings or Vestar Packaging declines to purchase these member units,
Franklin Plastics, Inc. will have the right to offer to sell all of its
member units and preferred units, if any, to Consolidated Container
Holdings. If Consolidated Container Holdings declines to purchase the
units, Consolidated Container Holdings will be obligated to cause a sale
of the business or close an initial public offering of Consolidated
Container Holdings as soon as practicable. If Consolidated Container
Holdings is unable to sell the business or close an initial public
offering of Consolidated Container Holdings within 180 days, Franklin
Plastics, Inc. will be free to sell its member units without restriction.
Each of Reid Plastics Holdings and Vestar Packaging will have comparable
put rights but only in circumstances where it has been proposed that
Consolidated Container Holdings close an initial public offering and that
offering was vetoed by Franklin Plastics, Inc.
In connection with an initial public offering, Consolidated Container
Holdings and Franklin will be merged into Reid Plastics Holdings and each
membership interest in Consolidated Container Holdings and Franklin will be
converted into common stock of Reid Plastics Holdings.
MANAGEMENT AGREEMENT
Consolidated Container Holdings, Consolidated Container Company and Vestar
Capital Partners entered into a management agreement on April 29, 1999 relating
to the management of Consolidated Container Company and Consolidated Container
Holdings. Under this agreement, Consolidated Container Holdings or Consolidated
Container Company has paid Vestar Capital Partners a fee of $5 million and has
reimbursed Vestar Capital Partners for all out-of-pocket expenses regarding the
closing of the transactions. In addition, Vestar Capital Partners has been
providing on-going management services to Consolidated Container Holdings and
Consolidated Container Company since the closing of the transactions, including
strategic, financial planning and advisory services. For these services,
Consolidated Container Holdings or Consolidated Container Company pays Vestar
Capital Partners an annual fee of the greater of $500,000 or 0.42% of the
earnings before interest and taxes plus depreciation and amortization, as
defined in the management agreement, of the prior year of Consolidated Container
Holdings, Consolidated Container Company and their subsidiaries on a
consolidated basis and reimburses Vestar Capital Partners for all out-of-pocket
expenses regarding these services. The management agreement will terminate when
Vestar Packaging, its members, Vestar Capital Partners III, its partners and
their affiliates collectively own less than 25% of the member units of
Consolidated Container Holdings or, if earlier, following the closing of an
initial public offering of Consolidated Container Holdings. Consolidated
Container Holdings and Consolidated Container Company have also agreed to
indemnify Vestar Capital Partners against some of the liabilities and costs
regarding its engagement.
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REGISTRATION RIGHTS AGREEMENT OF REID PLASTICS HOLDINGS
In a possible future initial public offering of equity interests in
Consolidated Container Holdings, Reid Plastics Holdings and the holders of
member units in Consolidated Container Holdings will enter into a registration
rights agreement. In that initial public offering, Consolidated Container
Holdings and Franklin Plastics, Inc. will be merged into Reid Plastics Holdings
as described under the section "Limited Liability Company Agreement of
Consolidated Container Holdings" above. If executed, the registration rights
agreement will provide that Reid Plastics Holdings will grant rights to holders
of its common stock to have that common stock registered under the Securities
Act of 1933 following the mergers described above. To the extent that owners of
options to purchase common stock of Franklin Plastics, Inc. replace these
options with options to purchase member units in Consolidated Container Holdings
held by Suiza Foods, these parties will also be entitled to the registration
rights described here. Stockholders will have the right, subject to some
limitations, to one demand registration for every 10% of Reid Plastics Holdings
owned by them following the initial public offering, rounded to the nearest 10%,
provided that none of them shall have any registration rights if their ownership
is below 5%. Reid Plastics Holdings will not be required to effect any
registration demanded unless the stockholders request it to register common
stock with a fair market value of at least $20 million. Stockholders will also
have piggyback registration rights, subject to some limitations.
LIMITED LIABILITY COMPANY AGREEMENT OF CONSOLIDATED CONTAINER COMPANY
Simultaneously with the closing of the transactions, Consolidated Container
Holdings, as the sole member of Consolidated Container Company, entered into a
limited liability company agreement for Consolidated Container Company. As its
sole member, Consolidated Container Holdings manages Consolidated Container
Company under this agreement.
SUPPLY AGREEMENTS
On July 2, 1999, Consolidated Container Holdings and Suiza Foods entered
into four separate supply agreements, one for HDPE bottles, one for PET bottles
and two one for bottle components.
Under the supply agreement for HDPE bottles, specified and existing
affiliates of Suiza Foods in the continental United States and Canada have
agreed to purchase their outside HDPE bottle requirements from Consolidated
Container Holdings or its subsidiaries. The prices for these bottles are based
on prices in effect at the time of the agreement and are subject to adjustment
based on changes in raw material costs, bottle design or specification and
delivery or packaging specification. During specified years, Suiza Foods may
conduct market tests to confirm that bottle prices remain competitive within an
applicable market. If the prices are not competitive and Consolidated Container
Company chooses not to lower its prices, then Suiza Foods may purchase its
bottle requirements in that market from a third party at a price no greater than
the price rejected by Consolidated Container Company. In addition, we have the
right to supply bottles to existing and newly acquired Suiza Foods affiliates
which do not currently purchase bottles from us at prices to be mutually agreed
upon, consistent with the then current market conditions. This supply agreement
has a term of seven years.
Under the supply agreement for PET bottles, specified and existing Suiza
Foods entities in the continental United States and Canada have agreed to
purchase their outside PET bottle requirements from Consolidated Container
Holdings or its subsidiaries. The prices for these bottles are based on prices
in effect at the time of the agreement and are subject to adjustments based on
changes in raw material costs, bottle design or specification and delivery or
packaging specification. In addition, we will have the right to supply bottles
to existing or newly acquired Suiza Foods affiliates which do not currently
purchase bottles from us at prices to be mutually agreed upon, consistent with
the then current market conditions. During specified years, Suiza Foods may
conduct market tests to confirm that bottle prices remain competitive within an
applicable market. If the prices are not competitive and
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Consolidated Container Company chooses not to lower its prices, then Suiza Foods
may elect to purchase its bottle requirements in that market from a third party
at a price no greater than the price rejected by Consolidated Container Company.
This supply agreement has a term of seven years.
Under the two supply agreements for bottle components, the Suiza Foods
affiliates which purchased their bottle component requirements from Franklin
Plastics, Inc. or Plastics Containers before July 2, 1999 will continue to do
so. The prices for the bottle components will be based on market prices. One of
these supply agreements has a term of three years, and the other has a term of
five years.
TRADEMARK LICENSE AGREEMENT
Simultaneously with the closing of the transactions, Consolidated Container
Holdings and Consolidated Container Company entered into a trademark license
agreement with Continental Can Company, Inc., a wholly owned subsidiary of Suiza
Foods. Continental Can Company granted Consolidated Container Holdings and
Consolidated Container Company a non-exclusive license to use some of its
trademarks in the United States. The trademark license will be royalty free as
long as Suiza Foods owns 10% or more of Consolidated Container Holdings.
Consolidated Container Holdings and Consolidated Container Company will be
required to pay Continental Can Company an annual trademark licensing fee of
$100,000 if Suiza Foods owns less than 10% of Consolidated Container Holdings.
ASSUMPTION AGREEMENT
Simultaneously with the closing of the transactions, Consolidated Container
Holdings and Consolidated Container Company entered into an assumption agreement
with Reid Plastics Holdings to assume all of the obligations of Reid Plastics
Holdings to B. Joseph Rokus. Currently, Reid Plastics Holdings is obligated to
make some payments to Mr. Rokus which relate to the 1997 acquisition of a
controlling interest in Reid Plastics Holdings by Vestar Reid. These payments
include $400,000 each year, additional amounts up to $3.4 million if specified
investment returns of Reid Plastics, Inc. are achieved and up to $4.8 million
upon an initial public offering of Reid Plastics Holdings, if specified
investment returns are achieved, or specified qualified sales of Reid Plastics
Holdings by Vestar Reid, the parent of Reid Plastics Holdings and a controlled
affiliate of Vestar Capital Partners III. Consolidated Container Holdings has
agreed to indemnify Suiza against some of these payments.
TRANSITION SERVICES AGREEMENT
Simultaneously with the closing of the transactions, Suiza Foods Corporation
entered into a transition services agreement with Consolidated Container
Holdings and Consolidated Container Company. Under the agreement, Suiza Foods
and its affiliates agreed to continue to supply office and other services to
Consolidated Container Holdings, Consolidated Container Company in the manner
which and to the extent that they had historically provided these services to
Suiza Packaging prior to the closing of the transactions. These services
include:
- the lease of office space for our offices at 2515 McKinney Avenue, Dallas,
Texas at Suiza Foods' actual allocable cost of rent;
- telephone services at Suiza Foods' actual allocable cost;
- computer services at $50,000 per month;
- electricity services at $285,000 per month for all leased facilities;
- medical insurance policies and employee benefits for some of our senior
officers at Suiza Foods' actual allocable costs; and
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- payments under insurance policies, letters of credit and related
performance or payment guarantees regarding equipment leases, workers'
compensation claims and related matters at Suiza Foods' actual allocable
share of payments.
The transition services agreement is scheduled to terminate on December 31,
1999, except regarding the insurance policies, letters of credit and related
payments, which will terminate when we replace these obligations.
ADDITIONAL MATTERS
Aqua Filter Fresh, of which William G. Bell is the 75% owner, President and
a director, has purchased containers from Reid Plastics, Inc. at market terms.
In 1998, these purchases amounted to over $2.0 million.
Corporate First Travel Agency, of which B. Joseph Rokus was a 16.7% owner,
was paid approximately $60,000 by Reid Plastics, Inc. in 1998 for customary
travel arrangements made through Corporate First Travel Agency. Subsequently,
Mr. Rokus sold his interest in Corporate First Travel Agency. Further, an
affiliate of Mr. Rokus received rent payments of approximately $220,000 from
Reid Plastics, Inc. in 1998 for its Monrovia, California facility, which was
subsequently consolidated with another one of our facilities.
In addition, Peter M. Bernon and some of his family members are
beneficiaries of a family trust which leases property to a subsidiary of Suiza
Foods which subleases a portion of this property to Franklin Plastics, Inc. In
1998, sublease payments on this portion of the property totaled approximately
$80,000.
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DESCRIPTION OF SENIOR CREDIT FACILITY
WE SUMMARIZE BELOW THE MATERIAL TERMS AND PROVISIONS OF THE SENIOR CREDIT
FACILITY.
SENIOR CREDIT FACILITY
OVERVIEW
As part of the transactions, we entered into a senior credit facility with
Bankers Trust Company, as administrative agent, lead arranger and book manager,
Donaldson, Lufkin & Jenrette Securities Corporation, as syndication agent,
Morgan Guaranty Trust Company of New York, as documentation agent, and the other
lenders that are a party to it. The senior credit facility consists of:
- two committed term loan facilities in a total principal amount of
$385 million;
- an uncommitted term loan facility of $100 million in total principal
amount, which will be available to us only upon our satisfaction of
specified conditions and the willingness of a lender or lenders to provide
this term loan; and
- a revolving credit facility in a total principal amount of up to
$90 million.
Our obligations under the senior credit facility are secured and are
unconditionally and irrevocably guaranteed jointly and severally by Consolidated
Container Holdings and each of its domestic subsidiaries other than Consolidated
Container Company, in each case subject to customary exceptions. Each of the
lenders under the senior credit facility, or its affiliate, is an Initial
Purchaser.
SECURITY INTERESTS
Our borrowings under the senior credit facility are secured by a first
priority interest in collateral in:
- all of the limited liability company interests and stock of each direct
and indirect domestic subsidiary of Consolidated Container Holdings,
including Consolidated Container Company;
- 65% of the stock of each foreign subsidiary of Consolidated Container
Holdings, except Reid Mexico; and
- all other tangible and intangible assets of Consolidated Container
Holdings and each of its direct and indirect domestic subsidiaries,
including Consolidated Container Company.
TERM LOAN FACILITIES AND REVOLVING CREDIT FACILITY
The term loan facilities consists of three tranches of term loans in a total
principal amount of $485 million. We summarize each of these term loan
facilities below:
- The tranche A term loan totals $150 million in principal amount, all of
which we borrowed at the closing of the senior credit facility. The
amortization schedule of the tranche A term loan requires us to repay
$3.75 million in 1999, $11.25 million in 2000, $18.75 million in 2001,
$26.25 million in 2002, $33.75 million in 2003, $37.5 million in 2004 and
$18.75 million in 2005.
- The tranche B term loan totals $235 million in principal amount, all of
which we borrowed at the closing of the senior credit facility. We are
required to repay installments on this term loan in annual principal
amounts of 1% of its total principal amount for the first six years and
the remaining amount in eight quarterly payments in the seventh and eighth
years following the closing of the senior credit facility.
- The tranche C term loan totals $100 million in principal amount and is
uncommitted. Until three years following the closing of the senior
facility, we may request one or more lenders under the senior credit
facility to make one or more tranche C term loans, if we satisfy specified
financial ratios and other conditions. This facility may, alternatively,
take the form of additional revolving credit loans under the revolving
credit facility or a combination of one or more
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tranche C term loans and additional revolving credit loans. The lenders
are not required, however, to make any tranche C term loans. Accordingly,
we cannot assure you that the tranche C term facility will be available to
us.
The revolving credit facility consists of a revolving credit facility in a
total principal amount of $90 million. Consolidated Container Company is
entitled to draw amounts under it for working capital requirements and other
general corporate purposes. At the closing of the senior credit facility,
Consolidated Container Company borrowed $27.5 million under it and may borrow,
repay and reborrow the total amount of this facility until its maturity. In
addition, approximately $5.2 million of outstanding letters of credit, which
were issued under some of the credit facilities of Suiza Packaging, have been
replaced by new letters of credit issued for the benefit of Consolidated
Container Company and/or its subsidiaries under the revolving credit facility.
The issuance of these letters of credit uses availability under the revolving
credit facility. The revolving credit facility will mature on the sixth
anniversary of the closing of the senior credit facility.
INTEREST RATES
Borrowings under the senior credit facility bear interest, at our option, at
either:
- a base rate, which will be the higher of 1/2 of 1% in excess of the
overnight federal funds rate and the prime lending rate of Bankers Trust
Company, plus a margin; or
- a eurodollar rate on deposits for one, two, three or six month periods or,
if and when available to all of the relevant lenders, nine or twelve month
periods, which are offered to Bankers Trust Company in the interbank
eurodollar market, plus the applicable interest margin.
The margin on base rate and eurodollar loans is based on a schedule that
corresponds to the leverage ratio of Consolidated Container Holdings and its
subsidiaries on a consolidated basis. Currently, we are paying the following
margins on amounts that we have borrowed:
- 0.75% for base rate loans and 1.75% for eurodollar rate loans for tranche
A term loans and revolving credit loans;
- 1.25% for base rate loans and 2.25% for eurodollar rate loans for tranche
B term loans; and
- a rate to be determined for tranche C terms loans, based on the agreement
between Consolidated Container Company and the lender or lenders providing
that loan.
In addition, Consolidated Container Company:
- pays a commitment fee on the unused commitments under the revolving credit
facility, ranging from 0.25% to 0.50% on an annual basis depending on the
same schedule of leverage ratios, payable quarterly in arrears;
- pays an annual administration fee to Bankers Trust Company, as
administrative agent; and
- paid, on the closing date of the senior credit facility, a commitment fee
equal to 3/8 of 1% each year of the total committed amount of the senior
credit facility from April 29, 1999 to and including that closing date.
MANDATORY AND OPTIONAL REPAYMENT
We are required to prepay outstanding loans under the term loan facilities,
subject to specified conditions and exceptions, with:
- 100% of the net proceeds of any borrowing or issuance of debt;
- 100% of the net proceeds of issuances of equity or capital contributions;
- 100% of the net proceeds of specified asset dispositions, subject to
specified reinvestment provisions;
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- 75% of annual excess cash flow of Consolidated Container Company and its
subsidiaries on a consolidated basis; and
- 100% of the net proceeds from specified condemnation and insurance
recovery events, subject to specified reinvestment provisions.
Subject to specified conditions and exceptions, the mandatory prepayments,
other than the excess cash flow prepayment, will be applied pro rata among the
term loan tranches and to installments of each tranche on a pro rata basis.
Subject to specified conditions and exceptions, the mandatory prepayment based
on excess cash flow will be applied first to reduce the principal amount of
tranche A term loans and, second, to reduce the principal amount of tranche B
term loans and tranche C term loans on a pro rata basis and to installments of
each tranche in direct order of its maturity. Mandatory prepayments in excess of
the amount of outstanding term loans will be applied to reduce the commitments
under the revolving credit facility.
We may voluntarily prepay loans under the senior credit facility, in whole
or in part, without penalty, subject to minimum prepayments. If we prepay
eurodollar rate loans, we will be required to reimburse lenders for their
breakage and redeployment costs, if any. In general, our voluntary prepayments
of the term loans will be applied pro rata among the tranches and to
installments of each tranche in the direct order of its maturity. However, we
may elect, at the time of any voluntary prepayment, first to prepay the tranche
A term loans in an amount up to the next four scheduled repayments of tranche A
term loans.
COVENANTS
The senior credit facility contains negative and affirmative covenants and
requirements affecting Consolidated Container Holdings and Consolidated
Container Company and its subsidiaries. The senior credit facility contains the
following negative covenants and restrictions, among others: restrictions on
debt, liens, guarantee obligations, mergers, asset dispositions, sale-leaseback
transactions, investments, loans, advances, acquisitions, capital expenditures,
dividends and other restricted junior payments, stock repurchases, transactions
with affiliates, issuances of equity, formation of subsidiaries, changes in
business conducted and prepayments and amendments of subordinated debt. The
senior credit facility also requires Consolidated Container Holdings and its
subsidiaries to meet specified financial covenants, including a leverage ratio
test, an interest coverage ratio test and a fixed charge coverage ratio test.
The senior credit facility contains the following affirmative covenants,
among others: mandatory reporting by Consolidated Container Holdings of
financial and other information to the administrative agent, notice by
Consolidated Container Holdings to the administrative agent upon the occurrence
of specified events of default and other events, and other standard obligations
that require Consolidated Container Holdings and its subsidiaries to operate
their business in an orderly manner and consistent with past practice and will
require the maintenance of insurance coverage and interest rate protection.
EVENTS OF DEFAULT
The senior credit facility specifies customary events of default, including
non-payment of principal, interest or fees, violation of covenants, inaccuracy
of representations and warranties in any material respect, bankruptcy and
insolvency events and change of control of Consolidated Container Holdings.
Among the events that constitute a change of control under the senior credit
facility is the occurrence of any change of control or similar event under any
documents relating to the issuance of the notes or evidencing or relating to the
outstanding notes and the exchange notes.
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LEGAL MATTERS
The validity of the exchange notes and the related guarantees will be passed
upon for Consolidated Container Company and Consolidated Container Capital and
the subsidiary guarantors by Simpson Thacher & Bartlett, New York, New York.
EXPERTS
The consolidated balance sheet of Consolidated Container Company LLC as of
July 2, 1999 included in this prospectus has been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein and is
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The consolidated financial statements of Reid Plastics, Inc. as of
December 31, 1997 and 1998 and for each of the two years ended December 31, 1998
and the six months ended June 30, 1999, included in this prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited Reid Plastics, Inc.'s
consolidated financial statements of income, shareholders' equity and cash flows
for the year ended December 31, 1996, as set forth in their report. We have
included those financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity and cash
flows of Plastics Management Group (the predecessor of Franklin Plastics, Inc.
and, following the acquisition of Franklin Plastics, Inc. by Suiza Foods
Corporation, Suiza Packaging) for the year ended September 30, 1996 and the six
months ended March 31, 1997 have been audited by PricewaterhouseCoopers LLP,
independent accountants, as stated in their report appearing herein and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The consolidated financial statements of Plastic Containers, Inc. as of
May 29, 1998 and for the five months then ended included in this prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Plastic Containers, Inc. as of
December 31, 1997 and for each of the years in the two-year period ended
December 31, 1997 included in this prospectus in reliance upon the report of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
165
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
CONSOLIDATED CONTAINER COMPANY LLC
Independent Auditors' Report.............................. F-3
Consolidated Balance Sheet as of July 2, 1999............. F-4
Notes to Consolidated Balance Sheet....................... F-5
Unaudited Condensed Consolidated Balance Sheet as of
September 30, 1999...................................... F-18
Unaudited Condensed Consolidated Statements of Operations
for the Three Months Ended September 30, 1999 and
1998.................................................... F-19
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Months Ended September 30, 1999 and
1998.................................................... F-20
Notes to Unaudited Condensed Consolidated Financial
Statements.............................................. F-21
REID PLASTICS, INC.
Independent Auditors' Reports............................. F-28
Consolidated Balance Sheets as of December 31, 1997 and
1998.................................................... F-30
Consolidated Statements of Operations and Comprehensive
Income (Loss) for the year ended December 31, 1996, the
period from January 1, 1997 through October 14, 1997,
the period from October 15, 1997 through December 31,
1997, for the year ended December 31, 1998, for the nine
months ended September 30, 1998 (unaudited) and for the
six months ended June 30, 1999.......................... F-31
Consolidated Statements of Shareholders' Equity for the
year ended December 31, 1996, the period from
January 1, 1997 through October 14, 1997, the period
from October 15, 1997 through December 31, 1997, for the
year ended December 31, 1998 and for the six months
ended June 30, 1999..................................... F-32
Consolidated Statements of Cash Flows for the year ended
December 31, 1996, the period from January 1, 1997
through October 14, 1997, the period from October 15,
1997 through December 31, 1997, for the year ended
December 31, 1998, and for the nine months ended
September 30, 1998 (unaudited) and for the six months
ended June 30, 1999..................................... F-33
Notes to Consolidated Financial Statements................ F-35
SUIZA PACKAGING
Independent Auditors' Reports............................. F-62
Combined Balance Sheets as of December 31, 1997 and
1998.................................................... F-64
Combined Statements of Operations for the year ended
September 30, 1996, the six-month period ended
March 31, 1997, the four-month period ended July 31,
1997, the five-month period ended December 31, 1997 and
the year ended December 31, 1998........................ F-65
Combined Statements of Stockholders' Equity for the year
ended September 30, 1996, the six-month period ended
March 31, 1997, the four-month period ended July 31,
1997, the five-month period ended December 31, 1997 and
the year ended December 31, 1998........................ F-66
Combined Statements of Cash Flows for the year ended
September 30, 1996, the six-month period ended
March 31, 1997, the four-month period ended July 31,
1997, the five-month period ended December 31, 1997 and
the year ended December 31, 1998........................ F-67
Notes to Combined Financial Statements.................... F-68
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Unaudited Condensed Combined Statements of Operations for
the Six Months Ended June 30, 1998 and 1999............. F-83
Unaudited Condensed Combined Statements of Cash Flows for
the Six Months Ended June 30, 1998 and 1999............. F-84
Notes to Unaudited Condensed Combined Financial
Statements.............................................. F-85
PLASTIC CONTAINERS, INC.
Independent Auditors' Reports............................. F-86
Consolidated Balance Sheets as of December 31, 1997 and
May 29, 1998............................................ F-88
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1997 and for the period from
January 1, 1998 through May 29, 1998.................... F-89
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996 and 1997 and for the
period from January 1, 1998 through May 29, 1998........ F-90
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1997 and for the period from
January 1, 1998 through May 29, 1998.................... F-91
Notes to Consolidated Financial Statements................ F-92
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Consolidated Container Company LLC
Dallas, Texas
We have audited the accompanying consolidated balance sheet of Consolidated
Container Company LLC and subsidiaries (the "Company") as of July 2, 1999. This
consolidated financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this consolidated
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated balance sheet. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
balance sheet presentation. We believe that our audit of the consolidated
balance sheet provides a reasonable basis for our opinion.
In our opinion, such consolidated balance sheet presents fairly, in all
material respects, the financial position of Consolidated Container Company LLC
at July 2, 1999, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Dallas, Texas
August 25, 1999
F-3
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
CONSOLIDATED BALANCE SHEET
JULY 2, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 10,625
Temporary investments..................................... 8,612
Accounts receivable, net of allowance for doubtful
accounts of $5,439...................................... 86,393
Inventories............................................... 37,207
Prepaid expenses and other current assets................. 2,450
--------
Total current assets.................................. 145,287
PROPERTY AND EQUIPMENT -- Net............................... 277,552
INTANGIBLE AND OTHER ASSETS................................. 561,134
--------
TOTAL ASSETS................................................ $983,973
========
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 38,862
Accrued expenses.......................................... 43,536
Revolving credit facility................................. 27,500
Current portion of long-term debt......................... 11,419
--------
Total current liabilities............................. 121,317
LONG-TERM DEBT.............................................. 565,007
OTHER LONG-TERM LIABILITIES................................. 41,251
MINORITY INTEREST........................................... 427
COMMITMENTS AND CONTINGENCIES (Note 10)
MEMBER'S EQUITY............................................. 255,971
--------
TOTAL LIABILITIES AND MEMBER'S EQUITY....................... $983,973
========
</TABLE>
See notes to consolidated balance sheet.
F-4
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO CONSOLIDATED BALANCE SHEET JULY 2, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ORGANIZATION -- On July 2, 1999, Reid Plastics, Inc., a wholly
owned subsidiary of Reid Plastics Holdings, Inc., acquired substantially all of
the U.S. plastics packaging assets of Franklin Plastics, Inc. ("Franklin") and
Plastic Containers, Inc. ("PCI"), each of which had been subsidiaries of Suiza
Foods Corporation ("Suiza"). Suiza managed the operations of Franklin and its
subsidiaries and PCI and its subsidiaries as one entity called "Suiza
Packaging." Vestar Capital Partners III, through its controlled affiliate Vestar
Reid LLC owned 82.6% of Reid Plastics Holdings, Inc. prior to the acquisitions
of Franklin and PCI. The acquisitions were effected by contributions and mergers
under a Contribution and Merger Agreement dated as of April 29, 1999 among
Suiza, Franklin, Suiza's domestic plastics subsidiaries, Vestar Packaging LLC,
Reid Plastics Holdings, Inc., Reid Plastics, Inc.'s domestic plastic
subsidiaries, Reid Plastics Group LLC, Consolidated Container Holdings LLC
("Holdings"), a Delaware limited liability company and the 100% owner of
Consolidated Container Company LLC, and Consolidated Container Company LLC, a
Delaware limited liability company (the "Company"). We summarize below the
contributions and mergers:
- Vestar Packaging, which is controlled by Vestar Capital Partners III,
received 20.5% of the member units in Holdings in exchange for its
contribution of $60.8 million in cash to Holdings.
- Reid Plastics Holdings, Inc., which has been indirectly controlled by
Vestar Capital Partners III, received 30.5% of the member units in
Holdings in exchange for causing:
-- Reid Plastics, Inc. and each of its domestic subsidiaries to
merge into Reid Plastics Group LLC;
-- Reid Plastics, Inc.'s Canadian subsidiaries to become wholly
owned subsidiaries of Reid Plastics Group LLC; and
-- Reid Plastics, Inc.'s equity interest in its Mexican joint
venture, Reid Mexico, S.A. de C.V., to become owned by Reid
Plastics Group LLC.
- Franklin, which has been controlled by Suiza, received 49% of the member
units in Holdings in exchange for:
-- its contribution of the limited liability company interests of
PCI to the Company; and
-- the contribution of substantially all of its assets to the
Company by the merger of the subsidiaries of Franklin into the
Company.
Reid's acquisition of Franklin and PCI and the subsequent merger of Reid
into the Company was accounted for under the purchase method of accounting, with
Reid Plastics, Inc. being the accounting acquiror.
In connection with the mergers and contributions described above, the
following transactions were completed:
- private placement under Rule 144A of the Securities Act of 1933, as
amended, of $185,000,000 in aggregate principal amount of 10 1/8% Senior
Subordinated Notes due 2009 of the Company and Consolidated Container
Capital, Inc. ("Capital"), a Delaware corporation;
- the entering into of a new $485,000,000 senior credit facility;
- the consent solicitation and tender offer by PCI for its outstanding 10%
Senior Secured Notes due in 2006; and
F-5
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO CONSOLIDATED BALANCE SHEET JULY 2, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- the repayment of substantially all of the outstanding debt of Reid
Plastics, Inc. and Franklin, the redemption of the preferred stock of
Franklin, plus the payment of certain accrued interest and dividends on
the debt and preferred stock of Franklin, aggregating approximately
$372,500,000. Regarding the repayment of the existing debt of Reid
Plastics, Inc., approximately $2,000,000 of unamortized deferred financing
costs were written off and recorded as an extraordinary loss on early
extinguishment of debt.
The acquisition of Suiza Packaging has been accounted for using the purchase
method of accounting. The consolidated balance sheet as of July 2, 1999,
reflects the preliminary allocation of the purchase price and the related
accounting adjustments, including goodwill. Assets acquired and liabilities
assumed were as follows (in thousands):
<TABLE>
<S> <C>
Total purchase price, net of cash acquired ($4,605)......... $140,723
Fair value of net liabilities acquired:
Fair value of assets acquired............................. 314,608
Fair value of liabilities assumed......................... (599,771)
--------
Total net liabilities acquired.............................. (285,163)
--------
Goodwill.................................................... $425,886
========
</TABLE>
The excess of the purchase price over the fair value of the net assets was
$425,886,000, which has been recorded as goodwill and is being amortized on a
straight-line basis over 40 years. The purchase price allocation has not been
finalized, as the Company is awaiting additional information for the evaluation
and measurement of certain contingencies regarding plant closings and operating
synergy activities. Accordingly, goodwill associated with the acquisition may
change.
BUSINESS OPERATIONS -- The Company develops, manufactures and distributes a
wide range of custom extrusion blow-mold plastic containers for the dairy, juice
and water industries, automotive products and motor oil, household chemicals,
industrial and agricultural chemicals and hair care products. Based on the
nature of the product, the production process, types of customers, and methods
used to distribute products, the Company operates in one reportable segment
under Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
About Segments of an Enterprise and Related Information."
CONSOLIDATED AND FOREIGN OPERATIONS -- The Company maintains several wholly
owned subsidiaries in the United States and Canada. In addition, the Company
owns 51% of Reid Mexico S.A. de C.V., which operates exclusively in Mexico. The
Company's foreign operations are not significant.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
TRANSLATION OF FOREIGN CURRENCIES -- The Company considers the functional
currency under SFAS No. 52, "Foreign Currency Translation," to be the local
currency for its Canadian subsidiaries and its Mexican subsidiary.
Assets and liabilities of the Company's Canadian and Mexican subsidiaries
are converted to U.S. dollars using the current exchange rate at period-end, and
revenues and expenses of these subsidiaries are translated at the average
exchange rate during the period, with the resulting translation adjustment made
to a separate component of member's equity.
F-6
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO CONSOLIDATED BALANCE SHEET JULY 2, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities and
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
CASH AND CASH EQUIVALENTS -- Included in cash and cash equivalents are
highly liquid cash investments with remaining maturities at date of purchase of
three months or less.
TEMPORARY INVESTMENTS -- Temporary investments consist of available-for-sale
U.S. government obligations, certificates of deposit, eurodollar deposits and
highly rated commercial paper, all of which are due within one year. These
temporary investments are stated at amortized cost, which approximates market
value.
INVENTORIES -- Inventories consist of raw materials, spare parts and
supplies, and finished goods. Inventories and are stated at the lower of cost,
using the first-in, first-out ("FIFO") method, or market. Finished goods
inventories include raw materials, direct and indirect labor costs, and factory
overhead.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost and are
depreciated or amortized using the straight-line method over the estimated
useful lives of the related assets. Plant and equipment held under capital
leases and leasehold improvements are amortized over the shorter of the lease
term or the estimated useful life of the asset.
Estimated useful lives are as follows:
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
- ----- -------------------
<S> <C>
Buildings................................................... 25-40 years
Machinery and equipment..................................... 5-20 years
Furniture and fixtures...................................... 3-10 years
</TABLE>
Expenditures for repairs and maintenance that do not improve or extend the
life of the assets are expensed as incurred.
INTANGIBLE ASSETS -- Intangible assets include primarily goodwill and are
stated at cost. Goodwill is amortized using the straight-line method over
40 years. Deferred financing costs are amortized over the term of the related
debt using the effective interest method. Payments relating to noncompete
agreements and multiple-year management contracts are amortized over the term of
the applicable agreement or contract.
Periodically, the Company reviews the recoverability of goodwill. The
measurement of possible impairment is based primarily on the ability to recover
the balance of the goodwill from expected future operating cash flows on an
undiscounted basis. In management's opinion, no material impairment exists at
July 2, 1999.
INSURANCE -- The Company purchases commercial insurance policies to cover
its insurance risks; however, certain of its subsidiaries are self-insured in
certain states for workers' compensation, general liability and property and
casualty coverages in excess of varying deductible amounts. Self-insurance
liabilities are accrued based on claims filed and estimates for claims incurred
but not reported.
F-7
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO CONSOLIDATED BALANCE SHEET JULY 2, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES -- As a limited liability company, the Company is not subject
to corporate income taxes. Accordingly, the Company expects to distribute cash
to its sole member, Holdings, to allow its members to pay income taxes to the
extent required.
STOCK-BASED COMPENSATION -- The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board ("APB") Opinion No.25, "Accounting for Stock Issued to
Employees."
IMPAIRMENT OF LONG-LIVED ASSETS -- The Company evaluates the impairment of
long-lived assets if circumstances indicate that the carrying value of those
assets may not be recoverable. Recoverability of the assets to be held and used
is measured by a comparison of the carrying amount of the asset to future
undiscounted cash flows expected to be generated by the asset.
CONCENTRATION OF CREDIT RISK -- Financial instruments that subject the
Company to credit risk consist primarily of temporary cash investments and
accounts receivable. The Company places its temporary cash investments with
high-credit qualified financial institutions and, by policy, limits the amount
of investment exposure to any one financial institution. Accounts receivable are
generally diversified due to the large number of entities comprising the
Company's customer base and their geographic dispersion. The Company performs
ongoing credit evaluations of its customers and maintains an allowance for
potential credit losses. Credit losses have been within management's
expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying amounts of cash and cash
equivalents, accounts receivable and accounts payable approximate fair value
because of the short maturities of these instruments. The carrying amounts of
the debt notes approximate their respective estimated fair values since floating
rates, which approximate current market rates, are charged on most of the notes
payable, and the fixed rate notes were issued on July 2, 1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- SFAS No. 133, "Accounting for
Derivative Financial Instruments and Hedging Activities," was issued in
June 1998, and establishes standards for accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 is effective for the year
ending December 31, 2000.
At July 2, 1999, the Company does not have derivative instruments. The
adoption of SFAS No. 133 could have an impact on its future consolidated
financial statements.
2. INVENTORIES
<TABLE>
<CAPTION>
JULY 2, 1999
--------------
(IN THOUSANDS)
<S> <C>
Raw materials............................................... $18,220
Parts and supplies.......................................... 2,031
Finished goods.............................................. 16,956
-------
$37,207
=======
</TABLE>
F-8
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO CONSOLIDATED BALANCE SHEET JULY 2, 1999
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JULY 2, 1999
--------------
(IN THOUSANDS)
<S> <C>
Land........................................................ $ 10,953
Buildings and improvements.................................. 33,601
Machinery and equipment..................................... 199,693
Facility and equipment held under capital lease............. 8,971
Furniture and fixtures...................................... 3,168
--------
256,386
Less accumulated depreciation............................... (17,678)
--------
238,708
Construction in progress.................................... 38,844
--------
$277,552
========
</TABLE>
4. INTANGIBLE AND OTHER ASSETS
<TABLE>
<CAPTION>
JULY 2, 1999
--------------
(IN THOUSANDS)
<S> <C>
Goodwill.................................................... $542,069
Deferred financing costs.................................... 21,387
Noncompete agreement........................................ 1,300
Deposits and other.......................................... 1,512
--------
566,268
Less accumulated amortization............................... (5,134)
--------
$561,134
========
</TABLE>
NONCOMPETE AGREEMENT -- In 1997, the Company entered into a five-year
noncompete agreement with a former management shareholder. During 1998, the
noncompete agreement was revised to guarantee payments totaling $400,000 per
year for five years. In addition, a nonguaranteed portion of up to $8,193,000
will be paid based on the valuation of the Company during future ownership
changes. No amount has been recorded for potential nonguaranteed payments.
5. ACCRUED EXPENSES
<TABLE>
<CAPTION>
JULY 2, 1999
--------------
(IN THOUSANDS)
<S> <C>
Employee compensation and benefits.......................... $19,062
Accrual for plant closings.................................. 3,509
Accrued sales and property taxes............................ 2,272
Other....................................................... 18,693
-------
$43,536
=======
</TABLE>
F-9
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO CONSOLIDATED BALANCE SHEET JULY 2, 1999
6. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 2, 1999
--------------
(IN THOUSANDS)
<S> <C>
Senior SUBORDINATED notes................................... $185,000
Senior credit facility -- term loans........................ 385,000
Capital lease obligations................................... 6,426
--------
576,426
Less current portion........................................ (11,419)
--------
$565,007
========
</TABLE>
SENIOR SUBORDINATED NOTES -- The senior subordinated notes (the "Notes")
were issued on July 2, 1999, and have an original par value of $185,000,000. The
Notes, which are due in 2009, bear interest at a fixed interest rate of 10 1/8%,
payable semiannually in July and January of each year.
SENIOR CREDIT FACILITY -- The Senior Credit Facility (the "Facility")
consists of three tranches of term loans in a total principal amount of
$485,000,000 and a $90,000,000 revolving credit facility (the "Revolver"). The
term loan facilities and Revolver are summarized below:
- Tranche A -- The tranche A term loan totals $150,000,000 in principal, all
of which was outstanding at July 2, 1999. The Company is required to repay
the tranche A term loan in quarterly installments through 2005.
- Tranche B -- The tranche B term loan totals $235,000,000 in principal, all
of which was outstanding at July 2, 1999. The Company is required to repay
installments on the tranche B term loan in annual principal amounts of 1%
of its total principal amount for the first six years and the remaining
amount in eight quarterly payments in the seventh and eighth years.
- Tranche C -- The tranche C term loan totals $100,000,000 in principal and
is uncommitted. Through July 2, 2002, the Company may request one or more
lenders under the Facility to make one or more tranche C term loans, if
the Company satisfies specified financial ratios and other conditions. The
facility may, alternatively, take the form of additional revolving credit
loans under the Revolver or a combination of one or more tranche C term
loans and additional revolving credit loans. The lenders are not required,
however, to make any tranche C term loans.
- REVOLVING CREDIT FACILITY -- At July 2, 1999, the Company had $27,500,000
outstanding under the Revolver, which matures in 2005. Additionally, the
Company had approximately $5,200,000 of outstanding letters of credit
under the Revolver.
The Company pays a commitment fee on the unused commitments under the
Revolver, ranging from 0.25% to 0.50% dependent on its leverage ratio,
payable quarterly in arrears, and an annual administration fee to Bankers
Trust Company.
Borrowings under the Facility bear interest at a base rate which is the
higher of 1/2 of 1% in excess of the overnight federal funds rate and the prime
lending rate of Bankers Trust Company, plus a margin; or a eurodollar rate on
deposits for one-, two-, three- or six-month periods; or, if and when available
to all the lenders, nine- or twelve-month periods, which are offered to Bankers
Trust
F-10
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO CONSOLIDATED BALANCE SHEET JULY 2, 1999
6. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)
Company in the interbank eurodollar market, plus the applicable interest margin.
The margin on base rate and eurodollar rate loans is based on the leverage ratio
of the Company. At July 2, 1999, the margin on base rate and eurodollar rate
loans was .75% and 1.75%, respectively, for tranche A and the Revolver and 1.25%
and 2.25%, respectively, for tranche B. Tranche A term loans and the Revolver
and tranche B term loans bear interest at 6.75% and 7.25%, respectively, at
July 2, 1999.
The obligations under the Facility are secured and are unconditionally and
irrevocably guaranteed jointly and severally by Holdings and each of its direct
and indirect domestic subsidiaries other than the Company and Capital and, in
each case, are subject to customary exceptions. The separate financial
statements of each guaranteeing subsidiary are not presented because the
Company's management has concluded that such financial statements are not
material to investors, as nonguarantor subsidiaries are considered
inconsequential.
SCHEDULED MATURITIES -- The scheduled annual maturities of long-term debt
(excluding capital leases) at July 2, 1999, were as follows (in thousands):
<TABLE>
<S> <C>
Period from July 2, 1999 through December 31, 1999.......... $ 4,925
Year ending December 31,
2000........................................................ 13,600
2001........................................................ 21,100
2002........................................................ 28,600
2003........................................................ 36,100
Thereafter.................................................. 493,175
--------
$597,500
========
</TABLE>
7. OTHER LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
JULY 2, 1999
--------------
(IN THOUSANDS)
<S> <C>
Provision for loss on closed facilities subject to operating
leases.................................................... $15,588
Insurance reserves.......................................... 8,763
Post-retirement benefits accrued............................ 5,063
Deferred income............................................. 4,628
Advance from vendor......................................... 1,849
Accrued terminated employee benefit plan obligation......... 1,379
Obligation under noncompete agreement....................... 1,300
Other....................................................... 2,681
-------
$41,251
=======
</TABLE>
F-11
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO CONSOLIDATED BALANCE SHEET JULY 2, 1999
8. MEMBER'S EQUITY
<TABLE>
<CAPTION>
JULY 2, 1999
--------------
(IN THOUSANDS)
<S> <C>
Member's equity............................................. $256,439
Foreign currency translation adjustment..................... (468)
--------
$255,971
========
</TABLE>
Regarding the formation of the Company and Holdings, and the acquisition of
substantially all of the U.S. plastics packaging assets of Suiza Packaging,
Holdings issued (i) 20.5% of its member units to Vestar Packaging LLC, which is
controlled by Vestar III, for the contribution of $60.8 million in cash,
(ii) 30.5% of its member units to a subsidiary of Vestar III, which have been
valued based on net book value of the net assets of Reid Plastics, Inc., which
were contributed to the Company, and (iii) 49% of its member units to a
subsidiary of Suiza, which have been valued at $147.3 million. Additionally,
fees of $2,640,000, related to the transaction, were included in member's equity
at July 2, 1999.
F-12
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO CONSOLIDATED BALANCE SHEET JULY 2, 1999
9. EMPLOYEE BENEFITS
The Company sponsors both defined benefit and defined contribution
retirement plans on behalf of certain of its subsidiaries, and contributes to
various multi employer union pension plans.
DEFINED BENEFIT PLANS -- The Company succeeded to a defined benefit pension
plan for substantially all salaried employees of PCI hired prior to August 1,
1997. 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 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. In addition, the Company maintains a benefit equalization plan for
salaried employees hired prior to August 1, 1997, whose compensation level
exceeds the limits within the defined benefit pension plan. The Plan was frozen
for future accruals as of September 1, 1998.
The Company also succeeded to a noncontributory defined benefit pension plan
for substantially all hourly employees of PCI hired prior to August 1, 1997, who
have attained 21 years of age. Plan benefits vary by location and by union
contract, but are based primarily on years of service and the employee's highest
wage classification for 12 consecutive months in the five-year period prior to
retirement. Normal retirement is at age 65, with at least a five-year period 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, the Company's policy is 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 composed primarily of
common stock, corporate bonds and U.S. government and government agency
obligations.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS -- The Company 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. The Company's policy is to fund the cost of medical
benefits as claims are issued.
At July 2, 1999, as part of the purchase accounting adjustments regarding
the Suiza Packaging acquisition, the accrued pension liability and accrued
postretirement benefit liability were adjusted to fair value, and all previously
unrecognized gains and losses were recognized as part of the purchase
allocation.
DEFINED CONTRIBUTION PLAN -- Employees of certain of the Company's
subsidiaries are eligible to participate in a 401(k) employees savings plan.
Employees who have completed one or more years of service and have met other
requirements of the plans are eligible to participate in the plan. The employees
participating in the plan can generally make contributions up to 15% of their
annual compensation, and the Company can elect to match such employee
contributions up to a maximum of 25% of the employee's contribution. The
matching contributions vest 100% after five years.
The Company succeeded to a defined contribution plan that covers
substantially all PCI's hourly employees who meet certain eligibility
requirements. Provisions regarding employee and employer contributions and the
benefits provided under the plan vary between PCI's manufacturing facilities.
The Company also succeeded to a contributory defined contribution 401(k)
savings plan that covers substantially all PCI's nonorganized salaried
employees. Employees may contribute up to 12%
F-13
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO CONSOLIDATED BALANCE SHEET JULY 2, 1999
9. EMPLOYEE BENEFITS (CONTINUED)
and 8% of compensation on a pretax and after-tax basis, respectively. However,
the total employee contribution rate may not exceed 15% of compensation. The
Company matches up to 3% of employees' pretax contributions. Employees vest in
the Company'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.
MULTI EMPLOYER PLANS -- The Company's PCI subsidiary contributes to various
multi employer union pension plans under its labor agreements.
STOCK OPTION PLAN -- During 1998, Suiza Packaging adopted the Franklin
Plastics, Inc. 1998 Stock Option Plan, which reserved 187,089 shares of common
stock for grants and granted stock options to certain key employees at exercise
prices that approximated the fair market value of such shares at the date of
grant. Stock options granted under this plan were exercisable over a three-year
period from the date of grant and could become exercisable upon the termination
of an individual's employment following a change in control.
As a result of the Company's merger, participants were able to convert
options granted under the plan to the Modified Replacement Option Plan. As a
result, 116,944 shares outstanding under the plan were converted to the
Company's units, using a conversion rate of 2.9429, resulting in 344,766 options
outstanding July 2, 1999, none of which were exercisable at that date.
The following table summarizes the information about stock options
outstanding at July 2, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
CONTRACTUAL EXERCISE
SHARES LIFE PRICE
-------- ----------- --------
<S> <C> <C> <C>
Range of exercise prices:
$3.40....................................... 264,382 10 years $ 3.40
$10.19...................................... 80,384 10 years $10.19
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS -- The Company is obligated under capital leases for a
manufacturing facility, which expire in December 2000, and certain machinery and
equipment, which expire in April 2000. Included in the consolidated balance
sheet are capital lease assets of $9,527,000 and accumulated amortization of
$2,493,000 at July 2, 1999.
The Company leases certain property, plant and equipment used in its
operations under noncancellable operating lease agreements. Such leases, which
are primarily for facilities, machinery and equipment and vehicles, have lease
terms ranging from two to nine years. Certain of the operating lease agreements
require the payment of additional rentals for maintenance, along with additional
rentals, based on miles driven or units produced.
F-14
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO CONSOLIDATED BALANCE SHEET JULY 2, 1999
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments at July 2, 1999, are summarized below (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
Period from July 2, 1999 through December 31, 1999........ $1,603 $10,633
Year ending December 31:
2000.................................................... 2,643 19,956
2001.................................................... 2,071 18,005
2002.................................................... 476 15,155
2003.................................................... 107 12,919
Thereafter.............................................. 128 20,684
------ -------
7,028 $97,352
=======
Less portion representing interest........................ (604)
------
Present value of minimum lease payments................... $6,424
======
</TABLE>
CONTINGENCIES -- The Company and its subsidiaries are parties, in the
ordinary course of business, to certain claims and litigation. In management's
opinion, the settlement of such matters is not expected to have a material
impact on the consolidated balance sheet.
In addition, the Company is a party to employment agreements with certain
officers which provided for minimum compensation levels and incentive bonuses
along with provisions for termination of benefits in certain circumstances.
11. RELATED PARTY TRANSACTIONS
MANAGEMENT AGREEMENT -- In April 1999, the Company entered into a management
agreement with Vestar Capital Partners to provide ongoing management services.
The Company will pay an annual fee of the greater of $500,000 or 0.42% of the
earnings before interest and taxes plus depreciation and amortization of the
prior year and all out-of-pocket expenses regarding these services.
Simultaneously with the closing of the transactions, the Company entered
into the following agreements:
- SUPPLY AGREEMENTS -- The Company entered into bottle supply agreements
with Suiza. The prices for bottles are based on the prices that were in
effect in July 1999 between Suiza Foods and Suiza Packaging prior to the
transactions and are subject to adjustment based on changes in raw
material, manufacturing and delivery costs.
- TRADEMARK LICENSE AGREEMENT -- The Company entered into a trademark
license agreement with Continental Can Company, Inc. ("Continental Can"),
a wholly owned subsidiary of Suiza. Continental Can granted the Company a
nonexclusive license to use some of its trademarks in the United States.
The trademark license is royalty-free as long as Suiza owns 10% or more of
Holdings.
- TRANSITION SERVICE AGREEMENT -- The Company entered into a transition
service agreement with Suiza. Under the agreement, Suiza and its
affiliates agreed to continue to supply office and
F-15
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO CONSOLIDATED BALANCE SHEET JULY 2, 1999
11. RELATED PARTY TRANSACTIONS (CONTINUED)
other services to Holdings and the Company in the manner which and to the
extent that they had historically provided these services to Suiza
Packaging prior to the closing of the transactions. These services
include:
- the lease of office space for our offices at 2515 McKinney Avenue,
Dallas, Texas at Suiza's actual allocable cost of rent;
- telephone services at Suiza's actual allocable cost;
- computer services at $50,000 per month;
- electricity services at $285,000 per month for all leased facilities;
- medical insurance policies and employee benefits for some of our senior
officers at Suiza's actual allocable costs; and
- payments under insurance policies, letters of credit and related
performance or payment guarantees regarding equipment leases, workers'
compensation claims and related matters at Suiza's actual allocable
share of payments.
The transition services agreement is scheduled to terminate on December 31,
1999, except regarding the insurance policies, letters of credit and related
payments, which will terminate when we replace these obligations.
F-16
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO CONSOLIDATED BALANCE SHEET JULY 2, 1999
12. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
Consolidating Condensed Balance Sheet as of July 2, 1999
<TABLE>
<CAPTION>
CONSOLIDATED
CONSOLIDATED CONTAINER
CONTAINER GUARANTOR NON-GUARANTOR COMPANY
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 2,230 $ 5,526 $ 2,869 $ -- $ 10,625
Temporary investments................ -- 8,612 -- -- 8,612
Accounts receivable, net............. 34,820 49,113 4,582 (2,122) 86,393
Inventories.......................... 7,267 28,574 1,201 165 37,207
Prepaid expenses and other current
assets............................. 498 40 1,912 -- 2,450
-------- -------- ------- --------- --------
Total current assets............. 44,815 91,865 10,564 (1,957) 145,287
PROPERTY AND EQUIPMENT--NET............ 122,911 153,869 2,513 (1,741) 277,552
INVESTMENT SUBSIDIARIES................ 135,555 -- -- (135,555) --
INTANGIBLES AND OTHER ASSETS........... 558,193 2,607 334 -- 561,134
-------- -------- ------- --------- --------
TOTAL ASSETS........................... $861,474 $248,341 $13,411 $(139,253) $983,973
======== ======== ======= ========= ========
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES:
Accounts payable..................... $ 5,857 $ 26,992 $ 6,275 $ (262) $ 38,862
Accrued expenses..................... -- 46,974 425 (3,863) 43,536
Revolving credit facility............ 27,500 -- -- -- 27,500
Current portion of long-term debt.... 8,213 3,206 -- -- 11,419
-------- -------- ------- --------- --------
Total current liabilities........ 41,570 77,172 6,700 (4,125) 121,317
LONG-TERM DEBT......................... 558,581 6,426 -- -- 565,007
OTHER LONG-TERM LIABILITIES............ 5,352 35,899 -- -- 41,251
MINORITY INTEREST...................... -- -- -- 427 427
COMMITMENTS AND CONTINGENCIES
MEMBER'S EQUITY........................ 255,971 128,844 6,711 (135,555) 255,971
-------- -------- ------- --------- --------
TOTAL LIABILITIES AND MEMBER'S
EQUITY............................... $861,474 $248,341 $13,411 $(139,253) $983,973
======== ======== ======= ========= ========
</TABLE>
F-17
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
(UNAUDITED)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 10,939
Temporary investments..................................... 8,956
Accounts receivable, net of allowance for doubtful
accounts of $5,344...................................... 112,709
Inventories............................................... 37,304
Prepaid expenses and other current assets................. 4,271
----------
Total Current assets.................................. 174,179
PROPERTY AND EQUIPMENT--NET................................. 276,623
INTANGIBLES AND OTHER ASSETS................................ 557,181
----------
TOTAL ASSETS................................................ $1,007,983
==========
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 51,913
Accrued expenses.......................................... 46,862
Revolving credit facility................................. 27,500
Current portion of long-term debt......................... 11,422
----------
Total current liabilities............................. 137,697
LONG-TERM DEBT.............................................. 564,392
OTHER LONG-TERM LIABILITIES................................. 41,723
MINORITY INTEREST........................................... 364
COMMITMENTS AND CONTINGENCIES
MEMBER'S EQUITY............................................. 263,807
----------
TOTAL LIABILITIES AND MEMBER'S EQUITY....................... $1,007,983
==========
</TABLE>
See notes to condensed consolidated financial statements.
F-18
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
(PREDECESSOR)
<S> <C> <C>
NET SALES................................. $197,387 $49,566
COST OF SALES............................. 156,564 36,944
-------- -------
Gross profit.......................... 40,823 12,622
OPERATING EXPENSES:
Selling, general and administrative..... 14,733 6,047
Amortization of intangibles............. 4,016 600
Restructuring charge.................... 1,541 --
-------- -------
Total operating expenses.............. 20,290 6,647
INCOME FROM OPERATIONS.................... 20,533 5,975
OTHER EXPENSE:
Interest expense, net................... 12,745 2,743
Other (income) expense.................. 6 (184)
-------- -------
Total other expense................... 12,751 2,559
INCOME BEFORE INCOME TAXES................ 7,782 3,416
INCOME TAX EXPENSE........................ -- 1,567
MINORITY INTEREST IN SUBSIDIARIES......... 62 66
-------- -------
NET INCOME................................ 7,844 1,915
OTHER COMPREHENSIVE LOSS.................. (11) 157
-------- -------
COMPREHENSIVE INCOME...................... $ 7,833 $ 2,072
======== =======
</TABLE>
See notes to condensed consolidated financial statements
F-19
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
CONDENSED CONDOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
(PREDECESSOR)
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES................. $ 9,765 $ 3,535
CASH FLOW FROM INVESTING ACTIVITIES:.....................
Change in investment securities, net................... (344) --
Purchases of property and equipment.................... (8,495) (1,715)
Cash paid for acquisition, net of cash acquired........ 4,605 --
--------- -------
Net cash used in investing activities................ (4,234) (1,715)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of member units, net of issuance costs........ 56,272 --
Borrowings under credit facility....................... 412,500 --
Borrowings of senior subordinated notes................ 185,000 --
Repayments of PCI notes................................ (136,700) --
Debt issuance costs.................................... (21,387) --
Principal payments on notes payable to banks........... (89,856) --
Net payments on revolving line of credit............... (23,500) (1,000)
Payments of Suiza Packaging debt....................... (372,459) --
Payments on long-term debt............................. (4,924) (1,239)
Escrow deposits........................................ -- 439
--------- -------
Net cash provided by (used in) financing
activities......................................... 4,946 (1,800)
INCREASE IN CASH AND CASH EQUIVALENTS.................... 10,477 20
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........... 462 4,971
--------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD................. $ 10,939 $ 4,991
========= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest............. $ 11,900 $ 2,660
========= =======
NON-CASH TRANSACTION
Issuance of member units............................... $ 145,328 $ --
========= =======
</TABLE>
See notes to condensed consolidated financial statements
F-20
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On July 2, 1999, Reid Plastics, Inc. ("Reid"), a wholly owned subsidiary of
Reid Holdings, Inc. acquired substantially all of the U.S. plastics packaging
assets of Franklin Plastics, Inc. ("Franklin") and Plastic Containers, Inc.
("PCI"), subsidiaries of Suiza Foods Corporation ("Suiza"). Suiza managed the
operations of Franklin and its subsidaries and PCI and its subsidiaries as one
entity called Suiza Packaging. Following the formation of Consolidated Container
Company LLC (the "Company"), Reid Plastics, Inc. was merged into the Company and
the shareholder of Reid Plastics, Inc., which included Vestar Capital Partners
III ("Vestar III") and other shareholders received member units in Consolidated
Containers Holdings LLC ("Holdings"), in exchange for their outstanding shares
of Reid Plastics, Inc. Vestar III, through its controlled affiliate Vestar Reid
LLC owned 82.6% of Reid Holdings, Inc. prior to the acquisition of Franklin and
PCI. The Company is a wholly owned subsidiary of Holdings. In connection with
the acquisition of Suiza Packaging, Holdings issued member units to Suiza in
exchange for all the common equity interest in Suiza Packaging. Following the
merger of Reid Plastics, Inc. into Holdings, the capital contribution and the
acquisition of Suiza Packaging, the former shareholders of Reid Plastic, Inc.
held 51% of the member units and a subsidiary of Suiza held 49% of the member
units.
Reid's acquisition of Franklin and PCI and the subsequent merger of Reid
into the Company was accounted for under the purchase method of accounting, with
Reid Plastics, Inc. being the accounting acquiror.
These financial statements have not been audited. In the opinion of the
Company's management, the financial statements reflect all adjustments (which
are only normal recurring adjustments) necessary to present fairly the results
of operations for the three month period ended September 30, 1999, the Company's
financial position at September 30, 1999 and the cash flows for the three month
period ended September 30, 1999.
Certain notes and other information have been condensed in or omitted from
the interim financial statements and should be read in conjunction with the
Company's financial statements as of July 2, 1999.
The operating results of the Company for the period ended September 30,
1999, are not necessarily indicative of the results that may be expected for the
full year.
2. RESTRUCTURING CHANGES
As a result of the merger and integration of the combined operations, the
Company recorded a $1,541,000 restructuring charge in the third quarter of 1999,
related to excess headquarter personnel. Included in this charge are severance
and other employee related costs provided for a reduction of
F-21
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. RESTRUCTURING CHANGES (CONTINUED)
approximately 50 headquarter employees. Reconciliations of the restructuring
liabilities and expenses for the three months ended September 30, 1999 were as
follows:
<TABLE>
<CAPTION>
1997 PURCHASE ACCOUNTING 1999
RESTRUCTURING RESTRUCTURING RESTRUCTURING
CHARGES ACCRUALS CHARGES
------------- ------------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at June 30, 1999.......................... $6,650 $3,095 $--
Excess headquarter personnel...................... -- -- 1,541
1999 Charges...................................... (167) (179) --
------ ------ ------
Balance at September 30, 1999..................... $6,483 $2,916 $1,541
====== ====== ======
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
JULY 2, 1999 1999
------------ -------------
<S> <C> <C>
Raw Materials............................................... $18,220 $19,209
Parts and supplies.......................................... 2,031 2,483
Finished Goods.............................................. 16,956 15,612
------- -------
$37,207 $37,304
======= =======
</TABLE>
F-22
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
Three Months Ended September 30, 1999 Consolidating Statement of Operations
<TABLE>
<CAPTION>
CONSOLIDATED
CONSOLIDATED CONTAINER
CONTAINER GUARANTOR NON-GUARANTOR COMPANY
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES........................ $81,060 $110,799 $6,538 $(1,010) $197,387
COST OF SALES.................... 64,202 87,314 6,058 (1,010) 156,564
------- -------- ------ ------- --------
Gross profit................. 16,858 23,485 480 0 40,823
OPERATING EXPENSES:
Selling, general and
administrative............... 2,244 12,254 235 -- 14,733
Amortization of intangibles.... 3,166 850 -- -- 4,016
Restructuring charge........... -- 1,541 -- -- 1,541
------- -------- ------ ------- --------
Total operating expenses..... 5,410 14,645 235 -- 20,290
INCOME FROM OPERATIONS........... 11,448 8,840 245 0 20,533
OTHER EXPENSE:
Interest expense, net.......... 12,745 -- -- -- 12,745
Other expense.................. 4 2 -- -- 6
------- -------- ------ ------- --------
Total other expense.......... 12,749 2 -- -- 12,751
EQUITY IN EARNINGS OF
SUBSIDIARIES................... 9,145 -- -- (9,145) --
------- -------- ------ ------- --------
INCOME BEFORE MINORITY
INTEREST....................... 7,844 8,838 245 (9,145) 7,782
MINORITY INTEREST IN
SUBSIDIARIES................... -- 62 -- -- 62
------- -------- ------ ------- --------
NET INCOME....................... $ 7,844 $ 8,900 $ 245 $(9,145) $ 7,844
======= ======== ====== ======= ========
</TABLE>
F-23
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Three Months Ended September 30, 1998 Consolidated Statement of Operations
(Predecessor)
<TABLE>
<CAPTION>
REID PLASTICS
EXCLUDING
NON-GUARANTOR NON-GUARANTOR REID PLASTICS
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
NET SALES.................................. $46,898 $5,297 (2,629) $49,566
COST OF SALES.............................. 35,255 4,318 (2,629) 36,944
------- ------ ------- -------
Gross profit........................... 11,643 979 -- 12,622
OPERATING EXPENSES:
Selling, general and administrative...... 6,005 42 -- 6,047
Amortization of intangibles.............. 600 -- -- 600
------- ------ ------- -------
Total operating expenses............... 6,605 42 -- 6,647
INCOME FROM OPERATIONS..................... 5,038 937 -- 5,975
OTHER EXPENSE:
Interest expense, net.................... 2,743 -- -- 2,743
Other (income) expense................... (471) 287 -- (184)
------- ------ ------- -------
Total other expense.................... 2,272 287 -- 2,559
EQUITY IN EARNINGS OF NON-GUARANTOR
SUBSIDIARIES............................. 650 -- (650) --
------- ------ ------- -------
INCOME BEFORE INCOME TAXES................. 3,416 650 (650) 3,416
INCOME TAX EXPENSE......................... 1,567 -- -- 1,567
MINORITY INTEREST IN SUBSIDIARIES.......... 66 -- -- 66
------- ------ ------- -------
NET INCOME................................. $ 1,915 $ 650 $ (650) $ 1,915
======= ====== ======= =======
</TABLE>
F-24
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Three Months Ended September 30, 1999 Consolidating Condensed Statement of
Cash Flows
<TABLE>
<CAPTION>
CONSOLIDATED
CONSOLIDATED CONTAINER
CONTAINER GUARANTOR NON-GUARANTOR COMPANY
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING
ACTIVITIES........................... $ 1,454 $ 9,077 $ (766) -- $ 9,765
CASH FLOW FROM INVESTING ACTIVITIES:...
Change in investment securities,
net................................ -- (344) -- -- (344)
Purchases of property and
equipment.......................... (3,492) (4,771) (232) -- (8,495)
Cash paid for acquisition, net of
cash acquired...................... 4,605 -- -- -- 4,605
--------- ------- ------ ------- ---------
Net cash provided by (used in)
investing activities............. 1,113 (5,115) (232) -- (4,234)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of member units, net of
issuance costs..................... 56,272 -- -- -- 56,272
Borrowings under credit facility..... 412,500 -- -- -- 412,500
Borrowings of senior subordinated
notes.............................. 185,000 -- -- -- 185,000
Repayments of PCI notes.............. (136,700) -- -- -- (136,700)
Debt issuance costs.................. (21,387) -- -- -- (21,387)
Principal payments on notes payable
to banks........................... (89,856) -- -- -- (89,856)
Net payments on revolving line of
credit............................. (23,500) -- -- -- (23,500)
Payments on Suiza Packaging debt..... (372,459) -- -- -- (372,459)
Payments on long-term debt........... (4,312) (612) -- -- (4,924)
--------- ------- ------ ------- ---------
Net cash provided by (used in)
financing activities............. 5,558 (612) -- -- 4,946
--------- ------- ------ ------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.......................... 8,125 3,350 (998) -- 10,477
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD............................... (7,933) 5,526 2,869 -- 462
--------- ------- ------ ------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................... $ 192 $ 8,876 $1,871 $-- $ 10,939
========= ======= ====== ======= =========
</TABLE>
F-25
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Three Months Ended September 30, 1998 Consolidating Condensed Statement of
Cash Flows (Predecessor)
<TABLE>
<CAPTION>
REID PLASTICS
EXCLUDING
NON-GUARANTOR NON-GUARANTOR REID PLASTICS
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES....... $2,883 $ 652 $ -- $ 3,535
CASH FLOW FROM INVESTING ACTIVITIES:...........
Purchases of property and equipment.......... (1,705) (10) -- (1,715)
------ ------ -------- -------
Net cash used in investing activities...... (1,705) (10) -- (1,715)
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments on revolving line of credit..... (1,000) -- -- (1,000)
Payments on long-term debt................... (1,239) -- -- (1,239)
Escrow deposits.............................. 439 -- -- 439
------ ------ -------- -------
Net cash used in financing activities...... (1,800) -- -- (1,800)
------ ------ -------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. (622) 642 -- 20
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD....................................... 3,618 1,353 -- 4,971
------ ------ -------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD....... $2,996 $1,995 $ -- $ 4,991
====== ====== ======== =======
</TABLE>
Consolidated Container Capital, Inc. ("Capital"), a wholly owned subsidiary
of the Company was formed to serve as a co-issuer of the senior subordinated
notes. Capital has only nominal assets, does not conduct any operations and was
formed solely to act as co-issuer of the notes.
The above summary consolidating condensed financial statements of the
Company's subsidiaries (the "Subsidiaries") are presented because the domestic
subsidiaries have guaranteed the notes issued as stated in this Registration
Statement. The Subsidiaries included in the consolidating condensed financial
statements presented above are all wholly owned and constitute all of the
Company's direct and indirect subsidiaries. The guarantees of the Subsidiaries
of the notes are full, unconditional, and joint and several. Separate financial
statements of the Subsidiaries are not presented because management has
determined that they would not be material to investors. There are no
significant restrictions on the Company's ability to obtain funds from the
Subsidiaries by dividend or loan.
The outstanding notes are and the exchange notes will be guaranteed by the
following four companies:
- Reid Plastics Group LLC, a wholly owned subsidiary of the Company;
- Plastic Containers LLC, a wholly owned subsidiary of the Company;
F-26
<PAGE>
CONSOLIDATED CONTAINER COMPANY LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
- Continental Plastic Containers LLC, a wholly owned subsidiary of Plastics
Containers LLC; and
- Continental Caribbean Containers, Inc., a wholly owned subsidiary of
Plastics Containers LLC.
Continental Caribbean Containers Inc., Continental Plastic Containers LLC
(formerly Continental Plastic Containers, Inc.) and Plastic Containers LLC
(formerly Plastic Containers, Inc.) are the successors to PCI (collectively, the
"PCI Successors"). Please note that:
- Financial statements of PCI for the years ended December 31, 1996 and 1997
and for the period from January 1, 1998 through May 29, 1998 (the date of
the acquisition by Suiza) are included in the financial statements for
Plastic Containers, Inc. for those periods.
- Financial statements for the PCI Successors subsequent to May 29, 1998 for
the year ended December 31, 1998 and the six months ended June 30, 1999
are included in the financial statements of Suiza Packaging for those
periods. Suiza Packaging included the operations of PCI and Franklin
Plastics. For periods subsequent to July 2, 1999 the operations of
Franklin Plastics have been ultimately included in the results of
Consolidated Container Company LLC. There are no non-guarantor
subsidiaries included in the financial statements of Suiza Packaging.
- Financial statements for the PCI Successors as of July 2, 1999 and for the
three months ended September 30, 1999 are included in the financial
statements for Consolidated Container Company LLC for those periods.
Prior to the transactions, Suiza operated Franklin and PCI as a division under
the name "Suiza Packaging." In connection with the transactions, the assets of
Franklin and its subsidiaries were merged with and into the Company and,
therefore, is part of the Company, as issuer of the outstanding notes.
The financial statements of Reid Plastics Group LLC (formerly Reid Plastics,
Inc.), for the years ended December 31, 1996, 1997 and 1998, for the nine months
ended September 30, 1998 (unaudited) and the six months ended June 30, 1999 are
included in the financial statements for Reid Plastics, Inc. for those periods.
The financial statements of Reid Plastics Group for the three months ended
September 30, 1999 are included in the financial statements for Consolidated
Container Company LLC for that period. In addition, see Note 17 (Subsidiary
Summary Consolidating Condensed Financial Statements) to these Notes to the
Unaudited Condensed Consolidated Financial Statements of Consolidated Container
Company LLC.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Reid Plastics, Inc.:
We have audited the accompanying consolidated balance sheets of Reid
Plastics, Inc. ("Reid") as of December 31, 1997 and 1998, and the related
consolidated statements of operations and comprehensive income (loss),
shareholders' equity, and cash flows for the period from January 1, 1997 through
October 14, 1997 (Predecessor Period), for the period from October 15, 1997
through December 31, 1997, for the year ended December 31, 1998, and for the six
month period ended June 30, 1999 (Successor Period). These financial statements
are the responsibility of Reid's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Reid Plastics, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from January 1, 1997 through October 14, 1997 (Predecessor
Period), for the period from October 15, 1997 through December 31, 1997, for the
year ended December 31, 1998, and for the six month period ended June 30, 1999
(Successor Period) in conformity with generally accepted accounting principles.
As more fully described in Note 1 to the consolidated financial statements,
an investment group led by Vestar Reid LLC acquired control of Reid as of
October 15, 1997 in a business combination accounted for as a purchase. As a
result of the acquisition, the consolidated financial statements for the
Successor Period are presented on a different basis of accounting than that of
the Predecessor Period and therefore are not directly comparable.
Deloitte & Touche LLP
Dallas, Texas
August 25, 1999
F-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Reid Plastics, Inc.
We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of Reid Plastics, Inc. for the year ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Reid Plastics, Inc. for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Woodland Hills, California
March 20, 1997
F-29
<PAGE>
REID PLASTICS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
(SUCCESSOR) (SUCCESSOR)
----------- -----------
<S> <C> <C>
ASSETS (NOTE 10)
CURRENT ASSETS:
Cash and cash equivalents (Note 2)........................ $ 4,437 $ 5,408
Accounts receivable, net of allowance for doubtful
accounts of $1,689 and $1,366 (Note 2).................. 20,531 17,143
Inventories (Notes 2 and 5)............................... 12,891 10,001
Prepaid expenses.......................................... 903 2,364
Other receivables......................................... 971 2,924
Income taxes receivable (Notes 2 and 12).................. 2,660 1,135
Deferred income taxes (Notes 2 and 12).................... 7,822 7,810
-------- --------
Total current assets.................................. 50,215 46,785
PROPERTY AND EQUIPMENT -- Net (Notes 2 and 6)............... 57,340 55,416
GOODWILL -- Net of accumulated amortization of $653 and
$3,517 (Notes 1 and 2).................................... 118,388 112,665
FINANCING COSTS AND OTHER INTANGIBLE ASSETS -- Net of
accumulated amortization of $393 and $941 (Notes 1, 2 and
10)....................................................... 7,638 4,164
OTHER ASSETS (Note 7)....................................... 1,783 846
-------- --------
TOTAL....................................................... $235,364 $219,876
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 16,665 $ 11,284
Accrued liabilities (Note 8).............................. 10,320 12,411
Current portion of long-term debt (Note 10)............... 2,633 9,046
-------- --------
Total current liabilities............................. 29,618 32,741
DEFERRED INCOME TAXES (Notes 2 and 12)...................... 7,822 7,810
REVOLVING LINE OF CREDIT (Note 10).......................... 23,500 23,500
LONG-TERM DEBT (Note 10).................................... 97,800 88,954
OTHER LIABILITIES (Note 9).................................. 21,493 14,948
MINORITY INTEREST (Note 2).................................. 623 677
COMMITMENTS (Note 11)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; 100,000 shares authorized;
no shares issued or outstanding
Common stock, Class A, no par value; 500,000 shares
authorized; 14,500 shares issued and outstanding........ 58,293 55,293
Common stock, Class B, no par value; 500,000 shares
authorized; no shares issued or outstanding
Accumulated deficit....................................... (3,873) (3,507)
Foreign currency translation adjustment (Note 2).......... 88 (540)
-------- --------
Total shareholders' equity.............................. 54,508 51,246
-------- --------
TOTAL....................................................... $235,364 $219,876
======== ========
</TABLE>
See notes to CONSOLIDATED financial statements.
F-30
<PAGE>
REID PLASTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, OCTOBER 15,
1997 1997 NINE MONTHS
YEAR ENDED THROUGH THROUGH YEAR ENDED ENDED SEPTEMBER 30, SIX MONTHS
DECEMBER 31, OCTOBER 14, DECEMBER 31, DECEMBER 31, 1998 ENDED JUNE 30,
1996 1997 1997 1998 (UNAUDITED) 1999
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (SUCCESSOR) (SUCCESSOR) (SUCCESSOR)
------------- ------------- ------------ ------------ ------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES................. $136,573 $164,750 $33,236 $175,134 $141,505 $85,423
COST OF SALES............. 116,328 144,520 31,832 144,712 112,390 67,411
-------- -------- ------- -------- -------- -------
GROSS PROFIT.............. 20,245 20,230 1,404 30,422 29,115 18,012
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................ (13,261) (14,072) (3,439) (18,016) (15,808) (9,001)
NONRECURRING CHARGES
(Notes 8 and 9)......... (9,162)
INTEREST EXPENSE -- Net... (4,849) (6,337) (1,909) (10,497) (7,942) (4,484)
OTHER INCOME.............. 628 624 27 1,347 824 478
-------- -------- ------- -------- -------- -------
INCOME (LOSS) BEFORE
INCOME TAXES............ 2,763 (8,717) (3,917) 3,256 6,189 5,005
INCOME TAX (EXPENSE)
BENEFIT (Notes 2 and
12)..................... (2,245) 1,199 105 (2,836) (3,413) (2,890)
MINORITY INTEREST IN
SUBSIDIARIES............ (124) (285) (61) (54) 40 250
-------- -------- ------- -------- -------- -------
INCOME (LOSS) BEFORE EXTRA
ORDINARY ITEM........... 394 (7,803) (3,873) 366 2,816 2,365
EXTRAORDINARY ITEM, EARLY
EXTINGUISHMENT OF DEBT,
NET OF INCOME TAX
BENEFIT OF $781
(Note 10)............... -- -- -- -- -- (1,171)
-------- -------- ------- -------- -------- -------
NET INCOME (LOSS)......... 394 (7,803) (3,873) 366 2,816 1,194
OTHER COMPREHENSIVE INCOME
(LOSS) -- Foreign
currency translation
adjustment.............. (94) (7) 88 (628) (300) 72
-------- -------- ------- -------- -------- -------
COMPREHENSIVE INCOME
(LOSS).................. $ 300 $ (7,810) $(3,785) $ (262) $ 2,816 $ 1,266
======== ======== ======= ======== ======== =======
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE>
REID PLASTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
COMMON ACCUMULATED COMPREHENSIVE
STOCK DEFICIT INCOME (LOSS) TOTAL
-------- ----------- ------------- --------
<S> <C> <C> <C> <C>
PERIOD FROM JANUARY 1, 1996 THROUGH OCTOBER 14,
1997 (PREDECESSOR)
BALANCE, JANUARY 1, 1996......................... $20,132 $ (231) $ (2) $19,899
Net income..................................... 394 394
Dividends paid................................. (353) (353)
Foreign currency translation adjustment........ (94) (94)
------- ------- ------- -------
BALANCE, DECEMBER 31, 1996....................... 20,132 (190) (96) 19,846
Net loss....................................... (7,803) (7,803)
Dividends paid................................. (257) (257)
Foreign currency translation adjustment........ (7) (7)
------- ------- ------- -------
BALANCE, OCTOBER 14, 1997........................ $20,132 $(8,250) $ (103) $11,779
======= ======= ======= =======
PERIOD FROM OCTOBER 15, 1997 THROUGH DECEMBER 31,
1998 (SUCCESSOR)
NEW CAPITALIZATION, OCTOBER 15, 1997............. $58,293 $ -- $ -- $58,293
Net loss....................................... (3,873) (3,873)
Foreign currency translation adjustment........ 88 88
------- ------- ------- -------
BALANCE, DECEMBER 31, 1997....................... 58,293 (3,873) 88 54,508
Net income..................................... 366 366
Escrow payments returned to shareholders (Note
1)........................................... (3,000) (3,000)
Foreign currency translation adjustment........ (628) (628)
------- ------- ------- -------
BALANCE, DECEMBER 31, 1998....................... $55,293 $(3,507) $ (540) $51,246
Net income..................................... 1,194 1,194
Foreign currency translation adjustment........ 72 72
------- ------- ------- -------
BALANCE, JUNE 30, 1999........................... $55,293 $(2,313) $ (468) $52,512
======= ======= ======= =======
</TABLE>
See notes to CONSOLIDATED financial statements.
F-32
<PAGE>
REID PLASTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
PERIOD FROM PERIOD FROM
JANUARY 1, OCTOBER 15, NINE MONTHS
1997 1997 ENDED
YEAR ENDED THROUGH THROUGH YEAR ENDED SEPTEMBER 30, SIX MONTHS
DECEMBER 31, OCTOBER 14, DECEMBER 31, DECEMBER 31, 1998 ENDED JUNE 30,
1996 1997 1997 1998 (UNAUDITED) 1999
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (SUCCESSOR) (SUCCESSOR) (SUCCESSOR)
-------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)............. $ 394 $(7,803) $ (3,873) $ 366 $ 2,816 1,194
Adjustment to reconcile net
income (loss) to net cash
provided by operating
activities:
Minority interest........... 124 (250)
Depreciation and
amortization.............. 7,673 12,620 4,121 15,918 11,726 7,173
Early extinguishment of
debt...................... 1,171
Provision for bad debts..... 462
Loss on disposal of
assets.................... 6
Deferred income taxes....... 517
Changes in operating assets
and liabilities:
Accounts receivable....... 757 (4,002) 1,859 3,040 (2,429) (8,988)
Inventories............... (6,496) 8,338 (1,044) 2,506 1,824 534
Prepaid expenses.......... 75 (531) 637 (2,218) (1,377) 697
Other receivables......... (2,720) 2,712 1,193 (2,253) (5,842) (61)
Other assets and
management contracts.... (1,518) 674 (58) -- --
Accounts payable.......... 10,251 (8,987) (1,339) (5,381) (6,835) 804
Accrued liabilities....... (225) 869 (4,182) (591) 1,180 (1,774)
Other liabilities......... 5,864 811 319 (1,564) (996)
Income taxes and other.... (2,069) 2,824 (297) 1,013 525
-------- ------- -------- -------- -------- --------
Net cash provided by
operating
activities............ 10,818 5,493 1,681 11,351 512 29
-------- ------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures.......... (5,864) (9,313) (4,785) (12,708) (9,192) (5,129)
Proceeds from disposal of
property and equipment...... 93 801 280 1,651 1,370 58
Cash paid for acquisitions.... (37,680)
Translation adjustment........ (94)
Other assets.................. 298 (155) 96
-------- ------- -------- -------- -------- --------
Net cash used in
investing
activities............ (43,247) (8,512) (4,505) (11,057) (7,977) (4,975)
-------- ------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from (payments
on) revolving line of
credit...................... 3,856 2,500 7,000 -- 7,500 (23,500)
Borrowing under notes payable
to banks.................... 36,143 27,000 --
Principal payments on notes
payable to banks............ (3,612) (10,608) (647) (273) (89,856)
Payments on other notes
payable and capital
leases...................... (442) (1,570) (4,662) (1,709) (2,208) (4,312)
Payment of deferred financing
costs and other acquisition
costs....................... (3,768) (8,328) (867)
Issuance of new common
stock....................... 60,000
Repurchase of old common
stock....................... (35,139)
Escrow deposits............... (7,000) 4,000 3,000
Redemption of senior preferred
stock....................... (18,421)
Redemption of Series A
preferred stock............. (1,769)
Dividends paid................ (353) (257)
Payments on noncompete
agreements.................. (1,516) (100)
</TABLE>
F-33
<PAGE>
REID PLASTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
PERIOD FROM PERIOD FROM
JANUARY 1, OCTOBER 15, NINE MONTHS
1997 1997 ENDED
YEAR ENDED THROUGH THROUGH YEAR ENDED SEPTEMBER 30, SIX MONTHS
DECEMBER 31, OCTOBER 14, DECEMBER 31, DECEMBER 31, 1998 ENDED JUNE 30,
1996 1997 1997 1998 (UNAUDITED) 1999
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (SUCCESSOR) (SUCCESSOR) (SUCCESSOR)
-------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Capital contribution.......... 122,117
Other liabilities............. (89)
-------- ------- -------- -------- -------- --------
Net cash provided by
(used in) financing
activities............ 35,347 (2,939) 6,557 677 8,019 4,449
-------- ------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS.......... 2,918 (5,958) 3,733 971 554 (497)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD........... 3,744 6,662 704 4,437 4,437 5,408
-------- ------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END
OF PERIOD..................... $ 6,662 $ 704 $ 4,437 $ 5,408 $ 4,991 $ 4,911
======== ======= ======== ======== ======== ========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid during the period
for interest................ $ 5,770 $ 6,299 $ 1,763 $ 10,664 $ 7,679 $ 4,517
======== ======= ======== ======== ======== ========
Net cash (received) paid
during the period for income
taxes....................... $ 1,866 $ 1,420 $ 215 $ (41) $ -- $ 506
======== ======= ======== ======== ======== ========
</TABLE>
See notes to CONSOLIDATED financial statements.
F-34
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
1. ACQUISITION
On October 15, 1997, an investment group led by Vestar Reid LLC ("Vestar")
acquired 12,000 newly issued shares, representing 83% of the new common stock of
Reid Plastics Holdings, Inc. ("Holdings"), the parent company of Reid
Intermediate Holdings, Inc. ("RIH") and its wholly owned subsidiary, Reid
Plastics, Inc. ("Reid" or the "Company") for $60,000,000. Continuing
shareholders exchanged old Holdings common stock for new Holdings common stock,
thereby retaining 2,500 shares, or 17%, of Holdings.
Holdings utilized the $60,000,000 invested cash plus a $27,000,000 new loan
facility (Tranche C, see Note 10) to repurchase and retire 100% of its existing
(old) Class A common stock, as well as to repay a portion ($10,608,000) of an
existing loan facility (Tranche A).
The acquisition also resulted in the following redemptions:
- 1,842.15 shares of senior preferred stock (RIH) were redeemed, and
outstanding dividends were paid totaling $18,421,000.
- 1,725.095 shares of Series A preferred stock (Holdings) were redeemed, and
outstanding dividends were paid totaling $1,769,000.
- 1 share of special voting preferred stock (Holdings) was redeemed.
- 10,466.2 shares of Class A common stock (Holdings) were repurchased for
$18,165,000 (including escrow deposits).
- Stock purchase warrants were exercised for 7,636.3636 and 545.4545 shares
of Holdings Class A common stock and immediately repurchased for
$23,974,000 (including escrow deposits).
- A warrant to purchase 3.098 shares of RIH common stock was canceled.
- Holdings' and Reid's notes payable to shareholders (including accrued
interest) were repaid for $3,271,000 and $564,000, respectively.
Additionally, Holdings entered into a five-year noncompete agreement with a
management shareholder, which resulted in a payment of $1,516,000 at
October 15, 1997, and subsequent payments totaling $6,394,000 not to exceed
$2,000,000 in any fiscal year. These payments included imputed interest
calculated at 11.15%, and the present value of such payments ($6,516,000) was
included in other intangible assets in the accompanying balance sheet at
December 31, 1997. During 1998, the noncompete agreement was revised to
guarantee payments totaling $400,000 per year for five years. Accordingly, the
liability recorded in 1997 of $5,000,000 was reduced during 1998 to $2,000,000
(see Note 9), with a corresponding reduction in the related intangible asset. In
addition, a nonguaranteed portion of up to $8,195,000 will be paid based on the
valuation of Holdings during future ownership changes. No amount has been
accrued for potential nonguaranteed payments.
In October 1997, $7,000,000 of the $60,000,000 Vestar investment was placed
into escrow accounts for the benefit of the selling shareholders. To finalize
the purchase price, $4,000,000 was released to Holdings during 1998, and the
balance of $3,000,000 was returned to Vestar.
Immediately after the acquisition, Reid was merged into RIH, and RIH was
renamed Reid Plastics, Inc.
F-35
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
1. ACQUISITION (CONTINUED)
Inasmuch as a significant majority of Holdings' common stock was acquired by
a new controlling shareholder (Vestar), and Holdings has no operations other
than its investment in Reid, management was required to "push down" the new
basis of accounting in the accompanying financial statements. Accordingly,
Holdings' shareholders' equity (as of December 31, 1998) comprises Vestar's
$57,000,000 net investment less the carryover 17% interest in the historical
shareholders' capital deficiency as of October 14, 1997 (or $1,707,000).
The acquisition was accounted for using the purchase method. The 1997
financial statements reflect the preliminary allocation of purchase price based
on the completion of certain appraisals. The preliminary allocation includes
adjustments for unfavorable operating leases and long-term customer supply
contracts ($5,000,000), legal, underwriting and other direct transaction costs
($859,000), adjustments to operating lease obligations ($300,000), severance to
employees terminated regarding the acquisition ($282,000), and other contingent
liabilities including bonus payments contingent on the close of the transaction,
and product liability claims ($1,923,000). During 1998, the Company finalized
its purchase allocation and revised certain of its previous estimates resulting
in a reduction in goodwill of $2,859,000. The excess of purchase price over the
fair value of the net assets was $116,182,000, which has been recorded as
goodwill and is being amortized on a straight-line basis over 40 years.
On October 14, 1997, the Company recorded a nonrecurring charge of
$9,162,000 representing a provision for loss on closed facilities subject to
operating leases. This loss related to the closure of a manufacturing facility,
a warehouse and an administrative facility in Southern California and a
warehouse in Northern California. These facilities were consolidated in order to
make more efficient use of leased facilities. As a result of these
consolidations, approximately 148,000 square feet of leased facilities were
closed and consolidated into neighboring facilities.
Regarding the October 1997 acquisition, the Company formulated a
restructuring plan to improve its competitive position through expense reduction
by streamlining operations. The Company accrued the estimated cost associated
with this restructuring plan regarding the recording of the acquisition under
the purchase method. The components of the restructuring charges were primarily
closed facilities subject to operating leases and severances related to 73
employee staff reductions. During 1998, all but four of the employee separations
had occurred under this plan. The four remaining employee separations are
planned to be completed during 1999. During 1998, the Company finalized its plan
and purchase accounting entries.
The provision for closed facilities subject to operating leases reflected in
the allocation of purchase price included the closure of manufacturing
facilities in Northern California, New Jersey and Canada. As a result of these
consolidations, approximately 90,000 square feet of additional leased facilities
were closed and consolidated into neighboring facilities.
F-36
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
1. ACQUISITION (CONTINUED)
Reconciliations of the pre acquisition and post acquisition restructuring
expenses during 1997, 1998 and for the six months ended June 30, 1999 were as
follows:
<TABLE>
<CAPTION>
PURCHASE ACCOUNTING
1997 RESTRUCTURING RESTRUCTURING
CHARGES ACCRUALS
------------------ -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Closed facilities subject to operating
leases................................... $9,162 $ --
Severances................................. -- 2,017
1997 Charges............................... (766) --
------ -------
Balance at December 31, 1997............... 8,396 2,017
Closed facilities subject to operating
leases................................... -- 2,523
Severances................................. -- 571
1998 Charges............................... (976) (1,237)
------ -------
Balance at December 31, 1998............... 7,420 3,874
1999 Charges............................... (770) (779)
------ -------
Balance at June 30, 1999................... $6,650 $ 3,095
====== =======
</TABLE>
Items charged to the accrual in 1997, 1998 and for the six months ended
June 30, 1999 were cash items.
Liabilities for closed facilities subject to operating leases are included
in Accrued Liabilities (See Note 8) and Other Liabilities (See Note 9) under
provision for loss on closed facilities subject to operating leases. Liabilities
for severences are included in Accrued Liabilities (See Note 8) under provision
for severences and Other Liabilities (See Note 9) under other.
2. BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reid manufactures plastic containers for major water, dairy and juice
bottling companies and other container-related products.
CONSOLIDATED AND FOREIGN OPERATIONS -- Reid maintains several wholly owned
subsidiaries in the United States and Canada. In addition, Reid owns 51% of Reid
Mexico S.A. de C.V., which operates exclusively in Mexico. Reid formerly owned
74% of Reid Plastics (Israel) Limited ("Reid Israel"). The common stock of Reid
Israel was sold to the management of that former subsidiary in November 1997. No
significant gain or loss was recognized on the sale.
Condensed combined financial information of the Company's operations before
the elimination of intercompany balances and profits were total assets of
$10,380,000, net sales of $16,881,000 and net income of $536,000 as of and for
the year ended December 31, 1996. The Company's foreign operations were not
significant for 1997 and 1998, and for the six months ended June 30, 1999.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
TRANSLATION OF FOREIGN CURRENCIES -- Reid considers the functional currency
under Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign
Currency Translation," to be the local currency for its Canadian subsidiaries
and the U.S. dollar for its Mexican subsidiary through December 31, 1998, and
the local currency beginning January 1, 1999.
F-37
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
2. BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Assets and liabilities of Reid's Canadian subsidiaries and the Mexican
subsidiary after December 31, 1998, are converted into U.S. dollars using the
current exchange rate at period-end, and revenues and expenses of these
subsidiaries are translated at the average exchange rate during the period, with
the resulting translation adjustment made to a separate component of
shareholders' equity. Transactions of the Mexican subsidiary that are
denominated in foreign currencies have been remeasured in U.S. dollars for
periods prior to December 31, 1998, and in the Mexican peso for subsequent
periods, and any resulting gain or loss is reported in income.
Realized and unrealized transaction gains and losses resulting from
transactions denominated in a currency other than the functional currency are
included in net income in the period in which they occur.
Reid is subject to financial risk from the future changes in exchange rates
of currencies other than the functional currencies of its subsidiaries. These
changes in exchange rates create exchange gains and losses that are reflected in
the consolidated financial statements. In addition, Mexico was considered a
hyper-inflationary economy under SFAS No. 52 through December 31, 1998. For
periods beginning after December 31, 1998, Mexico ceased to be considered a
hyper-inflationary economy.
CASH EQUIVALENTS -- Cash in excess of daily requirements is invested in
marketable securities consisting of money market funds and certificates of
deposit with original maturities of three months or less.
INVENTORIES -- Inventories are stated at the lower of cost or market. Reid
uses the first-in, first-out method for determining cost. The cost components of
inventories are raw materials, labor and factory overhead.
PROPERTY AND EQUIPMENT -- Property and equipment are carried at cost and are
depreciated or amortized using the straight-line method over the estimated
useful lives of the related assets or the terms of the related leases as
follows:
<TABLE>
<S> <C>
Leasehold improvements...................................... Lease term
Machinery and equipment..................................... 3 to 7 years
Transportation equipment.................................... 3 to 5 years
Office furniture and equipment.............................. 3 to 7 years
</TABLE>
Major additions and improvements are capitalized while maintenance and
repairs are charged to expense.
Equipment in acquisition (see Note 6) includes certain deposits on fixed
assets currently being constructed. No depreciation is recorded until the fixed
assets are placed in service.
INTANGIBLE ASSETS -- Financing costs are amortized over the term of the
related debt using the effective interest method. Payments relating to
multiple-year management contracts and non-compete agreements are amortized over
the term of the applicable contract or agreement.
IMPAIRMENT OF LONG-LIVED ASSETS -- Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The recoverability test is
performed based upon projected, undiscounted net cash flows.
F-38
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
2. BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES -- Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and income tax bases of
assets and liabilities. Such deferred income tax asset and liability
computations are based on enacted tax laws and rates applicable to periods in
which the differences are expected to reverse. A valuation allowance is
established, when necessary, to reduce deferred income tax assets to the amount
expected to be realized.
DERIVATIVE FINANCIAL INVESTMENTS -- Reid entered into interest-rate floor
and cap agreements to reduce the impact of fluctuations in interest rates on its
floating-rate long-term debt. At December 31, 1997 and 1998, Reid had two
interest-rate cap agreements and an interest-rate collar agreement outstanding.
At June 30, 1999 these agreements were canceled. The fair value of these
agreements at December 31, 1997 and 1998, respectively, was not material.
CONCENTRATION OF CREDIT RISK -- Financial instruments that subject the
Company to credit risk consist primarily of temporary cash investments and
accounts receivable. The Company places its temporary cash investments with
high-credit qualified financial institutions and, by policy, limits the amount
of investment exposure to any one financial institution. Accounts receivable are
generally diversified due to the large number of entities comprising the
Company's customer base and their geographic dispersion. The Company performs
ongoing credit evaluations of its customers and maintains an allowance for
potential credit losses. Credit losses have been within management's
expectations.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying amounts of cash and cash
equivalents, accounts receivable and accounts payable approximate fair value
because of the short maturities of these instruments. The carrying amounts of
the debt notes approximate their respective estimated fair values since floating
rates, which approximate current market rates, are charged on most of the notes
payable.
RECLASSIFICATIONS -- Certain reclassifications have been made to the prior
years' financial statements in order for them to conform to the current
presentation.
NEW PRONOUNCEMENTS -- In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities." SFAS No. 133 is effective
for the year ending December 31, 2000, and requires companies to recognize all
derivative instruments on their balance sheet as either assets or liabilities
measured at fair value. SFAS No. 133 also specifies a new method of accounting
for hedging transactions, prescribes the type of items and transactions that may
be hedged, and specifies detailed criteria to be met to qualify for hedge
accounting. At June 30, 1999, the Company does not have derivative instruments.
The adoption of SFAS No. 133 could have an impact on its future consolidated
financial statements.
F-39
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
3. BUSINESS ORGANIZATION AND RESTRUCTURING
On February 16, 1995, Holdings and RIH were formed regarding the 100%
acquisition of Propak California Corp. ("Propak"). In connection therewith the
shareholders of Reid transferred their ownership interest in Reid and
approximately $3,600,000 of their outstanding notes to Holdings. Holdings in
turn contributed the $3,600,000 downstream through RIH to Reid as common equity.
The exchange of ownership interest was accounted for as an exchange of ownership
interest between entities under common control, which is similar to a pooling of
interest.
On February 17, 1995, RIH received an additional $15,000,000 of equity
capital from an investor through a series of related transactions. In exchange
for the investment, the investor received 1,500 shares of senior preferred stock
of RIH, one share of special voting preferred stock of Holdings and warrants to
purchase 7,636 shares of Class A common stock of Holdings. RIH in turn
contributed the $15,000,000 as equity to Reid. Reid and RIH redeemed the senior
preferred stock and warrants of RIH regarding the Vestar acquisition. The
redemption price of the preferred stock in the face amount was $15,000,000 and
unpaid cumulative dividends at a compound rate of 7.9215% per year totaled
$3,421,000 at October 14, 1997.
On February 17, 1995, Reid entered into a loan agreement with a bank.
Regarding this agreement, the bank received a warrant to purchase (a) 545.4545
shares of Class A or, at the option of the bank, Class B common stock from
Holdings at $.01 per share, or (b) 3.098 shares of common stock of RIH at $.01
per share (see Note 1).
4. MERGERS AND ACQUISITIONS
In March 1995, Reid purchased all of the outstanding shares of Propak. The
acquisition was accounted for under the purchase method of accounting. The
purchase price and related acquisition costs amounting to $27,323,000 were
allocated to the estimated fair market value of the underlying assets acquired
and liabilities assumed, resulting in approximately $24,395,000 of goodwill.
In May 1995, Reid purchased the assets and assumed the outstanding debt of
Crystal Clear Container Corp. and Crystal Clear, Inc. Both operate as divisions
of Reid. The acquisition was accounted for under the purchase method of
accounting. The purchase price and related acquisition costs amounting to
$4,222,000 were allocated to the estimated fair market value of the underlying
assets acquired and liabilities assumed, resulting in approximately $534,000 of
goodwill.
In November 1996, Reid purchased all of the outstanding shares of
Stewart/Walker Co. ("SWC"). The acquisition was accounted for under the purchase
method of accounting. The purchase price and related acquisition costs amounting
to $51,064,000, including the payment of $18,789,000 of certain debt of SWC at
the acquisition date, were allocated to the estimated fair market value of the
underlying assets acquired and liabilities assumed, resulting in approximately
$29,974,000 of goodwill.
In November 1996, Reid purchased all of the outstanding shares of Plastic
Containers, Inc. The acquisition was accounted for under the purchase method of
accounting. The purchase price and related acquisition costs amounting to
$8,437,000 were allocated to the estimated fair market value of the underlying
assets acquired and liabilities assumed, resulting in approximately $1,182,000
of goodwill.
Regarding Vestar's acquisition, the goodwill associated with the prior
acquisitions discussed above was eliminated as of October 15, 1997 (see
Note 1).
F-40
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
5. INVENTORIES
Inventories consist of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Raw materials............................................. $ 8,245 $ 6,037
Work in process........................................... 17 36
Finished goods............................................ 4,629 3,928
------- -------
$12,891 $10,001
======= =======
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Land...................................................... $ 3,579 $ 3,573
Buildings................................................. 5,543 5,911
Leasehold improvements.................................... 3,016 4,479
Machinery and equipment................................... 35,088 36,593
Equipment under capital leases............................ 6,766 6,766
Furniture and equipment................................... 539 2,470
------- -------
54,531 59,792
Accumulated depreciation and amortization................. 3,075 12,674
------- -------
51,456 47,118
Equipment in acquisition.................................. 5,884 8,298
------- -------
$57,340 $55,416
======= =======
</TABLE>
7. OTHER ASSETS
Other assets consist of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deposits.................................................... $ 978 $565
Other receivables........................................... 805 281
------ ----
$1,783 $846
====== ====
</TABLE>
F-41
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Provision for severances.................................. $ 2,299 $ 1,288
Provision for unfavorable leases and contracts............ 1,024
Provision for loss on closed facilities subject to
operating leases........................................ 1,547 1,443
Provision for other transaction related costs............. 859 239
Salaries and wages........................................ 2,616 2,640
Vacation.................................................. 1,234 1,287
Accrued 401(k) contributions.............................. 195 225
Accrued commissions....................................... 232 582
Interest.................................................. 326
Other..................................................... 1,012 3,683
------- -------
$10,320 $12,411
======= =======
</TABLE>
9. OTHER LIABILITIES
Other liabilities consist of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Provision for loss on closed facilities subject to
operating leases........................................ $ 7,149 $ 8,447
Provision for unfavorable leases and contracts............ 5,000
Advance from vendor....................................... 1,300 2,500
Obligation under noncompete agreement..................... 5,000 1,500
Accrued terminated employee benefit plan obligation....... 1,277 1,345
Other..................................................... 1,767 1,156
------- -------
$21,493 $14,948
======= =======
</TABLE>
10. DEBT
On October 15, 1997, Reid amended its loan agreement with a bank (the
"Restated Loan Agreement"). The Restated Loan Agreement provides four senior
bank facilities and was created in conjunction with the acquisition.
J.P. Morgan Securities arranged a $27,000,000 Term Loan C (Tranche C), (the
"New Facility"), maturing on December 31, 2004, to be added to Reid's current
facilities. The current facilities comprise a $40,000,000 revolver and a
$45,600,000 Term Loan A (Tranche A) (which was paid down to approximately
$34,900,000 at closing on October 15, 1997), both maturing on November 12, 2002,
and a $32,000,000 Term Loan B (Tranche B), maturing on November 12, 2003.
F-42
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
10. DEBT (CONTINUED)
The four senior bank facilities are collateralized by substantially all
assets of Reid. The New Facility is secured by liens on substantially all
domestic assets as well as the stock of the Canadian and Mexican subsidiaries.
At December 31, 1997 and 1998, $23,500,000 was outstanding under the revolver,
which has been classified as a long-term obligation because management intends
to maintain at least those amounts outstanding under the line of credit
agreement for uninterrupted periods of more than one year after the balance
sheet date. Reid is the sole borrower under the Restated Loan Agreement. All
four senior bank facilities are guaranteed by Holdings and all domestic
subsidiaries of Reid.
The Restated Loan Agreement was amended as of April 15, 1998. The agreement
provides the Company with an option to pay interest at a bank-based rate (7.75%
at December 31, 1998) or a LIBOR (London Interbank Offered Rate)-based rate
(5.31% at December 31, 1998) plus the margins identified below. The margin rate
varies quarterly based on a covenant ratio.
<TABLE>
<CAPTION>
BANK-BASED LIBOR-BASED
RATE MARGIN RATE MARGIN
--------------------- ---------------------
<S> <C> <C>
Tranche A and Revolver..................... 0.00% -- 1.50% 1.00% -- 2.50%
Tranche B.................................. 1.25% -- 1.75% 2.25% -- 2.75%
Tranche C.................................. 1.50% -- 2.00% 2.50% -- 3.00%
</TABLE>
The Restated Loan Agreement limits the amount of dividends that may be paid
and contains certain financial covenants. At December 31, 1998, Reid was in
compliance with such covenants.
Reid's long-term debt consists of the following at December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Note payable to a bank (Tranche A), interest payable
quarterly at LIBOR plus 2%, principal due in
quarterly installments through November
2002.............................................. $34,945 $34,945
Note payable to a bank (Tranche B), interest payable
quarterly at LIBOR plus 2.25%, principal due in
quarterly installments through November 2003...... 32,058 31,681
Note payable to a bank (Tranche C), interest payable
quarterly at LIBOR plus 2.5%, principal due in
quarterly installments through December 2004...... 27,000 26,730
Capital lease obligations, various interest rates
(ranging from 7.6% to 9.43%), payable in equal
monthly installments through various dates........ 6,430 4,644
------- -------
100,433 98,000
Less current portion................................ 2,633 9,046
------- -------
$97,800 $88,954
======= =======
</TABLE>
F-43
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
10. DEBT (CONTINUED)
Maturities of long-term debt for the years ending December 31 are as follows
(dollars in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 9,046
2000........................................................ 10,403
2001........................................................ 11,731
2002........................................................ 10,725
2003........................................................ 30,592
Thereafter.................................................. 25,503
-------
$98,000
=======
</TABLE>
Regarding the 1997 refinancing and 1998 amendment, Reid incurred
approximately $2,604,000 in costs, which have been capitalized and are being
amortized over the life of the debt.
Deferred financing costs consists of the following at December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred financing costs.................................... $1,515 $2,604
Less accumulated amortization............................... (58) (450)
------ ------
$1,457 $2,154
====== ======
</TABLE>
On July 2, 1999 (effective as of June 30, 1999), all of the outstanding
debt, excluding capital lease obligations, was repaid with a capital
contribution from Consolidated Container Holdings LLC (Note 15). Regarding this
repayment, approximately $1,952,000 of unamortized deferred financing costs, net
of an income tax benefit of $781,000, were written-off and recorded as an
extraordinary item in the consolidated statement of operations and comprehensive
income (loss).
11. COMMITMENTS
LEASE COMMITMENTS -- Reid leases its manufacturing facilities at most
locations and certain manufacturing equipment; the leases are accounted for as
operating leases. These lease agreements contain renewal options and/or purchase
options.
F-44
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
11. COMMITMENTS (CONTINUED)
Future minimum rental commitments under leases for the years ended
December 31 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1999...................................................... $2,034 $ 4,700
2000...................................................... 1,724 3,959
2001...................................................... 1,200 2,531
2002...................................................... 127 1,996
2003...................................................... 107 1,709
Thereafter................................................ 128 6,904
------ -------
5,320 $21,799
=======
Less amount representing interest at various rates
(ranging from 7.6% to 9.43%)............................ 676
------
Present value of minimum lease payments (including current
portion of $1,717)...................................... $4,644
======
</TABLE>
Rent expense under operating leases was approximately $2,981,000 for the
year ended December 31, 1996, $6,694,000 for the period from January 1, 1997
through October 14, 1997, $774,000 for the period from October 15, 1997 through
December 31, 1997, $5,283,000 for the year ended December 31, 1998, and
$3,225,000 for the six months ended June 30, 1999.
F-45
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
12. INCOME TAXES
Significant components of Reid's deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
---------------------- ----------------------
FEDERAL STATE FEDERAL STATE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Deferred income tax assets:
AMT credit.................................. $ 255 $ 11 $ 359 $ 185
Accrued compensation........................ 518 267 306 157
Allowance for doubtful accounts............. 324 167 245 126
Accrued liabilities......................... 5,046 2,599 6,171 3,179
NOL carryforward............................ 1,140 587 265 137
Other....................................... 940 442 707 365
------- ------- ------- -------
Total deferred income tax assets.............. 8,223 4,073 8,053 4,149
Less valuation allowance...................... (3,060) (1,414) (2,898) (1,494)
------- ------- ------- -------
Net deferred income tax assets................ $ 5,163 $ 2,659 $ 5,155 $ 2,655
======= ======= ======= =======
Deferred income tax liabilities --
Property and equipment...................... $(5,163) $(2,659) $(5,155) $(2,655)
======= ======= ======= =======
</TABLE>
The provision for income taxes attributable to the earnings before income
taxes and extraordinary item consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
PERIOD PERIOD
FROM FROM
JANUARY 1, OCTOBER 15,
YEAR 1997 1997
ENDED THROUGH THROUGH YEAR
DECEMBER 31, OCTOBER 15, DECEMBER 31, ENDED SIX MONTHS
1996 1997 1997 DECEMBER 31, ENDED JUNE 30,
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR) 1998 1999
------------- ------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Current................. $(1,035) $(1,578) $105 $ (276) $ (635)
Deferred................ (517) 2,777 (2,025) (1,926)
Foreign................. (693) (535) (329)
------- ------- ---- ------- -------
Income tax (expense)
benefit............... $(2,245) $ 1,199 $105 $(2,836) $(2,890)
======= ======= ==== ======= =======
</TABLE>
Provision has not been made for U.S. taxes on $5,243,000 of cumulative
undistributed earnings of foreign subsidiaries since those earnings are intended
to be permanently reinvested. The tax benefit allocated to the 1999
extraordinary charge was $780,000.
F-46
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
12. INCOME TAXES (CONTINUED)
The tax expense (benefit) was different from the amount computed by applying
the federal statutory rate to the earnings before income taxes and extraordinary
item as follows (dollars in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM OCTOBER 15, 1997
YEAR JANUARY 1, 1997 THROUGH YEAR ENDED
ENDED THROUGH DECEMBER 31, DECEMBER 31,
DECEMBER 31, OCTOBER 14, 1997 1997 1998
1996 ---------------------- ---------------------- ----------------------
% AMOUNT % AMOUNT % AMOUNT %
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Tax at federal
statutory rate..... 34% $(3,051) (34)% $(1,332) (34)% $1,107 34%
Amortization of
goodwill and
other.............. 25 1,373 15 336 8 1,398 43
State taxes.......... 11 265 8
Valuation allowance.. 394 5 869 22 (82) (3)
Other................ 11 85 1 22 1 148 5
-- ------- --- ------- --- ------ --
Effective tax rate... 81% $(1,199) (13)% $ (105) (3)% $2,836 87%
== ======= === ======= === ====== ==
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1999
----------------------
AMOUNT %
-------- --------
<S> <C> <C>
Tax at federal
statutory rate..... $1,701 34%
Amortization of
goodwill and
other.............. 575 12
State taxes.......... 407 8
Valuation allowance..
Other................ 207 4
------ --
Effective tax rate... $2,890 58%
====== ==
</TABLE>
The Company has been notified that the California Franchise Tax Board will
be examining its corporate income tax returns for the years ended December 31,
1995 and 1996. At December 31, 1998, the Company has a net operating loss
carryforward of $779,000 expiring in the tax year ending December 31, 2012. The
Company also has federal alternative minimum tax credits available of
approximately $544,000.
13. EMPLOYEE BENEFIT PLAN
Reid has a 401(k) defined contribution plan for the benefit of all employees
who are age 21 or older and who have completed at least 1,000 hours of service.
Reid will match every dollar of deferral to the plan by participants to a
maximum matching contribution of 3% of a participant's qualifying income per
plan year. For participants who earn less than $15,000 per year and make
contributions to the plan, Reid will also make an annual contribution of 2% of
the participant's compensation to the plan.
Reid may, at the discretion of the Board of Directors, make a profit sharing
contribution to be shared by all eligible participants and a discretionary
matching contribution to the plan for participants who make deferrals of more
than $2,000 a year. The amounts of Reid's profit sharing and matching
contributions are discretionary in each plan year, and Reid is not required to
make a profit sharing or discretionary matching contribution to the plan in any
plan year.
The expense associated with contributions to the plan made by Reid were
$144,000 for the year ended December 31, 1996, $154,000 for the period from
January 1, 1997 through October 14, 1997, $41,000 for the period from
October 15, 1997 through December 31, 1997, $225,000 for the year ended
December 31, 1998, and $138,000 for the six months ended June 30, 1999.
F-47
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
14. STOCK OPTION PLAN
In December 31, 1997, the Company's Board of Directors adopted the 1997
Stock Option Plan (the "Plan") under which stock options are granted to key
employees of the Company. Under the terms of the Plan 1,000 shares of common
stock are authorized for issuance upon exercise of options. Stock options have
been granted with an exercise price equal to $5,000 per share, which is
considered to be the fair market value at the date of grant. These options vest
over 60 months and expire 10 years after the grant date. The Board has granted
options for 600 shares. The Company elected to account for stock-based
compensation in a manner that complies with the provisions of Accounting
Principles Board (APB) Opinion No. 25. "Accounting for Stock Issued to
Employees." Accordingly, no compensation cost has been recognized because the
option price equals the market price on the date of grant.
If the Company had elected to follow the measurement provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," in accounting for its stock
options compensation expense would be recognized based on the fair value of the
options at the date of grant. To estimate compensation expense that would be
recognized under SFAS No. 123, the Company used the modified Black-Scholes
option-pricing model with the following weighted average assumptions for options
granted in 1998: risk-free interest rate ranging from 5.6% to 5.83%; no expected
dividend yield; no volatility; and expected life of five years.
If SFAS No. 123 were used to account for the Company's stock based
compensation program, the pro forma net earnings would be as follows:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, 1997 OCTOBER 15, 1997 SIX MONTHS
THROUGH THROUGH YEAR ENDED ENDED JUNE 30,
OCTOBER 14, 1997 DECEMBER 31, 1997 DECEMBER 31, 1998 1999
(PREDECESSOR) (SUCCESSOR) (SUCCESSOR) (SUCCESSOR)
----------------- ------------------ ------------------ ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income (loss) - as
reported............... $(7,803) $(3,873) $366 $1,194
Net income (loss) - pro
forma.................. $(7,803) (3,878) 273 $1,145
</TABLE>
The pro forma effects of applying No. 123 may not be representative of the
effects on reported net income for future years since options vest over several
years and additional awards could be each year.
F-48
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
14. STOCK OPTION PLAN (CONTINUED)
Stock options activity for the Plan was as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
-------- ----------------
<S> <C> <C> <C>
Outstanding January 1, 1997.............. --
Granted.................................. 330 $5,000
Exercised................................
Canceled.................................
--- ------
Outstanding December 31, 1997............ 330 5,000
Granted.................................. 270 5,000
Exercised................................
Canceled.................................
--- ------
Outstanding December 31, 1998.............. 600 $5,000
=== ======
Weighted-average fair value of options
granted during the year -- 1997.......... $1,249 per share
Weighted-average fair value of options
granted during the year -- 1998.......... $1,221 per share
</TABLE>
The following table summarizes the information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------
WEIGHTED-AVERAGE
REMAINING
COMMERCIAL LIFE WEIGHTED-AVERAGE
RANGE OF EXERCISE SHARES (YEARS) EXERCISE PRICE
PRICES -------- ---------------- ----------------
<S> <C> <C> <C>
$5,000...................................... 600 9 $5,000
<CAPTION>
OPTIONS EXERCISABLE
----------------------------------------------
RANGE OF EXERCISE SHARES WEIGHTED-AVERAGE
PRICES -------- ----------------
$5,000. 120 $ 5,000
<S> <C> <C> <C>
</TABLE>
No options were granted, exercised, or canceled during the six months ended
June 30, 1999.
15. SUBSEQUENT EVENT
On July 2, 1999, Reid acquired substantially all of the U.S. plastic
packaging assets of Suiza Packaging, a subsidiary of Suiza Foods Corporation
("Suiza"). Simultaneously, through the formation of Consolidated Container
Company LLC ("CCC"), Reid was merged into CCC. CCC is a wholly owned subsidiary
of Consolidated Container Holdings ("Holdings"). As a result of the merger,
Vestar Capital Partners III, through its controlled affiliates, received 51% of
the member units of Holdings, and Suiza, through a subsidiary, received 49% of
the member units of Holdings.
F-49
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
15. SUBSEQUENT EVENT (CONTINUED)
The acquisition of Suiza Packaging has been accounted for using the purchase
method of accounting. Assets acquired and liabilities assumed were as follows
(in thousands):
<TABLE>
<S> <C>
Total purchase price, net of cash acquired.................. $ 140,723
Fair value of net liabilities acquired:
Fair value of assets acquired............................. 314,608
Fair value of liabilities assumed......................... (599,771)
---------
Total liabilities acquired.................................. (285,163)
---------
Goodwill.................................................... $ 425,886
=========
</TABLE>
The excess of the purchase price over the fair value of the net assets was
$425,886,000, which will be amortized on a straight-line basis over 40 years.
The purchase price allocation has not been finalized, and accordingly, goodwill
associated with the acquisition may change.
In conjunction with the merger, a debt private placement offering of
$185,000,000 in senior subordinated notes and a new $485,000,000 senior credit
facility were executed. As a result, substantially all of the outstanding debt,
excluding capital lease obligations, was repaid and approximately $1,952,000 of
unamortized deferred financing costs, were written-off and recorded as an
extraordinary item.
16. ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING RECOVERIES END
PERIOD ENDED OF PERIOD PROVISION (WRITE-OFFS) OTHER OF PERIOD
- ------------ ---------- --------- ------------ -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1996............................. $1,627 $462 $(265) $ -- $1,824
====== ==== ===== ==== ======
December 31, 1997............................. $1,824 $256 $(648) $257 $1,689
====== ==== ===== ==== ======
December 31, 1998............................. $1,689 $418 $(896) $155 $1,366
====== ==== ===== ==== ======
June 30, 1999................................. $1,366 $266 $(160) $ -- $1,472
====== ==== ===== ==== ======
</TABLE>
F-50
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
17. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
Consolidating Condensed Balance Sheet as of December 31, 1997
<TABLE>
<CAPTION>
REID PLASTICS
EXCLUDING
NON-GUARANTOR NON-GUARANTOR REID PLASTICS
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash..................................... $ 1,303 $ 3,101 $ 33 $ 4,437
Inventories.............................. 10,976 1,915 -- 12,891
Other current assets..................... 51,646 3,706 (22,465) 32,887
-------- ------- -------- --------
Total current assets....................... 63,925 8,722 (22,432) 50,215
Property & equipment, net.................. 54,719 3,132 (511) 57,340
Goodwill, net.............................. 118,035 353 -- 118,388
Financing costs and other intangible
assets................................... 7,638 -- -- 7,638
Investment in non-guarantor subsidiaries... 5,546 -- (5,546) --
Other assets............................... 2,054 172 (443) 1,783
-------- ------- -------- --------
TOTAL...................................... $251,917 $12,379 $(28,932) $235,364
======== ======= ======== ========
CURRENT LIABILITIES:
Accounts payable......................... $ 15,666 $ 2,444 $ (1,445) $ 16,665
Other current liabilities................ 28,621 4,263 (22,564) 10,320
Current portion of long-term debt........ 2,633 -- -- 2,633
-------- ------- -------- --------
Total current liabilities.................. 46,920 6,707 (24,009) 29,618
Long term debt and revolving line of
credit................................... 121,300 -- -- 121,300
Other liabilities.......................... 29,189 126 -- 29,315
Minority interest.......................... -- -- 623 623
Total shareholders' equity................. 54,508 5,546 (5,546) 54,508
-------- ------- -------- --------
TOTAL...................................... $251,917 $12,379 $(28,932) $235,364
======== ======= ======== ========
</TABLE>
F-51
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
17. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Consolidating Condensed Balance Sheet as of December 31, 1998
<TABLE>
<CAPTION>
REID PLASTICS
EXCLUDING
NON-GUARANTOR NON-GUARANTOR REID PLASTICS
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total current assets....................... $ 40,263 $ 7,440 $ (918) $ 46,785
Property & equipment....................... 53,726 2,528 (838) 55,416
Goodwill................................... 112,665 -- -- 112,665
Financing and other intangibles............ 4,164 -- -- 4,164
Investment in non-guarantor subsidiaries... 6,517 -- (6,517) --
Other assets............................... 1,062 227 (443) 846
-------- ------- -------- --------
TOTAL...................................... $218,397 $10,195 $ (8,716) $219,876
======== ======= ======== ========
CURRENT LIABILITIES:
Accounts payable......................... $ 10,619 $ 2,041 $ (1,376) $ 11,284
Other current liabilities................ 12,382 1,529 (1,500) 12,411
Current portion of long-term debt........ 9,046 -- -- 9,046
-------- ------- -------- --------
Total current liabilities.................. 32,047 3,570 (2,876) 32,741
Revolving line of credit................... 23,500 -- -- 23,500
Long term debt............................. 88,954 -- -- 88,954
Other liabilities.......................... 22,650 108 -- 22,758
Minority interest.......................... -- -- 677 677
Total shareholders' equity................. 51,246 6,517 (6,517) 51,246
-------- ------- -------- --------
TOTAL...................................... $218,397 $10,195 $ (8,716) $219,876
======== ======= ======== ========
</TABLE>
F-52
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
17. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Year ended December 31, 1996 Consolidating Statement of Operations
<TABLE>
<CAPTION>
REID PLASTICS
EXCLUDING
NON-GUARANTOR NON-GUARANTOR REID PLASTICS
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET SALES.................................. $121,537 $15,987 $ (951) $136,573
COST OF SALES.............................. 104,573 12,782 (1,027) 116,328
-------- ------- ------- --------
GROSS PROFIT............................... 16,964 3,205 76 20,245
SELLING, GENERAL AND ADMINISTRATIVE........ 11,603 1,658 -- 13,261
INTEREST EXPENSE, NET...................... 4,849 -- -- 4,849
OTHER INCOME (EXPENSE)..................... 999 (312) (59) 628
EQUITY IN EARNINGS OF NON-GUARANTOR
SUBSIDIARIES............................. 684 -- (684) --
-------- ------- ------- --------
INCOME BEFORE TAXES........................ 2,195 1,235 (667) 2,763
INCOME TAX EXPENSES........................ 1,694 551 -- 2,245
MINORITY INTEREST IN SUBSIDIARIES.......... -- -- 124 124
-------- ------- ------- --------
NET INCOME........................... $ 501 $ 684 $ (791) $ 394
======== ======= ======= ========
</TABLE>
Period From January 1, 1997 Through October 14, 1997 (Predecessor)
Consolidating Statement of Operations
<TABLE>
<CAPTION>
REID PLASTICS
EXCLUDING
NON-GUARANTOR NON-GUARANTOR REID PLASTICS
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET SALES.................................. $148,189 $19,428 $(2,867) $164,750
COST OF SALES.............................. 131,673 15,740 (2,893) 144,520
-------- ------- ------- --------
GROSS PROFIT............................... 16,516 3,688 26 20,230
SELLING, GENERAL AND ADMINISTRATIVE........ 13,151 921 -- 14,072
NON-RECURRING CHARGES...................... 9,162 -- -- 9,162
OTHER INCOME (EXPENSE)..................... 1,170 (301) (245) 624
INTEREST EXPENSE, NET...................... 6,337 -- -- 6,337
EQUITY IN EARNINGS OF NON-GUARANTOR
SUBSIDIARIES............................. 1,652 -- (1,652) --
-------- ------- ------- --------
INCOME (LOSS) BEFORE TAXES................. (9,312) 2,466 (1,871) (8,717)
INCOME TAX EXPENSE (BENEFIT)............... (2,013) 814 -- (1,199)
MINORITY INTEREST IN SUBSIDIARIES.......... -- -- 285 285
-------- ------- ------- --------
NET INCOME (LOSS).................... $ (7,299) $ 1,652 $(2,156) $ (7,803)
======== ======= ======= ========
</TABLE>
F-53
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
17. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Period from October 15, 1997 Through December 31, 1997 (Successor)
Consolidating Statement of Operations
<TABLE>
<CAPTION>
REID PLASTICS
EXCLUDING
NON-GUARANTOR NON-GUARANTOR REID PLASTICS
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET SALES.................................. $ 29,097 $ 4,856 $ (717) $ 33,236
COST OF SALES.............................. 28,621 3,935 (724) 31,832
-------- ------- ------- --------
GROSS PROFIT............................... 476 921 7 1,404
SELLING, GENERAL AND ADMINISTRATIVE........ 3,285 174 -- 3,439
OTHER INCOME (EXPENSE)..................... 82 (30) (25) 27
INTEREST EXPENSE, NET...................... 1,909 -- -- 1,909
EQUITY IN EARNINGS OF NON-GUARANTOR
SUBSIDIARIES............................. 480 -- (480) --
-------- ------- ------- --------
INCOME (LOSS) BEFORE TAXES................. (4,136) 717 (498) (3,917)
INCOME TAX EXPENSE (BENEFIT)............... (342) 237 -- (105)
MINORITY INTEREST IN SUBSIDIARIES.......... -- -- 61 61
-------- ------- ------- --------
NET INCOME (LOSS).................... $ (3,794) $ 480 $ (559) $ (3,873)
======== ======= ======= ========
</TABLE>
Year ended December 31, 1998 Consolidating Statement of Operations
<TABLE>
<CAPTION>
REID PLASTICS
EXCLUDING
NON-GUARANTOR NON-GUARANTOR REID PLASTICS
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET SALES.................................. $156,199 $24,491 $(5,556) $175,134
COST OF SALES.............................. 129,059 22,072 (6,419) 144,712
-------- ------- ------- --------
GROSS PROFIT............................... 27,140 2,419 863 30,422
SELLING, GENERAL AND ADMINISTRATIVE........ 17,753 263 -- 18,016
OTHER INCOME (EXPENSE)..................... 3,324 (582) (1,395) 1,347
INTEREST EXPENSE, NET...................... 10,490 7 -- 10,497
EQUITY IN EARNINGS OF NON-GUARANTOR
SUBSIDIARIES............................. 1,487 -- (1,487) --
-------- ------- ------- --------
INCOME BEFORE TAXES........................ 3,708 1,567 (2,019) 3,256
INCOME TAX EXPENSE......................... 2,756 80 -- 2,836
MINORITY INTEREST.......................... -- -- 54 54
-------- ------- ------- --------
NET INCOME........................... $ 952 $ 1,487 $(2,073) $ 366
======== ======= ======= ========
</TABLE>
F-54
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
17. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Six Months ended June 30, 1999 Consolidating Statement of Operations
<TABLE>
<CAPTION>
REID PLASTICS
EXCLUDING
NON-GUARANTOR NON-GUARANTOR REID PLASTICS
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET SALES.................................. $ 75,580 $11,334 $(1,491) $85,423
COST OF SALES.............................. 58,945 11,110 (2,644) 67,411
-------- ------- ------- -------
GROSS PROFIT............................... 16,635 224 1,153 18,012
SELLING, GENERAL AND ADMINISTRATIVE........ 8,876 125 -- 9,001
OTHER INCOME (EXPENSE)..................... 454 50 (26) 478
INTEREST EXPENSE (INCOME).................. 4,406 (18) 96 4,484
EQUITY IN EARNINGS OF NON-GUARANTOR
SUBSIDIARIES............................. 167 -- (167) --
-------- ------- ------- -------
INCOME BEFORE TAXES........................ 3,974 167 864 5,005
INCOME TAX EXPENSE......................... 2,890 -- -- 2,890
EXTRAORDINARY ITEM......................... 1,171 -- -- 1,171
MINORITY INTEREST IN SUBSIDIARIES.......... -- -- (250) (250)
-------- ------- ------- -------
NET INCOME (LOSS).................... $ (87) $ 167 $ 1,114 $ 1,194
======== ======= ======= =======
</TABLE>
F-55
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
17. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Year Ended December 31, 1996 Consolidating Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
REID PLASTICS
EXCLUDING
NON-GUARANTOR NON-GUARANTOR REID PLASTICS
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................... $10,043 $ 1,379 $ (604) 10,818
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................... (5,238) (626) -- (5,864)
Proceeds from disposal of property and
equipment.............................. 93 -- -- 93
Cash paid for acquisitions............... (37,680) -- -- (37,680)
Translation adjustment................... (94) -- -- (94)
Other assets............................. 298 -- -- 298
------- ------- ------- -------
Net cash used in investing
activities....................... (42,621) (626) -- (43,247)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of
credit................................. 3,856 -- -- 3,856
Borrowing under notes payable to banks... 36,143 -- -- 36,143
Payments on other notes payable and
capital leases......................... (335) (107) -- (442)
Payment of deferred financing costs and
other acquisition costs................ (3,768) -- -- (3,768)
Dividends paid........................... (353) -- -- (353)
Other liabilities........................ (89) (89)
------- ------- ------- -------
Net cash provided by financing
activities....................... 35,454 (107) -- 35,347
------- ------- ------- -------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.............................. 2,876 646 (604) 2,918
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................... 572 611 2,561 3,744
------- ------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD... $ 3,448 $ 1,257 $ 1,957 $ 6,662
======= ======= ======= =======
</TABLE>
F-56
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
17. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Period from January 1, 1997 Through October 14, 1997 (Predecessor)
Consolidating Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
REID PLASTICS
EXCLUDING
NON-GUARANTOR NON-GUARANTOR REID PLASTICS
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................... $ 5,122 $1,930 $(1,559) $ 5,493
-------- ------ ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................... (8,697) (616) -- (9,313)
Proceeds from disposal of property and
equipment.............................. 801 -- -- 801
-------- ------ ------- --------
Net cash used in investing
activities....................... (7,896) (616) -- (8,512)
-------- ------ ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of
credit................................. 2,500 -- -- 2,500
Principal payments on notes payable to
banks.................................. (3,612) -- -- (3,612)
Payments on other notes payable and
capital leases......................... (1,570) -- -- (1,570)
Dividends paid........................... (257) -- -- (257)
-------- ------ ------- --------
Net cash used in financing
activities....................... (2,939) -- -- (2,939)
-------- ------ ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. (5,713) 1,314 (1,559) (5,958)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................... 3,448 1,257 1,957 6,662
-------- ------ ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD... $ (2,265) $2,571 $ 398 $ 704
======== ====== ======= ========
</TABLE>
F-57
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
17. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Period from October 15, 1997 Through December 31, 1997 (Successor)
Consolidating Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
REID PLASTICS
EXCLUDING
NON-GUARANTOR NON-GUARANTOR REID PLASTICS
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................... $ 1,516 $ 530 $ (365) $ 1,681
-------- ------ ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................... (4,785) -- -- (4,785)
Proceeds from disposal of property and
equipment.............................. 280 -- -- 280
-------- ------ ------- --------
Net cash used in investing
activities....................... (4,505) -- -- (4,505)
-------- ------ ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of
credit................................. 7,000 -- -- 7,000
Borrowing under notes payable to banks... 27,000 27,000
Principal payments on notes payable to
banks.................................. (10,608) (10,608)
Payments on other notes payable and
capital leases......................... (4,662) -- -- (4,662)
Payment of deferred financing costs and
other acquisition costs................ (8,328) -- -- (8,328)
Issuance of new common stock............. 60,000 -- -- 60,000
Repurchase of old common stock........... (35,139) -- -- (35,139)
Escrow deposits.......................... (7,000) -- -- (7,000)
Redemption of senior preferred stock..... (18,421) -- -- (18,421)
Redemption of Series A preferred stock... (1,769) -- -- (1,769)
Payments on noncompete agreements........ (1,516) -- -- (1,516)
-------- ------ ------- --------
Net cash provided by financing
activities....................... 6,557 -- -- 6,557
-------- ------ ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. 3,568 530 (365) 3,733
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................... (2,265) 2,571 398 704
-------- ------ ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD... $ 1,303 $3,101 $ 33 $ 4,437
======== ====== ======= ========
</TABLE>
F-58
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
17. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Year Ended December 31, 1998 Consolidating Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
REID PLASTICS
EXCLUDING
NON-GUARANTOR NON-GUARANTOR REID PLASTICS
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................... $ 10,805 $ (96) $ 642 $ 11,351
-------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................... (11,776) (932) -- (12,708)
Proceeds from disposal of property and
equipment.............................. 1,651 -- -- 1,651
-------- ------- ------- --------
Net cash used in investing
activities....................... (10,125) (932) (11,057)
-------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable to
banks.................................. (647) -- -- (647)
Payments on other notes payable and
capital leases......................... (1,709) -- -- (1,709)
Payment of deferred financing costs and
other acquisition costs................ (857) -- -- (867)
Escrow deposits.......................... 4,000 -- -- 4,000
Payments on noncompete agreements........ (100) -- -- (100)
-------- ------- ------- --------
Net cash provided by financing
activities....................... 677 -- -- 677
-------- ------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. 1,357 (1,028) 642 971
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................... 1,303 3,101 33 4,437
-------- ------- ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD... $ 2,660 $ 2,073 $ 675 $ 5,408
======== ======= ======= ========
</TABLE>
F-59
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
17. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Six Months Ended June 30, 1999 Consolidating Condensed Statement of Cash
Flows
<TABLE>
<CAPTION>
REID PLASTICS
EXCLUDING
NON-GUARANTOR NON-GUARANTOR REID PLASTICS
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................... $ (416) $ 1,120 $ (675) $ 29
-------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................... (4,805) (324) -- (5,129)
Proceeds from disposal of property and
equipment.................................. 58 -- -- 58
Other assets................................. 96 -- -- 96
-------- ------- ------- --------
Net cash used in investing
activities........................... (4,651) (324) -- (4,975)
-------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on revolving line of credit..... (23,500) -- -- (23,500)
Principal payments on notes payable to
banks...................................... (89,856) -- -- (89,856)
Payments on other notes payable and capital
leases..................................... (4,312) -- -- (4,312)
Capital contribution......................... 122,117 -- -- 122,117
-------- ------- ------- --------
Net cash provided by financing
activities........................... 4,449 -- -- 4,449
-------- ------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. (618) 796 (675) (497)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD....................................... 2,660 2,073 675 5,408
-------- ------- ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD....... $ 2,042 $ 2,869 $ -- $ 4,911
======== ======= ======= ========
</TABLE>
Consolidated Container Capital, Inc. ("Capital"), a wholly owned subsidiary of
CCC was formed to serve as a co-issuer of the senior subordinated notes. Capital
has only nominal assets, does not conduct any operations and was formed solely
to act as co-issuer of the notes.
The above summary consolidating condensed financial statements of Reid's
subsidiaries (the "Subsidiaries") are presented because the domestic
subsidiaries have guaranteed the notes contemplated to be issued as stated in
this Registration Statement. The Subsidiaries included in the consolidating
condensed financial statements presented above are all wholly owned and
constitute all of the Company's direct and indirect subsidiaries. The guarantees
of the Subsidiaries of the notes are full, unconditional, and joint and several.
Separate financial statements of the Subsidiaries are not presented because
management has determined that they would not be material to investors. There
are no significant restrictions on the Company's ability to obtain funds from
the Subsidiaries by dividend or loan.
F-60
<PAGE>
REID PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1999
17. SUBSIDIARY SUMMARY CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
The outstanding notes are and the exchange notes will be guaranteed by the
following four companies:
- Reid Plastics Group LLC, a wholly owned subsidiary of the Company,
- Plastic Containers LLC, a wholly owned subsidiary of the Company;
- Continental Plastic Containers LLC, a wholly owned subsidiary of Plastics
Containers LLC; and
- Continental Caribbean Containers, Inc., a wholly owned subsidiary of
Plastics Containers LLC.
Continental Caribbean Containers Inc., Continental Plastic Containers LLC
(formerly Continental Plastic Containers, Inc.) and Plastic Containers LLC
(formerly Plastic Containers, Inc.) are the successors to PCI (collectively, the
"PCI Successors"). Please note that:
- Financial statements of PCI for the years ended December 31, 1996 and 1997
and for the period from January 1, 1998 through May 29, 1998 (the date of
the acquisition by Suiza) are included in the financial statements for
Plastic Containers, Inc. for those periods.
- Financial statements for the PCI Successors subsequent to May 29, 1998 for
the year ended December 31, 1998 and the six months ended June 30, 1999
are included in the financial statements of Suiza Packaging for those
periods. Suiza Packaging included the operations of PCI and Franklin
Plastics. For periods subsequent to July 2, 1999, the operations of
Franklin Plastics have been ultimately included in the results of
Consolidated Container Company LLC. There are no non-guarantor
subsidiaries included in the financial statements of Suiza Packaging.
- Financial statements for the PCI Successors as of July 2, 1999 and for the
three months ended September 30, 1999 are included in the financial
statements for Consolidated Container Company LLC for those periods.
Prior to the transactions, Suiza operated Franklin and PCI as a division under
the name "Suiza Packaging." In connection with the transactions, the assets of
Franklin and its subsidiaries were merged with and into the Company and,
therefore, is part of the Company, as issuer of the outstanding notes.
F-61
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Suiza Foods Corporation
Dallas, Texas
We have audited the accompanying combined balance sheets of Franklin
Plastics, Inc. and subsidiaries ("Franklin") and Plastic Containers, Inc. and
subsidiaries ("PCI"), collectively "Suiza Packaging" or the "Company," as of
December 31, 1997 and 1998, and the related combined statements of operations,
stockholders' equity and cash flows for the five-month period from the date of
acquisition of Franklin (July 31, 1997) to December 31, 1997 and the year ended
December 31, 1998. The combined financial statements include the accounts of
Franklin from its date of acquisition on July 31, 1997, and PCI from its date of
acquisition on May 29, 1998, both of which are majority-owned subsidiaries of
Suiza Foods Corporation. We have also audited the combined statements of
operations, stockholders' equity and cash flows of the predecessor of Franklin,
Plastics Management Group, for the four-month pre-acquisition period from
April 1, 1997 to July 30, 1997. These combined financial statements are the
responsibility of the companies' management. Our responsibility is to express an
opinion on these combined 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of Suiza Packaging at
December 31, 1997 and 1998, and their combined results of operations and cash
flows for the five-month period ended December 31, 1997 and the year ended
December 31, 1998, in conformity with generally accepted accounting principles.
In addition, in our opinion, the combined predecessor financial statements
present fairly, in all material respects, the results of operations and cash
flows of Plastic Management Group for the four-month period ended July 30, 1997,
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Dallas, Texas
February 9, 1999
(April 30, 1999, as to Note 17)
F-62
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Plastics Management Group:
We have audited the accompanying combined statements of operations,
stockholders' equity and cash flows of Plastics Management Group for the six
month period ended March 31, 1997 and the year ended September 30, 1996. These
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 combined financial statements referred to above present
fairly, in all material respects, Plastics Management Group's results of
operations and cash flows for the six month period ended March 31, 1997 and the
year ended September 30, 1996 in conformity with generally accepted accounting
principles.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 1, 1997
F-63
<PAGE>
SUIZA PACKAGING
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 265 $ 1,681
Temporary investments..................................... 9,216
Accounts receivable, net of allowance for doubtful
accounts
of $118 and $2,078...................................... 10,887 44,714
Inventories............................................... 2,140 23,365
Prepaid expenses and other current assets................. 256 676
Deferred income taxes..................................... 2,187 2,395
-------- --------
Total current assets.................................... 15,735 82,047
PROPERTY, PLANT AND EQUIPMENT............................... 52,476 218,644
DEFERRED INCOME TAXES....................................... 23,937
INTANGIBLE AND OTHER ASSETS................................. 90,706 267,277
-------- --------
TOTAL ASSETS................................................ $158,917 $591,905
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 20,007 $ 63,926
Dividends payable......................................... 1,417 7,906
Revolving credit facility................................. 26,370
Current portion of long-term debt......................... 6,032
-------- --------
Total current liabilities............................... 21,424 104,234
LONG-TERM DEBT.............................................. 108,822 372,339
DEFERRED INCOME TAXES....................................... 2,980 7,098
OTHER LONG-TERM LIABILITIES................................. 22,359
COMMITMENTS AND CONTINGENCIES (Note 14)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, $1,000 stated
value--1,000,000 shares authorized; 22,671 and 72,594
shares, respectively, issued and outstanding............ 22,671 72,594
Common stock, $.001 par value, 5,000,000 shares
authorized, 453,425 and 1,451,877 shares, respectively,
issued and outstanding.................................. 1
Additional paid-in capital................................ 4,918 14,899
Retained deficit.......................................... (1,898) (1,619)
-------- --------
Total stockholders' equity.............................. 25,691 85,875
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $158,917 $591,905
======== ========
</TABLE>
See notes to combined financial statements.
F-64
<PAGE>
SUIZA PACKAGING
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------------------
SIX-MONTH FIVE-MONTH
PERIOD FOUR-MONTH PERIOD
YEAR ENDED ENDED PERIOD ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31, ENDED DECEMBER 31, DECEMBER 31,
1996 1997 JULY 31, 1997 1997 1998
------------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES......................... $80,057 $48,781 $40,847 $49,699 $367,903
COST OF SALES..................... 67,567 43,292 36,447 38,995 283,122
------- ------- ------- ------- --------
Gross profit................ 12,490 5,489 4,400 10,704 84,781
OPERATING EXPENSES:
Selling, general and
administrative................ 2,442 1,115 706 5,347 33,075
Amortization of intangibles..... 71 48 32 947 5,126
------- ------- ------- ------- --------
Total operating expenses.... 2,513 1,163 738 6,294 38,201
------- ------- ------- ------- --------
INCOME FROM OPERATIONS............ 9,977 4,326 3,662 4,410 46,580
OTHER INCOME (EXPENSE):
Interest expense, net........... (1,079) (932) (618) (4,663) (26,847)
Other expense, net.............. (456) (176) (62)
------- ------- ------- ------- --------
Total other income
(expense)................. (1,535) (1,108) (618) (4,663) (26,909)
------- ------- ------- ------- --------
INCOME (LOSS) BEFORE INCOME
TAXES........................... 8,442 3,218 3,044 (253) 19,671
INCOME TAX EXPENSE................ 280 218 190 228 9,486
------- ------- ------- ------- --------
NET INCOME (LOSS)................. $ 8,162 $ 3,000 $ 2,854 $ (481) $ 10,185
======= ======= ======= ======= ========
</TABLE>
See notes to combined financial statements
F-65
<PAGE>
SUIZA PACKAGING
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED
STOCK COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------- -------------------- PAID-IN EARNING STOCKHOLDER'S
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
-------- -------- --------- -------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
BALANCE, OCTOBER 1, 1995.......... -- $ -- 960 $ 59 $ 1,548 $ 2,257 $ 3,864
Issuance of common stock.......... 700 84 84
Stockholders' distribution........ (4,630) (4,630)
Net income........................ 8,162 8,162
------- ------- --------- ----- ------- ------- -------
BALANCE, SEPTEMBER 30, 1996....... -- -- 1,660 143 1,548 5,789 7,480
Repurchase of common stock........ (200) (21) (21)
Stockholders' distribution........ (751) (751)
Net income........................ 3,000 3,000
------- ------- --------- ----- ------- ------- -------
BALANCE, MARCH 31, 1997........... -- -- 1,460 122 1,548 8,038 9,708
Stockholders' distribution........ (3,380) (3,380)
Net income........................ 2,854 2,854
------- ------- --------- ----- ------- ------- -------
BALANCE, JULY 31, 1997............ -- $ -- 1,460 $ 122 $ 1,548 7,512 $ 9,182
======= ======= ========= ===== ======= ======= =======
SUIZA PACKAGING
Common stock issued............... -- $ -- 453,425 $ $ 4,535 $ -- $ 4,535
Preferred stock issued............ 22,671 22,671 22,671
Issuance of warrants.............. 383 383
Preferred dividends declared...... (1,417) (1,417)
Net loss.......................... (481) (481)
------- ------- --------- ----- ------- ------- -------
BALANCE, DECEMBER 31, 1997........ 22,671 22,671 453,425 -- 4,918 (1,898) 25,691
Common stock issued............... 998,452 1 9,981 9,982
Preferred stock issued............ 49,923 49,923 49,923
Stockholder distribution.......... (2,000) (2,000)
Preferred dividends declared...... (7,906) (7,906)
Net income........................ 10,185 10,185
------- ------- --------- ----- ------- ------- -------
BALANCE, DECEMBER 31, 1998........ 72,594 $72,594 1,451,877 $ 1 $14,899 ($1,619) $85,875
======= ======= ========= ===== ======= ======= =======
</TABLE>
See notes to combined financial statements.
F-66
<PAGE>
SUIZA PACKAGING
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------------
SIX-MONTH FOUR-MONTH
YEAR ENDED PERIOD ENDED PERIOD FIVE-MONTH YEAR ENDED
SEPTEMBER 30, MARCH 31, ENDED PERIOD ENDED DECEMBER 31,
1996 1997 JULY 31, 1997 DECEMBER 31, 1997 1998
------------- ------------ ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................... $ 8,162 $ 3,000 $ 2,854 $ (481) $ 10,185
Adjustments to net income (loss):
Depreciation and amortization..... 4,136 2,820 2,149 2,233 17,333
Loss on disposal of assets........ 79 62
Deferred income taxes............. 228 10,194
Changes in assets and liabilities,
net of acquisitions:
Receivables..................... (1,869) 1,063 (3,333) (727) (4,113)
Inventories..................... (672) (123) (120) (154) 2,154
Prepaid expenses and other
assets........................ (118) (477) 269 142 111
Accounts payable and accrued
expenses...................... 3,376 800 89 7,983 (9,160)
-------- ------- ------- --------- ---------
Net cash provided by (used in)
operating activities.......... 13,094 7,083 1,908 9,224 26,766
-------- ------- ------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from maturity of
temporary investments........... 26,740
Purchase of temporary
investments..................... (13,790)
Additions to property, plant and
equipment....................... (29,329) (7,335) (7,402) (9,343) (63,721)
Cash paid for acquisitions, net of
cash acquired................... (202) (45) (136,027) (91,700)
-------- ------- ------- --------- ---------
Net cash used in investing
activities.................... (29,531) (7,380) (7,402) (145,370) (142,471)
-------- ------- ------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Dividends paid and stockholders'
distributions, net.............. (2,746) (2,571) (3,380) (3,417)
Net borrowings from parent
company......................... 8,874 108,822 100,097
Issuance of common and preferred
stocks.......................... 27,206 25,343
Issuance of warrants.............. 383
Repayment of long-term debt....... (919) (48) (4,902)
Borrowings on debt, net........... 20,763 2,077
-------- ------- ------- --------- ---------
Net cash provided by (used in)
financing activities.......... 17,098 (542) 5,494 136,411 117,121
-------- ------- ------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................... 661 (839) -- 265 1,416
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD......................... 178 839 265
-------- ------- ------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................ $ 839 $ -- $ -- $ 265 $ 1,681
======== ======= ======= ========= =========
</TABLE>
See notes to combined financial statements.
F-67
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR 1996, 1997 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--Suiza Packaging (the "Company") includes the operations of
Franklin Plastics, Inc. and subsidiaries ("Franklin"), a majority-owned
subsidiary of Suiza Foods Corporation ("Suiza" or the "Parent") and its
predecessor, Plastic Management Group, and Plastics Containers, Inc. and
subsidiaries ("PCI"), an indirect majority-owned subsidiary of Suiza. On
July 31, 1997, Franklin was acquired by Suiza and on May 29, 1998, PCI and its
immediate parent company, Continental Can Company, Inc. ("Continental Can"), was
acquired by Suiza. Both of these acquisitions have been accounted for using the
purchase method of accounting, and the related accounting adjustments, including
goodwill, have been pushed down and are reflected in the combined financial
statements of the Company as of their respective acquisition dates. The combined
financial statements of the Company for the periods before July 31, 1997, were
prepared using the predecessor's historical basis of accounting. Because of the
application of the purchase method of accounting, as of the respective
acquisition dates of Franklin and PCI, the operating results of Suiza Packaging
and its predecessor, Plastics Management Group, are presented using different
bases of accounting that affect the comparability of their operating results.
The Company develops, manufactures and distributes a wide range of custom
extrusion blow-mold plastic containers used primarily in the milk, juice and
water industries. Based on the nature of the product, the production process,
types of customers, and methods used to distribute products, the Company
operates in one reportable segment.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities and
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
PRINCIPLES OF COMBINATION--The accompanying combined financial statements
include the accounts of Franklin and PCI and their wholly owned subsidiaries.
All significant intercompany balances and transactions are eliminated in
combination.
CASH AND CASH EQUIVALENTS--Included in cash and cash equivalents are highly
liquid cash investments with remaining maturities at date of purchase of three
months or less.
TEMPORARY INVESTMENTS--Temporary investments consist of available-for-sale
U.S. government obligations, certificates of deposit, Eurodollar deposits and
highly rated commercial paper, all of which are due within one year. These
temporary investments are stated at amortized cost, which approximates market
value.
INVENTORIES--Inventories consist of raw materials, spare parts and supplies,
and finished goods inventories and are stated at the lower of cost, using the
first-in, first-out ("FIFO") method, or market. Finished goods inventories
include raw materials, direct labor costs and indirect labor and overhead costs.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the assets, which range from three to forty
years. Plant and equipment held under capital leases and leasehold improvements
are amortized over the shorter of the lease term or the estimated useful life of
the asset.
F-68
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR 1996, 1997 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Expenditures for repairs and maintenance that do not improve or extend the life
of the assets are expensed as incurred.
INTANGIBLE ASSETS--Intangible assets include primarily goodwill and are
stated at cost and are amortized using the straight-line method over 40 years.
INSURANCE--The Company purchases commercial insurance policies to cover its
insurance risks; however, certain of its subsidiaries are self-insured in
certain states for worker's compensation, general liability and property and
casualty coverages in excess of varying deductible amounts. Self-insurance
liabilities are accrued based on claims filed and estimates for claims incurred
but not reported.
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 year ended
December 31, 1998, were $5.1 million. There were no similar costs incurred prior
to 1998.
REVENUE--Revenue is recognized when the product is shipped to the customer.
The Company provides credit terms to customers generally ranging up to 30 days,
performs ongoing credit evaluations of its customers and maintains allowances
for probable credit losses based on historical experience.
INCOME TAXES--Deferred income taxes are provided for temporary differences
in the financial statement and tax bases of assets and liabilities using current
tax rates. Deferred tax assets, including the benefit of net operating loss
carryforwards, are evaluated based on the guidelines for realization and may be
reduced by a valuation allowance if considered necessary. Beginning with the
acquisition by Suiza on July 31, 1997, the Company has been included in the
consolidated federal income tax return of Suiza; however, income taxes in the
combined financial statements have been provided as if the Company filed a
separate income tax return. Prior to July 31, 1997, the predecessor was
organized as a group of affiliated companies under Subchapter S of the Internal
Revenue Code, and was not subject to corporate-level federal income taxes.
Accordingly, income generated by the predecessor was taxed to the stockholders
individually, and no federal income tax expense was recorded in the predecessor
financial statements.
ASSET IMPAIRMENT--Under Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-lived Assets to Be Disposed Of,"
the Company evaluates the impairment of long-lived assets if circumstances
indicate that the carrying value of those assets may not be recoverable.
Recoverability of the assets to be held and used is measured by a comparison of
the carrying amount of the asset to future undiscounted cash flows expected to
be generated by the asset.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--SFAS No. 133, "Accounting for
Derivative Financial Instruments and Hedging Activities," was issued in
June 1998, and establishes standards for accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 is effective for the year
ending December 31, 2001. The Company is currently analyzing the effect of this
standard and does not expect it to have a material effect on the combined
financial position, results of operations or cash flows.
F-69
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR 1996, 1997 AND 1998
2. ACQUISITIONS
On July 31, 1997, Suiza formed Suiza Packaging and purchased the net assets
of Plastics Management Group for approximately $136 million in cash, which was
funded primarily by borrowings under Suiza's senior credit facilities. Regarding
this acquisition, Suiza Packaging sold warrants to the former stockholders of
Plastics Management Group to acquire 91,880 shares of common stock of Suiza
Packaging (equal to 17.5% of the outstanding common stock) at an exercise price
of $10 per share in consideration for a cash payment of $383,000, which
approximated the fair market value of such warrants. Under a stockholders'
agreement, the purchase price of Plastics Management Group was pushed down to
Suiza Packaging with the following capital structure:
- 55% of the purchase price in the form of senior notes payable to Suiza
- 25% of the purchase price in the form of mezzanine notes payable to Suiza
- 16 2/3% of the purchase price in the form of preferred stock issued to
Suiza
- 3 1/3% of the purchase price in the form of common stock issued to Suiza
In addition to the push-down of the original purchase price of Plastics
Management Group, the stockholders' agreement also required any future
acquisitions of plastic packaging businesses by Suiza to be made on behalf of
Suiza Packaging, with the related purchase prices pushed down to Suiza Packaging
using the above-described capital structure. In addition, for future Suiza
Packaging acquisitions, the warrant holders were entitled to protective
participation rights whereby they could elect to purchase 17.5% of both the
preferred and common stock issued by Suiza Packaging regarding these future
acquisitions.
On May 29, 1998, Suiza issued approximately 2.5 million shares of its common
stock or replacement stock options to the shareholders of Continental Can in
exchange for substantially all of the issued and outstanding shares of common
stock and stock options of Continental Can. The total purchase price for this
acquisition, including assumed debt, was approximately $354.4 million, of which
approximately $207.4 million of the purchase price was allocated to PCI based on
PCI's relative contribution to Continental Can's operations.
During 1998, in addition to the PCI acquisition, the Company completed the
acquisition of eleven other plastic packaging businesses. The aggregate purchase
price for the other acquisitions, none of which were individually significant,
was $89.3 million. All of the acquisitions were funded primarily with borrowings
under Suiza's senior credit facilities.
These acquisitions were all accounted for using the purchase method of
accounting as of their respective acquisition dates. Accordingly, only the
results of operations of the acquired companies subsequent to their respective
acquisition dates are included in the combined financial statements. At the
acquisition date, the purchase prices, which were pushed down to Suiza Packaging
based on the capital structure discussed above, were allocated to assets
acquired, including identifiable intangibles and liabilities assumed based on
their fair market values. The excess of the total purchase prices over
F-70
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR 1996, 1997 AND 1998
2. ACQUISITIONS (CONTINUED)
the fair values of the net assets acquired represented goodwill. In connection
with the 1997 and 1998 acquisitions, assets were acquired and liabilities were
assumed as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Total purchase prices, net of cash acquired.......... $136,027 $292,161
Fair value of net assets acquired:
Fair value of assets acquired...................... 57,654 216,868
Fair value of liabilities assumed.................. 12,588 106,561
-------- --------
Total net assets acquired.......................... 45,066 110,307
-------- --------
Goodwill............................................. $ 90,961 $181,854
======== ========
</TABLE>
The following table presents the unaudited combined pro forma results of
operations of Suiza Packaging as if these acquisitions had occurred at the
beginning of each of the periods presented:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net Sales............................................ $484,755 $512,151
======== ========
Income (loss) before taxes........................... $ (75) $ 18,858
======== ========
Net income (loss).................................... $ (56) $ 11,053
======== ========
</TABLE>
The unaudited combined pro forma results of operations are not necessarily
indicative of what the actual results of operations would have been had the
acquisitions occurred at the beginning of 1997, nor do they purport to be
indicative of the future results of operations of Suiza Packaging.
Regarding the acquisition of PCI, a liability of $2.2 million was recognized
relative to a plan to close PCI's Lima, Ohio, facility. This liability included
approximately $.8 million for employee severance costs related to approximately
100 employees, including production, supervisory and administrative personnel
located at the facility, and approximately $1.4 million for noncancellable lease
obligations and related facility closing costs. The liability at December 31,
1998 of $2.2 million is included in accounts payable and accrued expenses. The
Company remains obligated under the facility lease through December 2000. In
addition, the allocation of purchase price to fixed assets included a reduction
of approximately $5.7 million of carrying costs of the Lima facility to reduce
such costs to their estimated fair values. This facility is expected to close by
the end of the second quarter of 1999.
F-71
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR 1996, 1997 AND 1998
3. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.............................................. $1,151 $ 9,586
Parts and supplies......................................... 599 3,045
Finished goods............................................. 390 10,734
------ -------
Total................................................ $2,140 $23,365
====== =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land..................................................... $ 350 $ 7,350
Buildings and improvements............................... 4,912 24,586
Machinery and equipment.................................. 48,203 189,587
Furniture and fixtures................................... 297 808
Construction in progress................................. 9,913
------- --------
53,762 232,244
Less accumulated depreciation............................ (1,286) (13,600)
------- --------
Total.............................................. $52,476 $218,644
======= ========
</TABLE>
5. INTANGIBLE AND OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Goodwill................................................. $90,961 $272,815
Deposits and other....................................... 692 535
------- --------
91,653 273,350
Less accumulated amortization............................ (947) (6,073)
------- --------
Total.............................................. $90,706 $267,277
======= ========
</TABLE>
F-72
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR 1996, 1997 AND 1998
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable.......................................... $13,219 $27,980
Accrued interest payable to Suiza......................... 2,775 9,499
Employee compensation and benefits........................ 619 8,629
Accrual for plant closings................................ 3,585
Accrued rebates........................................... 1,570 1,757
Other..................................................... 1,824 12,476
------- -------
Total............................................... $20,007 $63,926
======= =======
</TABLE>
7. DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit facility with Suiza.................... $ $ 26,370
======== ========
Long-term debt:
Notes payable to Suiza:
Senior notes payable.................................. $ 74,815 $125,502
Mezzanine notes payable............................... 34,007 118,749
Senior secured notes payable............................ 131,114
Capital lease obligations............................... 3,006
-------- --------
$108,822 378,371
Less current portion.................................. (6,032)
-------- --------
Total............................................. $108,822 372,339
======== ========
</TABLE>
NOTES PAYABLE TO SUIZA--The Company has entered into various credit
arrangements with Suiza, which include a non-interest-bearing revolving credit
facility, payable on demand, to fund the Company's working capital and capital
expenditure requirements and senior and mezzanine notes payable to fund a
portion of the purchase prices for acquired businesses in a manner that complies
with the capital structure required by the stockholders' agreement, as discussed
in Note 2.
The senior notes payable that are unsecured notes, were issued regarding the
Company's acquisitions, at various dates in 1997 and 1998, and require quarterly
principal installments of 2% of the initial principal balance beginning
September 30, 1999, and ending on their maturity date, June 30, 2004. Amounts
outstanding under the senior note bear interest, payable quarterly, at a
floating rate based on the London Interbank Offering Rate plus 300 basis points.
The interest rate in effect, including the applicable interest rate margin, was
8.78% and 8.63% at December 31, 1998 and 1997, respectively.
F-73
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR 1996, 1997 AND 1998
7. DEBT (CONTINUED)
The mezzanine notes payable that are unsecured notes, were issued regarding
the Company's acquisitions, at various dates in 1997 and 1998, and are due in
full on their maturity date, June 30, 2007. Of the amounts outstanding at
December 31, 1998, approximately $57 million bear interest at 12.5%, while the
remaining $61.7 million bear interest at 13.9%. Interest on these notes are
payable quarterly.
SENIOR SECURED NOTES--The senior secured notes were issued in December 1996
and have an original par value of $125 million. These notes, which are due in
2006, bear interest at a fixed interest rate of 10%, payable semiannually in
July and December of each year, and are secured by substantially all assets
other than inventory, receivables and certain equipment of PCI, along with the
stock of certain of PCI's subsidiaries. Regarding the acquisition of PCI in
1998, these notes were revalued to fair value using a market yield of 8.6%
resulting in a premium of $10.4 million at the acquisition date. This premium is
being amortized as an adjustment to interest expense over the life of the notes.
These notes are redeemable, in whole or in part, at the option of PCI beginning
on December 16, 2001, at an initial price of 105% of par value, declining
ratably each year to par value on December 15, 2004. In addition, the indenture
requires PCI to offer to redeem the notes at a redemption price of 101% of par
value upon the occurrence of certain other events. The tender offer to redeem
these notes regarding the acquisition of PCI resulted in the redemption of
$3.8 million of these notes. The indenture places certain restrictions on the
payment of dividends, additional liens, disposition of the proceeds of asset
sales, sale and leaseback transactions and additional borrowings.
CAPITAL LEASE OBLIGATIONS--The Company is obligated under capital leases for
a manufacturing facility, which expires in December 2000, and certain machinery
and equipment, which expires in April 2002. The equipment lease arrangement
began on April 1, 1996, regarding the issuance of tax-exempt industrial
development revenue bonds. Included in the combined balance sheet are capital
lease assets of $4.5 million and accumulated amortization of $.3 million at
December 31, 1998.
Future minimum lease payments under these capital leases are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
1999........................................................ $1,172
2000........................................................ 919
2001........................................................ 871
2002........................................................ 349
------
Total future minimum lease payments......................... 3,311
Less portion representing interest.......................... (305)
------
Net minimum lease payments............................ $3,006
======
</TABLE>
F-74
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR 1996, 1997 AND 1998
7. DEBT (CONTINUED)
SCHEDULED MATURITIES--The scheduled annual maturities of long-term debt at
December 31, 1998, were as follows (in thousands):
<TABLE>
<CAPTION>
SUIZA
NOTES OTHER DEBT TOTAL
-------- ---------- --------
<S> <C> <C> <C>
1999.......................................... $ 5,020 $ 1,012 $ 6,032
2000.......................................... 10,040 848 10,888
2001.......................................... 10,040 784 10,824
2002.......................................... 10,040 362 10,402
2003.......................................... 10,040 10,040
Thereafter.................................... 199,071 131,114 330,185
-------- -------- --------
$244,251 $134,120 $378,371
======== ======== ========
</TABLE>
8. OPERATING LEASES
The Company leases certain property, plant and equipment used in its
operations under noncancellable operating lease agreements. Such leases, which
are primarily for facilities, machinery and equipment and vehicles, have lease
terms ranging from two to nine years. Certain of the operating lease agreements
require the payment of additional rentals for maintenance, along with additional
rentals, based on miles driven or units produced. Lease expense, including
additional rent, was $11.6 million for the year ended December 31, 1998,
$1.3 million for the five-month period ended December 31, 1997, $0.7 million for
the four-month period ended July 31, 1997, $2.1 million for the six-month period
ended March 31, 1997, and $4.3 million for the year ended September 30, 1996.
Future minimum lease payments at December 31, 1998, under noncancellable
operating leases with terms in excess of one year are summarized below (in
thousands):
<TABLE>
<S> <C>
1999........................................................ $16,833
2000........................................................ 15,996
2001........................................................ 15,473
2002........................................................ 13,159
2003........................................................ 11,211
Thereafter.................................................. 12,283
-------
Total $84,955
=======
</TABLE>
F-75
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR 1996, 1997 AND 1998
9. INCOME TAXES
The following table presents the provision for income taxes of Suiza
Packaging for the periods presented (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------------------
SIX-MONTH FOUR-MONTH FIVE-MONTH
YEAR ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31, JULY 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1997 1998
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current taxes payable
Federal................ $ -- $ -- $ -- $(869) $(2,394)
State.................. 280 218 190 304 1,114
Deferred income taxes.... 793 10,766
---- ---- ---- ----- -------
Total.............. $280 $218 $190 $ 228 $ 9,486
==== ==== ==== ===== =======
</TABLE>
For the periods ended prior to July 31, 1997, the Company had elected to be
taxed as a Subchapter S Corporation whereby all of its income or losses passed
through to its stockholders. Accordingly, no provision for federal income taxes
is included in the combined financial statements for these periods. The
following is a reconciliation of income taxes reported in the combined
statements of operations (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------
SIX-MONTH FOUR-MONTH FIVE-MONTH
YEAR ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31, JULY 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1997 1998
--------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Tax expense at
statutory rates..... $ -- $ -- $ -- $(89) $6,885
State income taxes,
net of federal tax
effect.............. 280 218 190 275 1,740
Tax effect of non-
deductible
goodwill............ 653
Other................. 42 208
---- ---- ---- ---- ------
Total........... $280 $218 $190 $228 $9,486
==== ==== ==== ==== ======
</TABLE>
F-76
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR 1996, 1997 AND 1998
9. INCOME TAXES (CONTINUED)
The tax effects of temporary differences giving rise to deferred income tax
assets and liabilities were:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Net operating loss carry forwards...................... $ 1,996 $ 18,022
Vacation reserves...................................... 46 1,031
Self-insurance reserves................................ 3,890
Plan rationalization reserve........................... 1,736
Postretirement benefit reserves........................ 3,373
Premium on senior secured notes........................ 3,748
Deferred financing costs............................... 1,826
Allowance.............................................. 48 1,034
Other.................................................. 97 2,426
------- --------
2,187 37,086
Deferred income tax liabilities- depreciation and
amortization........................................... (2,980) (17,852)
------- --------
Net deferred income tax assets (liabilities)....... $ (793) $ 19,234
======= ========
</TABLE>
These net deferred income tax assets (liabilities) are classified in the
combined balance sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets............................................ $ 2,187 $ 2,395
Noncurrent assets......................................... 23,937
Noncurrent liabilities.................................... (2,980) (7,098)
------- -------
Total............................................... $ (793) $19,234
======= =======
</TABLE>
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 temporary differences at December 31, 1998.
At December 31, 1998, the Company has operating loss carryforwards for
federal income tax purposes of approximately $50 million, which are available to
offset future federal taxable income. The carryforward periods extend from 2007
through 2010. In addition, the Company has alternative minimum tax credit
carryforwards of approximately $132,000 that are available to reduce future
federal regular income taxes over an indefinite period, and research and
development credits of approximately $480,000 available to reduce future federal
income taxes through 2010.
F-77
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR 1996, 1997 AND 1998
10. STOCKHOLDERS' EQUITY
CAPITAL SHARES--Authorized capital shares of the Company include 1,000,000
shares of preferred stock with a par value and stated value of $.001 and $1,000
per share, respectively, and 5,000,000 shares of common stock with a par value
of $.001 per share. The rights and preferences of preferred stock are
established by the Company's board of directors upon issuance.
The shares of preferred stock outstanding include 22,671 and 72,594 shares
at December 31, 1997 and 1998, respectively. These preferred shares have a
cumulative dividend rate of 15% of their stated and have a liquidation
preference equal to $1,000 per shares plus accumulated unpaid dividends.
WARRANTS--In conjunction with the acquisition of the Plastics Management
Group on July 31, 1997, 91,880 warrants were sold for $383,000, which
approximated their fair value, to former stockholders of Plastics Management
Group, giving such holders the right to purchase equity interests in the Company
equal to 17.5% of the outstanding common stock at that date for $10 per share.
These warrants are exercisable, in whole or in part, at various dates through
July 31, 2007.
STOCK OPTIONS--Under the stockholders' agreement, Suiza Packaging was
authorized to grant stock options to key employees. During 1998, the Company
adopted the Franklin Plastics, Inc. 1998 Stock Option Plan, which reserved
187,089 shares of common stock for grants under the plan, and granted stock
options to certain key employees at exercise prices that approximated the fair
market value of such shares at the date of grant. Stock options granted under
this plan are exercisable over a three-year period from date of grant and may
become exercisable upon the termination of an individual's employment following
a change in control. At December 31, 1998, options for 89,836 shares had been
granted and were outstanding at an exercise price of $10 per share, none of
which were exercisable at that date. In addition, on February 1, 1999, the
Company granted stock options for 28,358 shares of common stock to certain key
employees at an exercise price of $30 per share, which approximated the fair
market value of such shares at that date.
11. EMPLOYEE BENEFITS
Suiza Packaging sponsors both defined benefit and defined contribution
retirement plans on behalf of certain of its subsidiaries, and contributes to
various multi employer union pension plans. The following is a summary of
amounts expensed under these plans (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------------------
SIX-MONTH FOUR-MONTH FIVE-MONTH
YEAR ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31, JULY 31, DECEMBER 31, DECEMBER 31,
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Defined benefit plans........... $ -- $ -- $ -- $ -- $ 194
Defined contributions plans..... 141 118 147 935
Multi employer plans............ -- -- 573
---- ---- ---------- ---- ------
$141 $118 $ -- $147 $1,702
==== ==== ========== ==== ======
</TABLE>
F-78
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR 1996, 1997 AND 1998
11. EMPLOYEE BENEFITS (CONTINUED)
DEFINED BENEFIT PLANS--As of May 29, 1998, the Company succeeded to a
defined benefit pension plan for substantially all salaried employees of PCI
hired prior to August 1, 1997. 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 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. In
addition, the Company maintains a benefit equalization plan for salaried
employees hired prior to August 1, 1997, whose compensation level exceeds the
limits within the defined benefit pension plan.
The Company also succeeded to a noncontributory defined benefit pension plan
for substantially all hourly employees of PCI hired prior to August 1, 1997, who
have attained 21 years of age. Plan benefits vary by location and by union
contract, but are based primarily on years of service and the employee's highest
wage classification for 12 consecutive months in the five-year period prior to
retirement. Normal retirement is at age 65, with at least a five-year period 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, the Company'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 composed primarily of
common stock, corporate bonds and U.S. government and government agency
obligations.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS--The Company 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. The Company's policy is to fund the cost of medical
benefits as claims are incurred.
At May 29, 1998, as part of the purchase accounting adjustments regarding
the PCI acquisition, the accrued pension liability and accrued postretirement
benefit liability were adjusted to fair value, and all previously unrecognized
gains and losses were recognized as part of the purchase allocation.
F-79
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR 1996, 1997 AND 1998
11. EMPLOYEE BENEFITS (CONTINUED)
The following table states the funded status of the these plans and the
amounts recognized in the balance sheets at December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
OTHER POST-RETIREMENT
PENSION BENEFITS BENEFITS
---------------- ---------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligations at acquisition date.................. $71,500 $ 5,900
Service cost............................................. 865 49
Interest cost............................................ 2,741 215
Actuarial loss........................................... 2,329 (63)
Curtailment.............................................. (142)
Benefit Paid............................................. (2,423) (184)
------- -------
Benefit obligations at end of year......................... 74,870 5,917
Change in plan assets:
Fair value of plan assets at acquisition date............ 67,907
Actual return on plan assets............................. 1,989
Employer contribution.................................... 1,165 184
Participant contributions................................ 104
Benefits paid............................................ (2,423) (288)
------- -------
Fair value of plan assets at end of year................... 68,638 --
------- -------
Funded status.............................................. (6,232) (5,917)
Unrecognized actuarial gains............................... 3,752 (63)
------- -------
Accrued benefits liability............................... $(2,480) $(5,980)
======= =======
Weighted average assumptions as of December 31, 1998
Discount rate............................................ 6.5% 6.5%
Expected asset return.................................... 9.0
Rate of compensation increase............................ 5.0
</TABLE>
The components of net periodic benefit cost and net periodic postretirement
benefit cost for the period from the date of acquisition (May 29, 1998) through
December 31, 1998, were as follows (in thousands):
<TABLE>
<CAPTION>
OTHER
POST-RETIREMENT
PENSION BENEFITS BENEFITS
---------------- ---------------
<S> <C> <C>
Service costs................................... $ 865 $ 49
Interest cost................................... 2,741 215
Expected return on plan assets.................. (3,412) --
------- ----
Net period benefit cost....................... $ 194 $264
======= ====
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would change
F-80
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR 1996, 1997 AND 1998
11. EMPLOYEE BENEFITS (CONTINUED)
the amount of the service and interest components and the postretirement benefit
obligation by $37,000 and $535,000, respectively.
DEFINED CONTRIBUTION PLAN--Employees of certain of the Company's
subsidiaries are eligible to participate in a 401(k) employees savings plan
sponsored by Suiza and, prior to 1998, similar plans sponsored by individual
subsidiaries. Employees who have completed one or more years of service and have
met other requirements under the plans are eligible to participate in the plan.
The employees participating in the plan can generally make contributions up to
15% of their annual compensation, and the Company can elect to match such
employee contributions up to a maximum of 25% of the employee's contribution.
The matching contributions vest 100% after five years.
The Company succeeded to a defined contribution plan that covers
substantially all PCI's hourly employees who meet certain eligibility
requirements. Provisions regarding employee and employer contributions and the
benefits provided under the plan vary between PCI's manufacturing facilities.
The Company also succeeded to a contributory defined contribution 401(k)
savings plan that covers substantially all PCI's nonorganized salaried
employees. Employees may contribute up to 12% and 8% of compensation on a pretax
and after-tax basis, respectively. However, the total employee contribution rate
may not exceed 15% of compensation. The Company matches up to 3% of employees'
pretax contributions. Employees vest in the Company'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.
MULTI EMPLOYER PLANS--The Company's PCI subsidiary contributes to various
multi employer union pension plans under its labor agreements. Union benefit
plan expense during 1998 was $0.6 million for the period subsequent to the
acquisition date.
12. MAJOR CUSTOMERS
Sales to three customers comprised the following percentages of net sales
for each of the two years ended December 31, 1998:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Customer A.................................................. -- 12.0%
Customer B.................................................. 15.4% 4.6
Customer C.................................................. 14.0 4.6
</TABLE>
For the six months ended March 31, 1997, two customers represented
approximately 22% and 13% of the combined sales. There were nine companies that
had customers whose sales were greater than 10% of their respective sales for
the year ended September 30, 1996. Concentration of credit risk regarding
accounts receivable is limited due to the large number of customers and billing
and payment patterns.
In addition to the above major sales to third-party customers, the Company
sells finished products and raw materials to other Suiza subsidiaries. Sales to
these affiliates approximated 4.7% and 11.2% of the Company's net sales for the
years ended December 31, 1997 and 1998, respectively.
F-81
<PAGE>
SUIZA PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR 1996, 1997 AND 1998
13. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------- FIVE-MONTH
YEAR ENDED SIX-MONTH FOUR-MONTH PERIOD ENDED YEAR ENDED
SEPTEMBER 30, PERIOD ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31,
1996 MARCH 31, 1997 JULY 31, 1997 1997 1998
------------- -------------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash paid for
interest............. $1,085 $ 933 $ 618 $1,807 $22,464
Cash paid for taxes.... 118 301 4,314
Preferred dividends
declared, but not
paid................. 7,906
Issuance of preferred
stock (non-cash)..... 34,561
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are parties, in the ordinary course of
business, to certain claims and litigation. In management's opinion, the
settlement of such matters is not expected to have a material impact on the
combined financial statements.
In addition, the Company is a party to employment agreements with certain
officers which provided for minimum compensation levels and incentive bonuses
along with provisions for termination of benefits in certain circumstances.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Under SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
the Company is required to disclose an estimate of the fair value of financial
instruments as of December 31, 1998 and 1997. Differences between the historical
carrying values and estimated fair values of financial instruments can occur for
many reasons, including taxes, commissions, prepayment penalties, make-whole
provisions and other restrictions, as well as the inherent limitations in any
estimation techniques.
Due to their near-term maturities, the carrying amounts of accounts
receivable, temporary investments, accounts payable and the revolving credit
facility loans approximate their fair values. The Company's borrowings under the
senior notes payable to Suiza are at variable interest rates, and their fair
values approximate their carrying values. The Company's subordinated notes
payable to Suiza and the senior secured notes of PCI bear interest at fixed
interest rates. The subordinated notes payable to Suiza have a carrying value of
$118.7 million and $34.0 million at December 31, 1998 and 1997, respectively,
and the senior secured notes of PCI have a carrying value of $131.1 million at
December 31, 1998. The following table summarizes the estimated fair values of
these fixed rate notes:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Subordinated notes payable to Suiza...................... $34,595 $124,688
Senior Secured Notes of PCI.............................. -- 127,470
</TABLE>
16. SUBSEQUENT EVENT
On July 2, 1999, Suiza Packaging was acquired by Reid Plastics, Inc.
Simultaneously, through the formation of Consolidated Container Company LLC
("CCC"). Reid Plastics, Inc. was merged into CCC. CCC is a wholly owned
subsidiary of Consolidated Container Holdings ("Holdings"). As a result of the
merger, Suiza, through a subsidiary, received 49% of the member units of
Holdings.
F-82
<PAGE>
SUIZA PACKAGING
CONDENSED COMBINED STATEMENTS OF OPERATIONS
SIX-MONTH PERIOD ENDED JUNE 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED
JUNE 30,
-------------------
1998 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
NET SALES................................................... $114,627 $263,539
COST OF SALES............................................... 89,430 97,382
-------- --------
Gross profit.............................................. 25,197 64,805
OPERATING EXPENSES:
Selling, general and administrative....................... 11,250 26,859
Amortization of intangibles............................... 1,730 3,413
-------- --------
Total operating expenses................................ 12,980 30,272
-------- --------
INCOME FROM OPERATIONS...................................... 12,217 34,533
OTHER INCOME (EXPENSE):
Interest expense, net..................................... (8,414) (18,632)
-------- --------
Other income.............................................. 289
-------- --------
Total other income (expense)............................ (8,414) (18,343)
-------- --------
INCOME BEFORE INCOME TAXES.................................. 3,803 16,190
INCOME TAX EXPENSE.......................................... 1,533 7,678
-------- --------
NET INCOME.................................................. $ 2,270 $ 8,512
======== ========
</TABLE>
See notes to condensed combined financial statements
F-83
<PAGE>
SUIZA PACKAGING
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
SIX-MONTH PERIOD ENDED JUNE 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED
JUNE 30,
-------------------
1998 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,270 $ 8,512
Adjustments to net income:
Depreciation and amortization........................... 4,888 14,752
Changes in assets and liabilities, net of acquisitions:
Receivables........................................... (4,036) (16,380)
Inventories........................................... 2,035 (3,038)
Prepaid expenses and other assets..................... (440) 1,556
Accounts payable and accrued expenses................. (2,658) 15,788
-------- --------
Net cash provided by (used in) operating
activities........................................ 2,059 21,190
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of temporary investments, net...... 5,157 603
Additions to property, plant and equipment................ (17,774) (16,047)
Cash paid for acquisitions, net of cash acquired.......... (46,965) --
Proceeds from disposal of assets.......................... 654
-------- --------
Net cash used in investing activities............... (59,582) (14,790)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from parent company........................ (49,425) (2,622)
Issuance of common and preferred stock.................... 10,269
Dividends paid............................................ (1,417)
Repayment of long-term debt............................... (69) (854)
-------- --------
Net cash provided by financing activities........... 58,208 (3,476)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 685 2,924
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 265 1,681
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 950 $ 4,605
======== ========
</TABLE>
See notes to condensed combined financial statements.
F-84
<PAGE>
SUIZA PACKAGING
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED JUNE 30, 1998 AND 1999
1. CONDENSED COMBINED FINANCIAL STATEMENTS
The condensed combined financial statements contained in this report are
unaudited. In our opinion, we have made all necessary adjustments (which include
only normal recurring adjustments) in order to present fairly, in all material
respects, our results of operations and cash flows for the six-month periods
ended June 30, 1999 and 1998. Certain information and footnote disclosures
normally included in the annual financial statements have been omitted. Our
results of operations for the period ended June 30, 1999, may not be indicative
of our operating results for the full year. The financial statements should be
read in conjunction with our 1998 combined financial statements.
2. SUBSEQUENT EVENT
On July 2, 1999, Suiza Packaging was acquired by Reid Plastics, Inc.
Simultaneously, through the formation of Consolidated Container Company LLC
("CCC"). Reid Plastics, Inc. was merged into CCC. CCC is a wholly owned
subsidiary of Consolidated Container Holdings ("Holdings"). As a result of the
merger, Suiza, through a subsidiary, received 49% of the member units of
Holdings.
F-85
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Plastic Containers, Inc.:
We have audited the accompanying consolidated balance sheet of Plastic
Containers, Inc. and subsidiaries as of May 29, 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from January 1, 1998 through May 29, 1998. 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 audit. The consolidated financial statements of the
Company for the years ended December 31, 1996 and 1997 were audited by other
auditors whose report, dated February 6, 1998, expressed an unqualified opinion
on those statements.
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, such 1998 consolidated financial statements present fairly,
in all material respects, the financial position of Plastic Containers, Inc. and
subsidiaries as of May 29, 1998, and the results of their operations and their
cash flows for the period from January 1, 1998 through May 29, 1998, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Omaha, Nebraska
May 21, 1999
F-86
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Plastic Containers, Inc.:
We have audited the accompanying consolidated balance sheet of Plastic
Containers, Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the two-year period ended December 31, 1997. 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, 1997 and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG LLP
Omaha, Nebraska
February 6, 1998
F-87
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
1997 1998
------------ --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,479 $ 2,297
Investment securities..................................... 20,385 22,166
Accounts receivable:
Trade..................................................... 21,483 22,871
Other..................................................... 205 13
-------- --------
21,688 22,884
Less allowance for doubtful accounts and accrued
rebates................................................. 1,430 1,917
-------- --------
Net accounts receivable................................. 20,258 20,967
Inventories............................................... 19,955 18,585
Deferred income taxes..................................... 2,260 2,260
Prepaid expenses.......................................... 590 733
-------- --------
Total current assets.................................... 65,927 67,008
-------- --------
Property, plant and equipment:
Land, building and building improvements.................. 22,828 22,828
Manufacturing machinery and equipment..................... 142,687 142,634
Construction in progress.................................. 6,857 12,563
-------- --------
172,372 178,025
Less accumulated depreciation and amortization............ 72,281 77,276
-------- --------
Net property, plant and equipment....................... 100,091 100,749
-------- --------
Goodwill and other intangible assets........................ 25,591 24,819
Other assets................................................ 13,303 14,710
-------- --------
$204,912 $207,286
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable -- trade................................. $ 18,285 $ 20,346
Current portion of long-term obligations.................. 996 996
Other current liabilities................................. 16,741 22,306
-------- --------
Total current liabilities............................... 36,022 43,648
Long-term obligations, excluding current portion............ 128,007 127,663
Other liabilities........................................... 20,764 19,479
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Common stock, $1 par value. Authorized 1,000 shares;
100 shares issued and outstanding
Additional paid-in capital.................................. 79,833 80,758
Accumulated deficit......................................... (27,529) (25,852)
-------- --------
52,304 54,906
Less note receivables from stockholders..................... 32,185 38,410
-------- --------
Total stockholders' equity............................ 20,119 16,496
-------- --------
$204,912 $207,286
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-88
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1998
------------------- THROUGH
1996 1997 MAY 29, 1998
-------- -------- ---------------
<S> <C> <C> <C>
Net sales................................................. $267,793 $279,565 $108,924
Cost of goods sold........................................ 224,789 234,210 92,159
-------- -------- --------
Gross profit............................................ 43,004 45,355 16,765
Selling, general and administrative expenses.............. 28,829 27,772 11,617
Plant rationalization and realignment..................... 6,500 --
-------- -------- --------
Operating income.......................................... 7,675 17,583 5,148
-------- -------- --------
Other income (expenses):
Interest income......................................... 102 1,451 604
Interest expense........................................ (12,886) (13,535) (5,643)
Loss on disposal of assets.............................. (366) (555) (22)
-------- -------- --------
(13,150) (12,639) (5,061)
-------- -------- --------
Income (loss) before income taxes and extraordinary
item.................................................... (5,475) 4,944 87
Income tax expense (benefit).............................. (1,876) (961) (1,590)
-------- -------- --------
Income (loss) before extraordinary item................... (3,599) 5,905 1,677
Extraordinary item--loss on early extinguishment of
debt.................................................... (7,305) -- --
-------- -------- --------
Net income (loss)......................................... $(10,904) $ 5,905 $ 1,677
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-89
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
AND THE PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PLASTIC NOTE TOTAL
CONTAINERS, INC. ADDITIONAL RETAINED EARNINGS RECEIVABLE STOCKHOLDERS'
COMMON STOCK PAID-IN CAPITAL (DEFICIT) FROM STOCKHOLDER EQUITY
---------------- --------------- ----------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995... $ -- $60,000 $(22,530) $ -- $37,470
Push-down accounting
adjustment.................... -- 17,648 -- -- 17,648
Loan to stockholder............. -- -- (30,000) (30,000)
Accrued interest on note
receivable from stockholder... -- 74 -- (74) --
Net loss........................ -- -- (10,904) (10,904)
----------- ------- -------- -------- -------
Balances at December 31, 1996... -- 77,722 (33,434) (30,074) 14,214
Accrued interest on note
receivable from stockholder... 2,111 (2,111) --
Net income...................... -- -- 5,905 -- 5,905
----------- ------- -------- -------- -------
Balances at December 31, 1997... -- 79,833 (27,529) (32,185) 20,119
Loan to stockholder............. -- -- -- (5,300) (5,300)
Accrued interest on note
receivable from stockholder... 925 (925) --
Net income...................... -- -- 1,677 -- 1,677
----------- ------- -------- -------- -------
Balances at May 29, 1998........ $ -- $80,758 $(25,852) $(38,410) $16,496
=========== ======= ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-90
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998
YEARS ENDED THROUGH
DECEMBER 31, MAY 29,
------------------- ---------------
1996 1997 1998
-------- -------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $(10,904) $ 5,905 $ 1,677
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 21,309 12,946 5,589
Loss on disposal of assets............................. 366 555 22
Deferred income taxes.................................. (1,896) (1,000) (1,600)
Extraordinary loss on debt extinguishment.............. 7,305 --
Changes in assets and liabilities:
Amounts receivable, net.............................. 5,366 7,444 (709)
Inventories.......................................... 585 (553) 1,370
Prepaid expenses..................................... 258 (44) (143)
Accounts payable..................................... (3,725) (1,522) 2,061
Other current liabilities............................ 3,581 (2,263) 5,565
Other asset and liabilities.......................... 2,301 (126) 195
-------- -------- --------
Net cash provided by operating activities.......... 24,546 21,342 14,027
-------- -------- --------
Cash flows from investing activities:
Proceeds from maturity of investment securities.......... 75 25,834 20,767
Purchase of investment securities........................ (1,000) (45,009) (22,548)
Proceeds from disposal of assets......................... 41,654 565 3
Purchases of property, plant and equipment............... (21,240) (11,085) (6,787)
Loan to stockholder...................................... (30,000) -- (5,300)
-------- -------- --------
Net cash used in investing activities.............. (10,511) (29,695) (13,865)
-------- -------- --------
Cash flows from financing activities:
Net repayments on notes payable to bank.................. (17,018) --
Proceeds from long-term obligations...................... 130,100 -- --
Repayment of long-term obligations....................... (105,471) (979) (344)
Premium on repurchase of bonds........................... (5,382) --
Financing fees paid...................................... (5,514) (367)
-------- -------- --------
Net cash used in financing activities.............. (3,285) (1,346) (344)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 10,750 (9,699) (182)
Cash and cash equivalents -- beginning..................... 1,428 12,178 2,479
-------- -------- --------
Cash and cash equivalents -- ending........................ $ 12,178 $ 2,479 $ 2,297
======== ======== ========
Supplemental disclosures of cash flow information:
Interest paid.............................................. $ 15,240 $ 12,541 $ 171
======== ======== ========
Income taxes paid.......................................... $ 20 $ 523 $ 42
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-91
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(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
("PCI" or "the Company"), Continental Plastic Containers, Inc. ("CPC") and
Continental Caribbean Containers, Inc. ("Caribbean"). All significant
intercompany transactions have been eliminated in consolidation.
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. Based on the nature of the product, the production processes, types of
customers, and methods used to distribute products, the Company operates in one
reportable segment.
PCI is a subsidiary of Continental Can Company, Inc. ("Continental Can"). On
May 29, 1998, Continental Can was acquired by Suiza Foods Corporation ("Suiza")
in a transaction accounted for as a purchase. The consolidated financial
statements of PCI as of and for the periods ended before May 29, 1998 were
prepared using PCI's historical basis of accounting.
CPC and Caribbean constitute all of PCI's direct and indirect subsidiaries
and have fully and unconditionally guaranteed the Company's senior secured notes
on a joint and several basis. PCI is a holding company with no assets,
operations or cash flow separate from its investments in CPC and Caribbean.
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, 1997 and
May 29, 1998 consist of available-for-sale U.S. government obligations,
certificates of deposit, Eurodollar deposits, and highly rated commercial paper,
all of which are due within one year. The fair value of investment securities
approximates their amortized cost.
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.
Effective January 1, 1997, the Company revised its estimates of the useful
lives of certain machinery and equipment. These changes were made to better
reflect the estimated periods during which these assets remain in service. For
the year ended December 31, 1997, the change had the effect of decreasing
depreciation expense by $1,696, and after adjusting for an assumed tax rate of
38%, increasing net income by $1,052.
F-92
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 and 1997 and
the period from January 1, 1998 through May 29, 1998, were $2,629, $1,784 and
$214, respectively.
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 and 1997 and for the period from January 1, 1998 through
May 29, 1998, were $8,318, $8,825 and $3,876, respectively.
GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS -- Goodwill and other
identifiable 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 and finance costs are
being amortized using the effective interest method over periods ranging from 6
to 10 years.
IMPAIRMENT OF LONG-LIVED ASSETS, GOODWILL AND CERTAIN IDENTIFIABLE
INTANGIBLE ASSETS -- Long-lived assets, including goodwill and certain
identifiable intangible assets, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
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.
Beginning in 1997 the Company filed a consolidated Federal income tax return
with Continental Can. Income taxes have been provided as if the Company files a
separate return.
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, actual results could differ from the estimates.
F-93
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS -- Certain amounts have been reclassified to conform to
the current year's presentation.
2. INVENTORIES
Major classes of inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
1997 1998
------------ --------
<S> <C> <C>
Raw materials.......................................... $ 9,566 $ 8,056
Finished goods......................................... 11,835 12,020
------- -------
21,401 20,076
LIFO reserve........................................... (3,578) (3,578)
------- -------
17,823 16,498
Continental Caribbean Containers, Inc.................. 554 467
Repair parts and supplies.............................. 1,578 1,620
------- -------
Total.......................................... $19,955 $18,585
======= =======
</TABLE>
3. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
1997 1998
------------ --------
<S> <C> <C>
Goodwill............................................... $17,648 $17,648
Customer contracts..................................... 7,630 7,630
Financing and acquisition costs........................ 6,228 6,228
------- -------
31,506 31,506
Less accumulated amortization.......................... 5,915 6,687
------- -------
Total.......................................... $25,591 $24,819
======= =======
</TABLE>
F-94
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(IN THOUSANDS)
4. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
1997 1998
------------ --------
<S> <C> <C>
Deferred income taxes.................................. $ 7,614 $ 9,214
Prefunded pension asset................................ 5,028 4,881
Other.................................................. 661 615
------- -------
Total.......................................... $13,303 $14,710
======= =======
</TABLE>
5. 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 May 29, 1998, 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 1997 and for
the period January 1, 1998 through May 29, 1998 were $104, $167 and $70,
respectively.
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 May 29, 1998, 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 May 29, 1998, letters of credit amounting to $4,610
had been issued to guarantee obligations carried on the consolidated balance
sheet.
6. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
1997 1998
------------ --------
<S> <C> <C>
Accrual for open credits............................... $ 1,658 $ 1,277
Employee compensation and benefits..................... 6,994 6,831
Accrued real estate and personal property taxes........ 1,493 1,545
Plant rationalization reserve.......................... 1,290 1,037
Accrued interest....................................... 587 5,821
Other.................................................. 4,719 5,795
------- -------
Total.......................................... $16,741 $22,306
======= =======
</TABLE>
F-95
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(IN THOUSANDS)
7. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
1997 1998
------------ --------
<S> <C> <C>
Senior Secured Notes, due 2006, stated interest at
10%, effective interest at 8.574%, payable
semiannually on June 15 and December 15............. $125,000 $125,000
Capital lease obligations............................. 4,003 3,659
-------- --------
Total long-term obligations......................... 129,003 128,659
Less current portion.................................. 996 996
-------- --------
Long-term obligations, excluding current
portion......................................... $128,007 $127,663
======== ========
</TABLE>
The Senior Secured Notes are redeemable, in whole or in part, at the option
of PCI, beginning December 16, 2001, at an initial price of 105% of par value,
declining ratably each year to par value on December 15, 2004. In addition, the
indenture requires PCI to offer to redeem the notes at a redemption price of
101% of par value in the event of a change in control, and at 100% of par value
upon the occurrence of certain other events.
The Senior Secured Notes are collateralized by all the issued and
outstanding stock of CPC and Caribbean and substantially all of the assets and
properties owned by PCI other than inventories, accounts receivable and certain
equipment securing capital lease obligations. The indenture also places certain
restrictions on payment of dividends, additional liens, disposition of the
proceeds from asset sales, sale-leaseback transactions and additional
borrowings. At May 29, 1998, 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 $782 and $833 at December 31, 1997 and
May 29, 1998, respectively. The facility lease agreement expires on
December 31, 2000 and has an interest rate of 9.364%.
The equipment lease arrangement began on April 1, 1996 regarding 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
F-96
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(IN THOUSANDS)
7. LONG-TERM OBLIGATIONS (CONTINUED)
$665 and $830 at December 31, 1997 and May 29, 1998, respectively. Future
minimum lease payments under the capital leases are as follows:
<TABLE>
<S> <C>
Seven Months Ending December 31, 1998....................... $ 790
Year Ending December 31, 1999............................... 1,172
Year Ending December 31, 2000............................... 919
Year Ending December 31, 2001............................... 871
Year Ending December 31, 2002............................... 349
------
Total future minimum lease payments....................... 4,101
Less portion representing interest.......................... 442
------
Net minimum lease payments................................ $3,659
======
</TABLE>
8. OPERATING LEASES
PCI rents certain property and equipment used regarding its operations under
noncancellable operating leases. Rental expense under these leases was $8,054,
$13,773 and $5,733 for the years ended December 31, 1996 and 1997 and the period
from January 1, 1998 through May 29, 1998, respectively. 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.
Substantially all of the 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.
Future minimum lease payments under noncancellable operating leases are as
follows:
<TABLE>
<S> <C>
Seven Months Ending December 31, 1998....................... $ 8,065
Year Ending December 31, 1999............................... 13,346
Year Ending December 31, 2000............................... 12,751
Year Ending December 31, 2001............................... 12,228
Year Ending December 31, 2002............................... 10,312
Year Ending December 31, 2003............................... 8,731
Thereafter.................................................. 12,283
-------
Total future minimum lease payments................. $77,716
=======
</TABLE>
F-97
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(IN THOUSANDS)
9. OTHER LIABILITIES
Other liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 28,
1997 1998
------------ --------
<S> <C> <C>
Insurance reserves..................................... $ 8,896 $ 8,345
Postretirement benefits accrued........................ 6,346 6,820
Other.................................................. 5,522 4,314
------- -------
Total.......................................... $20,764 $19,479
======= =======
</TABLE>
10. NOTE RECEIVABLE FROM STOCKHOLDER
On December 17, 1996, the Company loaned Continental Can $30,000. The
Company loaned Continental Can additional amounts of $5,300 on May 29, 1998. The
note matures June 15, 2007 and accrues interest, payable at maturity, at an
annual rate of 6.9%, compounded semiannually. The note receivable and accrued
interest thereon have been presented as a reduction of stockholders' equity.
Proceeds from the $30,000 loan were used by Continental Can to acquire an
additional 34 shares of the Company's common stock from another stockholder,
increasing their ownership in PCI at that time to 84%. The acquisition was
accounted for by Continental Can under the purchase method of accounting and
resulted in the "push down" of goodwill and additional paid-in capital of
$17,648 in the accompanying consolidated financial statements of PCI.
F-98
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(IN THOUSANDS)
11. INCOME TAXES
Total income tax expense (benefit) for the years ended December 31, 1996 and
1997 and for the period from January 1, 1998 through May 29, 1998 consists of
the following:
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1, 1998
1996 1997 TO MAY 28, 1998
------------------------------ ------------------------------ ------------------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL FEDERAL STATE TOTAL
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current.............. $ -- $ 20 $ 20 $ -- $ 39 $ 39 $ -- $ 10 $ 10
Deferred............. (1,746) (150) (1,896) (900) (100) (1,000) (1,432) (168) $(1,600)
------- ----- ------- ----- ---- ------ ------- ----- -------
$(1,746) $(130) $(1,876) $(900) $(61) $ (961) $(1,432) $(158) $(1,590)
======= ===== ======= ===== ==== ====== ======= ===== =======
</TABLE>
The income tax expense (benefit) for the years ended December 31, 1996 and
1997 and the period from January 1, 1998 through May 29, 1998 differed from the
"expected" income tax expense (benefit) computed by applying the Federal income
tax rate to income (loss) before income taxes and extraordinary item as a result
of the following:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998
THROUGH MAY 29,
1996 1997 1998
-------- -------- ---------------
<S> <C> <C> <C>
Computed "expected" income tax expenses (benefit)........... $(1,862) $1,681 $ 30
Additional expense (benefit) resulting from:
Change in valuation allowance allocated to continuing
operations................................................ 243 (2,745) (1,573)
State and local income taxes, net of Federal income tax
benefit................................................... (86) (40) 3
Tax effect of nondeductible goodwill........................ -- -- 63
Other....................................................... (171) 143 (113)
------- ------ -------
Income tax expense (benefit).......................... $(1,876) $ (961) $(1,590)
======= ====== =======
</TABLE>
F-99
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(IN THOUSANDS)
11. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
1997 1998
------------ --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards...................... $18,811 $19,064
Vacation and incentive pay reserves.................... 934 1,178
Self-insurance reserves................................ 3,730 3,520
Plant rationalization reserve.......................... 758 529
Postretirement benefit reserves........................ 2,659 2,591
Other.................................................. 3,005 2,919
------- -------
Total gross deferred tax assets.................... 29,897 29,801
Less valuation allowance............................... 5,049 3,476
------- -------
Net deferred tax assets............................ 24,848 26,325
Deferred tax liabilities:
Book over tax basis of principally fixed assets........ 13,067 12,996
Prefunded pension...................................... 1,907 1,855
------- -------
Total gross deferred tax liabilities............... 14,974 14,851
------- -------
Net deferred tax assets................................ $ 9,874 $11,474
======= =======
</TABLE>
Net deferred tax assets are classified in the accompanying consolidated
balance sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
1997 1998
------------ --------
<S> <C> <C>
Current -- deferred income taxes....................... $2,260 $ 2,260
Long-term -- other assets.............................. 7,614 9,214
------ -------
$9,874 $11,474
====== =======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1997 was
$7,794. The net change in the total valuation allowance for the year ended
December 31, 1997 and for the period from January 1, 1998 through May 29, 1998
was a decrease of $2,745 and $1,573 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 at May 29, 1998.
F-100
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(IN THOUSANDS)
11. INCOME TAXES (CONTINUED)
At May 29, 1998, PCI has operating loss carry forwards for Federal income
tax purposes of approximately $50,000, which are available to offset future
Federal taxable income. The carry forward periods extend from 2007 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 $480 available to reduce future Federal income taxes through 2010.
12. EMPLOYEE BENEFITS
PENSION PLANS -- PCI maintains a defined benefit pension plan for
substantially all salaried employees hired prior to August 1, 1997. 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 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. In
addition, PCI maintains a benefit equalization plan for salaried employees hired
prior to August 1, 1997 whose compensation level exceeds the limits within the
defined benefit pension plan. The plan was frozen for future accruals as of
September 1, 1998.
PCI maintains a noncontributory defined benefit pension plan for
substantially all hourly workers hired prior to August 1, 1997 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.
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 as
claims are incurred.
F-101
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(IN THOUSANDS)
12. EMPLOYEE BENEFITS (CONTINUED)
The following table provides a reconciliation of the benefit obligation,
plan assets and funded status of the pension and postretirement benefit plans:
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
-------------------------- --------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1998 JANUARY 1, 1998
THROUGH THROUGH
1997 MAY 29, 1998 1997 MAY 29, 1998
-------- --------------- -------- ---------------
<S> <C> <C> <C> <C>
Change in benefit obligations:
Benefit obligation at January 1.............. $56,582 $61,174 $ 5,107 $ 5,259
Service cost................................. 1,208 494 83 39
Interest cost................................ 4,246 1,865 380 154
Amendment.................................... 207 -- -- --
Actuarial loss (gain)........................ 2,781 972 51 630
Benefit paid................................. (3,850) (1,658) (362) (182)
------- ------- ------- -------
Benefit obligation at end of period............ 61,174 62,847 5,259 5,900
Change in plan assets:
Fair value of plan assets at January 1....... 58,899 62,787 -- --
Actual return on plan assets................. 7,283 3,246 -- --
Employer contribution........................ 455 -- 362 182
Participant contributions.................... -- -- 177 72
Benefits paid................................ (3,850) (1,658) (539) (254)
------- ------- ------- -------
Fair value of plan assets at end of period..... 62,787 64,375 -- --
Funded status.................................. 1,613 1,528 (5,259) (5,900)
Unrecognized actuarial loss (gain)............. 3,474 3,518 (723) --
Unrecognized prior service cost................ (59) (85) (364) --
------- ------- ------- -------
Prepaid (accrued) benefit cost................. $ 5,028 $ 4,961 ($6,346) $(5,900)
======= ======= ======= =======
Weighted average assumptions at end of period:
Discount rate.................................. 7.35% 7.35% 7.35% 6.50%
Expected asset return.......................... 9.50% 9.00% 9.50% 9.00%
Rate of compensation increase.................. 5.00% 5.00%
</TABLE>
F-102
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(IN THOUSANDS)
12. EMPLOYEE BENEFITS (CONTINUED)
The components of net periodic benefit cost are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998
THROUGH
1996 1997 MAY 29, 1998
-------- -------- ---------------
<S> <C> <C> <C>
Pension benefits:
Service cost................................................ $ 1,362 $ 1,208 $ 494
Interest cost............................................... 4,001 4,246 1,865
Expected return on plan assets.............................. (4,910) (5,259) (2,330)
Amortization of prior service cost.......................... 125 108 59
Recognized net actuarial loss............................... 177 94 8
------- ------- -------
Net periodic benefit cost............................... 755 397 96
Other postretirement benefits:
Service cost................................................ 87 83 39
Interest cost............................................... 447 380 154
Amortization of prior service cost.......................... (34) (34) (14)
Recognized net actuarial gain............................... -- (19) (5)
------- ------- -------
Net periodic benefit cost............................... $ 500 $ 410 $ 174
======= ======= =======
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE 1-PERCENTAGE
POINT POINT
INCREASE DECREASE
------------------- -------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Effect on total of service and interest cost components..... $ 39 $ 37 $ (34) $ (32)
Effect on postretirement benefit obligation................. 416 535 (376) (483)
</TABLE>
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, $302 and $122 for the years ended
December 31, 1996 and 1997 and the period from January 1, 1998 through May 29,
1998, 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
F-103
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(IN THOUSANDS)
12. EMPLOYEE BENEFITS (CONTINUED)
may make withdrawals from the plan prior to attaining age 59 1/2, subject to
certain penalties. PCI's savings plan expense was $553, $560 and $262 for the
years ended December 31, 1996 and 1997 and for the period from January 1, 1998
through May 28, 1998, respectively.
UNION BENEFIT PLANS -- PCI contributes to various union pension plans under
its labor agreements. Union benefit plan expense was $1,083, $1,013 and $419 for
the years ended December 31, 1996 and 1997 and for the period from January 1,
1998 through May 29, 1998, 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. Additional costs charged to operations for
postemployment benefits in 1996, 1997 and 1998 were $38, $57 and $15,
respectively.
13. MAJOR CUSTOMERS
Sales to one customer represented approximately 29%, 31% and 28.5% of net
sales for the years ended December 31, 1996 and 1997 and for the period from
January 1, 1998 to May 29, 1998, respectively. Included in accounts receivable
are receivables from this customer of $8,332 and $10,442 at December 31, 1997
and May 29, 1998, respectively. A second customer represented approximately 13%,
15% and 17% of net sales for each of the years ended December 31, 1996 and 1997
and the period from January 1, 1998 through May 29, 1998, respectively, and
$1,131 and $1,516 of receivables from this customer are included in accounts
receivable at December 31, 1997 and May 29, 1998, respectively. A third customer
represented approximately 10%, 10%, and 11% of net sales for the years ended
December 31, 1996 and 1997 and the period from January 1, 1998 through May 29,
1998, respectively, and $860 and $781 of receivables from this customer are
included in accounts receivable at December 31, 1997 and May 29, 1998,
respectively.
14. PLANT CLOSINGS
In 1996, PCI recorded charges amounting to $6,500 for plant rationalization
and realignment regarding a plan to consolidate certain manufacturing
operations. The Company closed one plant in 1996 and another plant in 1997. The
Company remains obligated under a noncancellable operating lease at one of the
facilities through June 1999. Accrued liabilities include $1,072 at May 29, 1998
related to plant rationalization and realignment. Payments made in 1998 against
the accrued liability amounted to approximately $603.
15. EXTRAORDINARY ITEM
In 1996, PCI incurred an extraordinary loss of $7,305 related to the
purchase and redemption of senior secured notes.
F-104
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998
(IN THOUSANDS)
16. 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.
17. 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. Except for the senior secured notes at
May 29, 1998, the carrying amount approximates fair value for financial
instruments included in the accompanying consolidated balance sheets at
December 31, 1997 and May 29, 1998.
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable -- trade and other current liabilities approximate fair value
because of the short maturity of those instruments. The fair value of investment
securities is based on the quoted market prices at the reporting date for those
or similar investments. The carrying value and fair value of the senior secured
notes at May 29, 1998 was $125,000 and $135,364, respectively. The fair value is
estimated based on quoted market prices for the notes.
F-105
<PAGE>
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CONSOLIDATED CONTAINER COMPANY LLC
CONSOLIDATED CONTAINER CAPITAL, INC.
[LOGO]
OFFER TO EXCHANGE
ALL OUTSTANDING 10 1/8% SENIOR SUBORDINATED NOTES DUE 2009
FOR
10 1/8% SENIOR SUBORDINATED NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
------------------------
PROSPECTUS
January 31, 2000
-------------------------------
Until April 30, 2000 (90 days after the date of this prospectus), all
dealers effecting transactions in the exchange notes, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and regarding their unsold allotments or subscriptions.
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
exchange the exchange notes for outstanding notes only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
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