SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (Fee required)
For the fiscal year ended September 30, 1996
o Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No fee required)
for the transition period from to
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Commission file number 33-64814
SWEETHEART HOLDINGS INC.*
(Exact name of registrant as specified in its charter)
Delaware 06-1281287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10100 Reisterstown Road, Owings Mills, 21117
Maryland (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code: 410/363-1111
Securities of the Registrant registered pursuant to Section 12(b) of the Act:
None
Securities of the Registrant registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
The aggregate market value of the voting stock of the Registrant held by
non-affiliates of the Registrant as of December 20, 1996: Not Applicable.
There is no market for the Common Stock of the Registrant.
The number of shares outstanding of the Registrant's common stock as of December
20, 1996:
Sweetheart Holdings Inc. Common Stock, $0.01 par value - 1,046,000 shares
* The Registrant is the guarantor of the 9 5/8% Senior Secured Notes due 2000
and the 10 1/2% Senior Subordinated Notes due 2003 (collectively, the "Notes")
of Sweetheart Cup Company Inc., a wholly owned subsidiary of the Registrant.
PART I
ITEM 1. BUSINESS
GENERAL
Sweetheart Holdings Inc., together with its wholly owned subsidiary
Sweetheart Cup Company Inc. (collectively with Sweetheart Holdings Inc. and its
other subsidiaries, the "Company"), is one of the largest producers of plastic
and paper disposable foodservice and food packaging products in North America.
In the year ended September 30, 1996, the Company had net sales of $903.3
million. The Company's principal products include cups for both hot and cold
drinks, lids, food containers, bowls, plates, straws, cutlery, and containers
for the food and dairy industries. The brand names for the Company's principal
products include Sweetheart, Lily, Trophy, Jazz and Preference for cups and
plates and Silent Service, Centerpiece, Guildware, and Simple Elegance for foam
dinnerware and plastic cutlery. The Company believes it is the largest North
American manufacturer of ice cream cones, which are marketed under the Eat-It-
All and American Dream Cone brand names. In addition, the Company designs,
manufactures and leases container filling equipment for use by dairies and other
food processors. This equipment is specifically designed by the Company to fill
and seal the Company's containers in customers' plants.
The Company's business is the successor to the businesses of Maryland Cup
Corporation ("Maryland Cup"), which was founded in 1911 and was a major supplier
of paper and plastic disposable foodservice and food packaging products, and
Lily-Tulip, Inc. ("Lily-Tulip"), which began operations in the early 1900s and
was a major cup producer and manufacturer of food and dairy packaging. Fort
Howard Corporation ("Fort Howard") acquired Maryland Cup in 1983 and Lily-Tulip
in 1986. Sweetheart Holdings Inc. was incorporated as a separate company in
1989 on behalf of Morgan Stanley Group Inc. ("MSG"), Fort Howard and other
investors, including management, in connection with Sweetheart Holdings Inc.'s
acquisition in 1989 of all of the U.S. and Canadian disposable
foodservice and food packaging operations of Fort Howard, including the
operations of Maryland Cup and Lily-Tulip (the "Fort Howard acquisition"). The
Company's Canadian operations are conducted through Lily Cups, Inc. ("Lily
Canada"). On August 30, 1993, a group of investors (the "Investors") including
American Industrial Partners Capital Fund, L.P. ("AIP") acquired Sweetheart
Holdings Inc. (the "Acquisition").
FOODSERVICE AND FOOD PACKAGING PRODUCTS
The Company operates in two principal business lines: Foodservice and Food
Packaging. Foodservice products include disposable hot and cold drink cups,
lids, food containers, plates, bowls, cutlery and ice cream cones. These
products are sold directly and through distributors to fast food chains, full
service restaurants, hospitals, airlines, theaters and other institutional
customers. Food Packaging products include paper and plastic containers for the
dairy and food processing industries. Food Packaging also designs, manufactures
and leases filling and packaging machines that fill and seal the Company's
containers in customers' plants. Through Lily Canada, the Company manufactures
and markets its products in Canada to national accounts and distributors.
Foodservice Products. The Company's foodservice business consists of three
end-use categories: beverage service, tabletop service and carryout service.
Foodservice is the Company's largest product group, accounting for approximately
82% of gross sales during the year ended September 30, 1996. Management
believes the Company is the largest manufacturer of foodservice products in
terms of sales.
Beverage service products, which consist of paper and plastic cups, lids
and straws, represent the largest segment of the Company's United States
operations. The largest single product type within this category is cups, which
are offered in varying sizes (3 to 64 ounces) and for both hot and
cold beverages. Brand names of the Company's principal beverage service products
include Sweetheart, Lily, Trophy, Preference, Jazz, Gallery, Clarity and Lumina.
Tabletop service products include paper and plastic plates, bowls, portion
cups and cutlery. These products are sold primarily to fast-food and mid-scale
restaurants, health care institutions, airlines and educational and
institutional foodservices. The Company's tabletop products include its Silent
Service, Centerpiece, Basix, Guildware and Simple Elegance brands of foam
dinnerware and plastic cutlery.
The Company's carry-out service products consist of paper and plastic tubs,
containers and hinged plastic containers. The Company is one of the largest
manufacturers of paper tubs for chicken, popcorn and take-out foods.
The Company believes it is the largest producer in North America of ice
cream cones, which are marketed under the Eat-It-All and American Dream Cone
brand names. The Company produces ice cream cones in its bakery facilities and
offers several varieties of ice cream cones, including cake cones, sugar roll
cones and waffle cones, to national chains and wholesale distributors for its
foodservice business.
Foodservice Customers. Foodservice products are sold directly to large
national accounts, such as fast-food chains and catering services, which
represented approximately 53% of foodservice sales for the year ended September
30, 1996. Foodservice products are also sold through distributors to other end-
users, such as independent restaurants, school systems and hospitals. The
Company's national accounts include ARAMARK, McDonald's, Taco Bell and Wendy's,
and its major distributor accounts include Alliant, ComSource, Network and
Sysco.
Food Packaging Products. The Company's food packaging operations sell paper
and plastic containers and lids for ice cream, frozen novelty
products, cultured foods (including sour cream, yogurt, cottage cheese and snack
dip) and plastic containers for single-serving chilled juice products. Other
products include the Company's Flex-E-Form straight-wall paper manufacturing
technology and Flex-Guard, a spiral wound tamper-evident lid. Sales of food
packaging products accounted for approximately 12% of the Company's gross sales
during the year ended September 30, 1996. Management believes the Company is
the second largest supplier (in terms of sales) of containers to the frozen
dessert and cultured dairy products segments of the food packaging industry.
To enhance product sales, the Company designs, manufactures and leases
container filling and lidding equipment to dairies and other food processors to
package food items in Company containers at their plants. The Company's filling
and lidding equipment is leased to customers under the trade names Auto-Pak,
Flex-E-Fill and Food-Pak. This equipment is manufactured in the Company's
machine shop and assembly plant located in Owings Mills, Maryland. Types of
products packaged in the Company's machines include ice cream, factory-filled
jacketed ice cream cones, cottage cheese, yogurt, squeeze-up desserts and ice
cream sandwiches.
Food Packaging Customers. Food packaging containers and filling machines
are marketed directly to national and regional dairies and food companies.
Major customers of the Company's food packaging products include Ben & Jerry's
Ice Cream, Blue Bell, Borden and Prairie Farms.
Canadian Operations. The Company operates in Canada through Lily Canada,
which has been manufacturing and marketing foodservice disposables since 1947.
Lily Canada is one of the largest providers of foodservice disposable products
in the Canadian market, primarily as a consequence of its large portfolio of
national account customers. Sales by Lily Canada during the year ended
September 30, 1996 constituted approximately 6% of the Company's gross sales.
MARKETING AND SALES
The Company's marketing efforts are directed to maintaining firsthand
knowledge of customer needs and to structuring the Company's manufacturing and
sales efforts to provide superior products and services tailored to those needs.
The Company's sales force allows it to service a large distributor and broker
network that permits even small accounts to receive appropriate coverage.
Distribution facilities are maintained in close proximity to most major markets.
The Company's sales effort is divided into separate foodservice and food
packaging sales forces. The foodservice sales force targets the disposable
foodservice product market and is organized into distribution and national
account sales forces. The distribution sales force focuses on distributors and
smaller end users such as independent restaurants, schools and hospitals. The
national account sales force focuses on national foodservice accounts and major
bottlers, concessionaires, health care and contract food providers. The food
packaging sales force focuses on national and regional food processors.
PRODUCTION
The Company's plants operate on a variety of manufacturing schedules.
Paper operations generally run five days per week at 24 hours per day, with
Saturday scheduled as an overtime day when needed to meet customer demand.
Plastic operations generally run seven days per week at 24 hours per day.
Because of customer demands, the Company's plant utilization is substantially
higher during late spring and summer than during fall and winter.
RAW MATERIALS
Raw materials are critical components of the Company's cost structure.
Principal raw materials for the Company's paper operations include solid
bleached sulfate paperboard obtained directly from major domestic manufacturers,
along with wax, adhesives, coating and inks. Paperboard is purchased in "jumbo"
rolls and then printed and converted into smaller rolls or blanks for processing
into final products. The principal raw material for the Company's plastic
operations is plastic resin (polystyrene, polypropylene, high density
polyethylene and polyethylene terphalate glycol modified) purchased directly
from major petrochemical companies and other resin suppliers. Resin is
processed and formed into cups, cutlery, meal service products, straws and
containers. The Company manufactures foam products by extruding sheets of
plastic foam material that are converted into cups and plates. Principal raw
materials for the bakery operations include flour, sugar and shortening.
The Company purchases a substantial portion of its requirements for
paperboard and resin from several suppliers. The Company has a number of
potential suppliers for substantially all of its raw materials and believes that
current sources of supply for its raw materials are adequate to meet its
requirements.
COMPETITION
All of the markets in which the Company sells its products are extremely
competitive. Because of the low barriers to entry for new competitors, the
level of competition has been and may continue to be intense as new entrants
attempt to gain market share. The Company's competitors include large
multinational companies as well as regional manufacturers, some of whom have
greater financial and other resources than the Company. The marketplace for the
Company's products is fragmented and includes competitors that
compete across the full line of the Company's products, as well as those that
compete against a limited number of the Company's products.
A few of the Company's competitors are vertically integrated into raw
materials. As a result, those competitors may be less sensitive than the
Company to shifts in raw material pricing.
The Company believes customers principally evaluate product quality,
service, price and graphics capability when considering purchasing products from
the Company.
CUSTOMERS
The Company markets its products primarily to customers in the United
States and Canada. During the year ended September 30, 1996, sales to the
Company's 10 largest customers accounted for approximately 45.8% of the
Company's revenues with one customer, McDonald's, accounting for 13.6% of net
sales. The Company has strong relationships with its major national accounts
which have been developed over many years.
TECHNOLOGY AND RESEARCH
The Company maintains facilities for the development of new products and
product line extensions in Owings Mills, Maryland. The Company maintains a
staff of engineers and technicians who are responsible for product quality,
process control, improvement of existing products, development of new products
and processes and technical assistance in adhering to environmental rules and
regulations. The Company is continually striving to expand its proprietary
manufacturing technology, further automate its manufacturing operations, and
develop improved manufacturing processes and product designs.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, foreign and local
environmental laws and regulations. Although the Company believes it is in
substantial compliance with such laws and regulations, the Company may from time
to time not be in full compliance, and is from time to time involved in
administrative and judicial proceedings and inquiries relating to environmental
matters. The Company has expended, and expects in the future to expend, funds
for compliance with those laws and regulations and penalties for noncompliance.
The Company is awaiting final approval from the Santa Ana Regional Water
Quality Control Board (the "Control Board") regarding the clean-up of
contaminated soil at its plant in Riverside, California, which has been
completed. Since all of the Control Board's requirements have been met, the
Company believes it will receive such approval in due course.
The Clean Air Act mandates the phase out of certain refrigerant compounds,
which will require the Company to upgrade or retrofit or air conditioning and
chilling systems during the next few years. The Company has decided to replace
units as they become inefficient or unserviceable. The upgrade of
existing systems would cost approximately $5 million. Approximately $1 million
has been spent on upgrading systems in the last five years, exclusive of costs
of $2.4 million to convert to a new foam blowing agent in 1993. The Company
anticipates that future levels of expenditures for environmental matters
(exclusive of costs relating to the blowing agent conversion and the
retrofitting of air conditioning and chilling systems described above) will be
comparable; however, there can be no assurance that expenditures will not be
higher.
Some of the Company's facilities contain asbestos. Although there is no
current legal requirement to remove such asbestos, the Company has an ongoing
monitoring and maintenance program to maintain and/or remove such asbestos as
appropriate to prevent the release of friable asbestos. The Company does not
believe the costs associated with such program will be material to its business
or financial condition.
EMPLOYEES AND EMPLOYEE RELATIONS
At September 30, 1996, the Company employed approximately 8,300 persons,
with approximately 95% of those employees located at facilities in the United
States. Approximately 1,300 of the Company's United States hourly employees are
represented by a union. All hourly employees located in Canada are represented
by a union. The Company believes its relationship with its employees is good.
ITEM 2. PROPERTIES
The Company has 14 manufacturing facilities in the United States and two
in Canada. The Company owns or leases manufacturing and warehouse facilities at
the locations shown in the following table:
<TABLE>
<CAPTION>
Type of Size
Facility Owned/ (Approximate
Location (1) Leased square feet)
--------- -------- -------- ----------
<S> <C> <C> <C>
Atlanta, Georgia...................... M/W(2) O 106,000
Augusta, Georgia (2 facilities)....... M/W O 339,000
W(3) L 204,000
Clackamas, Oregon..................... W(4) L 100,000
Conyers, Georgia...................... M/W O 905,000
Chicago, Illinois (3 facilities) ..... M/W O 902,000
M(2) O 120,000
W L 587,000
Dallas, Texas (2 facilities) ......... M/W O 1,316,000
M(2) O 59,000
Manchester, New Hampshire............. M/W O 160,000
North Las Vegas, Nevada (2 facilities) M/W L 113,000
W L 12,250
Ontario, California................... W L 249,000
Owings Mills, Maryland (3 facilities). M/W(5) O 1,533,000
W O 267,000
W O 406,000
Riverside, California................. M/W O 164,000
Somerville, Massachusetts............. M/W O 193,000
Sparks, Nevada........................ M/W(6) L 375,000
Springfield, Missouri (2 facilities).. M/W O 925,000
W L 415,000
Wilmington, Massachusetts............. W O 400,000
Scarborough, Ontario (2 facilities)... M/W O 185,000
M/W O 207,000
<FN>
- --------
(1) M-Manufacturing; W-Warehouse; M/W-Manufacturing and Warehouse in same
facility.
(2) Facility is a bakery.
(3) Facility is closed. The Company is currently subleasing 50% of the property
in a short-term lease and is actively seeking to sublet the remaining space
through the lease termination date, March 31, 2008.
(4) Facility is closed and will be returned to the lessor at or prior to the
lease termination date, August 30, 1997.
(5) Facility includes a bakery.
(6) Facility will be closed and returned to the lessor at or prior to the lease
termination date, February 28, 1997.
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
Aldridge. An action entitled Allan C. Aldridge, et al. v. Lily-Tulip,
Inc. Salary Retirement Plan Benefits Committee and Fort Howard Cup Corporation,
Civil Action No. CV 187-084, is currently pending against The Lily-Tulip, Inc.
Salary Retirement Plan Benefits Committee and Sweetheart Cup Company Inc. in the
United States District Court for the Southern District of Georgia. See Note 16
of the Notes to Consolidated Financial Statements under Item 8.
Other. The Company is also involved in a number of legal proceedings
arising in the ordinary course of business, none of which is expected to have a
material adverse effect on the Company's business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Each of the current Board members were reelected for 1997 at the
December 10, 1996 meeting.
The Board of Directors accepted the resignation of Lawrence W. Ward, Jr.
as Vice President and Chief Financial Officer effective November 15, 1996, and
named Roger A. Lindahl as principal financial officer and principal accounting
officer.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Sweetheart Cup Company Inc. is a wholly-owned subsidiary of Sweetheart
Holdings Inc. Sweetheart Holdings Inc. is a privately-held corporation. No
equity securities of Sweetheart Holdings Inc. or Sweetheart Cup
Company Inc. are publicly traded or registered under the Securities Exchange Act
of 1934.
ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Set forth below are selected historical consolidated and combined
financial and other data of the Company at the dates and for the periods shown.
The selected historical consolidated financial data at September 30, 1996
and 1995, and for the years ended September 30, 1996, 1995 and 1994 are derived
from the historical consolidated financial statements of the Company and
subsidiaries for such periods that have been audited by Arthur Andersen LLP,
independent public accountants, and have been included elsewhere herein. See
Item 8. The selected consolidated and combined historical financial data at
September 30, 1993, August 29, 1993 and December 31, 1992 and for the periods
from August 30, 1993 to September 30, 1993 and from January 1, 1993 to August
29, 1993 and for the year ended December 31, 1992 have been derived from the
historical audited consolidated financial statements for such periods.
<TABLE>
<CAPTION>
Period from Period from
August 30,to January 1, to Year ended
Year ended September 30, September 30, August 29, December 31,
(Dollars in thousands) 1996 1995 1994 1993 1993 1992
(Successor) (Successor) (Successor) (Successor) (Predecessor) (Predecessor)
---------- ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Net sales $903,308 $931,792 $845,510 $77,085 $557,473 $838,443
Cost of sales 777,130 810,410 718,067 66,903 484,413 732,111
------- ------- ------- ------- ------- -------
Gross income 126,178 121,382 127,443 10,182 73,060 106,332
Selling, general and
administrative 75,251 75,893 75,208 6,396 50,191 76,817
------- ------- ------- ------- ------- -------
Operating income 50,927 45,489 52,235 3,786 22,869 29,515
Interest expense and
other related finance
charges 38,832 38,655 37,460 3,327 43,981 64,624
Other (expense)
income , net (2,572) 2,889 1,041 (126) 362 1,560
------- ------- ------- ------- ------- -------
Income (loss) before
taxes 9,523 9,723 15,816 333 (20,750) (33,549)
Income tax (expense)
benefit (3,809) (3,903) (6,462) (161) 6,641 12,733
------- ------- ------- ------- ------- -------
Net income (loss) 5,714 5,820 9,354 172 (14,109) (20,816)
Accrued dividends on
Class B Common Stock - - - - 4,200 6,300
------- ------- ------- ------- ------- -------
Net income (loss)
applicable to common
shareholders $5,714 $5,820 $9,354 $172 $(18,309) $(27,116)
======= ======= ======= ======= ======== ========
Dividends per share - - - - - -
Balance Sheet Data (at
end of period):
Fixed assets $427,833 $417,563 $400,176 $393,918 $450,362 $465,150
Total assets 762,610 741,906 728,442 692,772 753,531 734,433
Total long-term debt 381,879 366,581 366,049 350,232 583,501 561,111
Shareholders' equity
(deficit) 121,415 115,805 109,955 100,548 (121,883) (105,830)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
GENERAL
Sweetheart Cup Company Inc. was formed as the result of the acquisition by
Fort Howard of Maryland Cup in 1983 and Lily-Tulip in 1986. Sweetheart Holdings
Inc. was incorporated as a separate company in 1989 on behalf of Fort Howard,
MSG and other investors, including management, to acquire all of the U.S. and
Canadian disposable foodservice and food packaging operations of Fort Howard. As
a result of the increase in leverage arising from the 1989 acquisition from Fort
Howard and the increased operating costs relating to the establishment of
Sweetheart Holdings Inc. as an independent business, the Company faced
substantial capital constraints, which reduced the Company's manufacturing and
operating efficiencies.
On August 30, 1993, the Investors acquired Sweetheart Holdings Inc. In
connection with the Acquisition, Sweetheart Cup Company Inc. (i) issued
$190,000,000 aggregate principal amount of 9 5/8% Senior Secured Notes due 2000
(the "Senior Secured Notes") and $110,000,000 aggregate principal amount of 10
1/2% Senior Subordinated Notes due 2003 (the "Senior Subordinated Notes"), (ii)
incurred borrowings under a Credit Agreement dated as of August 30, 1993, among
Sweetheart Cup Company Inc., Sweetheart Holdings Inc., various banks and Bankers
Trust Company, as agent (the "Credit Agreement"), (iii) repaid existing
indebtedness of Sweetheart Holdings Inc. and Sweetheart Cup Company
Inc., and (iv) issued equity securities of Sweetheart Holdings Inc. to the
Investors. Pursuant to the Acquisition, the Company's outstanding indebtedness
and interest expense was substantially reduced, giving the Company greater
financial flexibility to pursue its operating strategy.
The Company operates in two principal business lines: Foodservice and Food
Packaging. Foodservice products include disposable hot and cold drink cups,
lids, food containers, plates, bowls, cutlery and ice cream cones. These
products are sold directly and through distributors to fast food chains, full
service restaurants, hospitals, airlines, theaters and other institutional
customers. During fiscal year 1995, the Company terminated its sales of
products to individuals through supermarkets and other retailers. The
elimination of this sales channel had no adverse effect on the Company's results
of operations. Food Packaging products include paper and plastic containers for
the dairy and food processing industries. Food Packaging also designs,
manufactures and leases filling and packaging machines that fill and seal the
Company's containers in customers' plants.
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Net sales decreased to $903.3 million for the year ended September 30, 1996
from $931.8 million for the same period in 1995, a decrease of $28.5 million or
3.1%. The decrease in net sales reflects a 1.7% decrease in domestic sales
volume and a 1.0% decrease in domestic sales price. Foodservice selling prices
decreased 1.2% while Food Packaging selling prices decreased .5%. Foodservice
sales volume decreased 1.4 % while Food Packaging sales volume decreased 3.9%.
Sales volume measures the dollar value of unit sales, assuming constant prices
between periods. The decrease in Foodservice sales volume is primarily
attributable to decreases in the distributor and clubstore market segments
offset by higher national account volume. The decrease in Food Packaging sales
volume is primarily due to the withdrawal of the Company's Contour-
Pak line from the food packaging market and a decrease in the cultured products
and frozen novelty market segments. Canadian sales increased 2.5% from the
prior year.
Cost of sales decreased to $ 777.1 million for the year ended September 30,
1996 from $810.4 million for the same period in 1995, a decrease of $33.3
million or 4.1%. As a percentage of net sales, cost of sales decreased to 86.0%
for the year ended September 30, 1996 from 87.0% for the same period in 1995.
The decrease in cost of sales as a percentage of net sales was due primarily to
significant changes between the periods in overhead costs absorbed into
inventory. Overhead costs are allocated and absorbed into inventory when
inventory is produced and expensed when inventory is sold. As a result, profit
comparisons can be affected when a change in inventory levels during a period
differs from the change in the prior year period. Finished goods inventory
levels increased to $137.7 million at September 30, 1996 from $104.6 million at
September 30, 1995, which resulted in a favorable impact on cost of sales of
$10.6 million relating to the absorption of fixed overhead costs. Additionally,
the Company realized a 10.4% decrease in material costs from the prior year,
offset by an unfavorable shift in product mix.
Gross income increased to $126.2 million for the year ended September 30,
1996 from $121.4 million for the same period in 1995, an increase of $4.8
million or 4.0%, due to the reasons described above.
Selling, general and administrative expenses decreased to $75.3 million for
the year ended September 30, 1996 from $75.9 million for the same period in
1995, a decrease of $.6 million or .8%. As a percentage of net sales, selling,
general and administrative expenses increased to 8.3% for the year ended
September 30, 1996 from 8.1% for the same period in 1995.
Operating income increased to $50.9 million for the year ended September
30, 1996 from $45.5 million for the same period in 1995, an increase of $5.4
million or 11.9%, due to the reasons described above.
Interest expense increased to $38.8 million for the year ended September
30, 1996 from $38.7 million for the same period in 1995, an increase of $.1
million or .5%, due primarily to higher average usage of short-term borrowings.
Other income (expense) decreased to $2.6 million of expense for the year
ended September 30, 1996 from $2.9 million of income for the same period in
1995, a decrease of $5.5 million. This decrease was due primarily to one-time
expenses relating to the investigation of the Company's strategic alternatives.
Income tax expense decreased to $3.8 million for the year ended September
30, 1996 from $3.9 million for the same period in 1995, a decrease of $.1
million or 2.6%. The effective tax rate for the year ended September 30, 1996
was 40.0% compared to 40.1% for the same period in 1995.
Net income decreased to $5.7 million for the year ended September 30, 1996
from $5.8 million for the same period in 1995, a decrease of $.1 million or
1.7%, due to the reasons described above.
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994
Net sales increased to $931.8 million for the year ended September 30, 1995
from $845.5 million for the same period in 1994, an increase of $86.3 million or
10.2%. The increase in net sales reflects an 8.5% increase in domestic sales
price and a 0.7% increase in domestic sales volume. Foodservice and Food
Packaging selling prices increased 9.3% and 4.2%, respectively, due primarily to
the need to recover increased material costs. Foodservice sales volume
increased 2.1% while Food Packaging sales volume decreased 6.9%. Sales volume
measures the dollar value of unit sales, assuming constant prices
between periods. The increase in Foodservice sales volume is primarily
attributable to an increase in national accounts partially offset by decreases
in the distributor and club store market segments. The decrease in Food
Packaging sales volume is primarily due to the withdrawal of the Company's
Contour-Pak line from the food packaging market and a decrease in the cultured
products and frozen novelty market segments. Canadian sales increased 19.4%
from the prior year reflecting an 11.3% increase in sales volume and an 8.1%
increase in sales price.
Cost of sales increased to $810.4 million for the year ended September 30,
1995 from $718.1 million for the same period in 1994, an increase of $92.3
million or 12.9%. As a percentage of net sales, cost of sales increased to
87.0% for the year ended September 30, 1995 from 84.9% for the same period in
1994. The increase in cost of sales as a percentage of net sales was due
primarily to significant changes between the periods in overhead costs absorbed
into inventory. Overhead costs are allocated and absorbed into inventory when
inventory is produced and expensed when inventory is sold. As a result, profit
comparisons can be materially affected when a change in inventory levels during
a period differs materially from the change in the prior year period. During
the year ended September 30, 1995, the Company focused intensely on lowering its
working capital requirements via the reduction of inventories at both the
finished goods and work-in-process levels through changes in certain of its
manufacturing operating processes. Consequently, finished goods and work-in-
process inventory levels fell to a combined $104.6 million at September 30, 1995
from approximately $130.1 million at September 30, 1994, a $25.5 million, or
19.6%, reduction. Considering sales volume and overhead expenditure levels were
relatively similar for the two periods in comparison, the reduction in inventory
levels discussed above resulted in an increase in overhead costs relieved from
inventory which unfavorably impacted 1995 gross income by $10.6 million.
Additionally, the Company recovered 109.8% of its increased material costs in
dollars through higher sales prices during 1995, slightly behind the 115.1%
recovery rate needed to preserve its cost of sales as a percentage of net sales
between periods.
Gross income decreased to $121.4 million for the year ended September 30,
1995 from $127.4 million for the same period in 1994, a decrease of $6.0 million
or 4.7%, due to the reasons described above.
Selling, general and administrative expenses increased to $75.9 million for
the year ended September 30, 1995 from $75.2 million for the same period in
1994, an increase of $0.7 million or 0.9%. As a percentage of net sales,
selling, general and administrative expenses decreased to 8.1% for the year
ended September 30, 1995 from 8.9% for the same period in 1994.
Operating income decreased to $45.5 million for the year ended September
30, 1995 from $52.2 million for the same period in 1994, a decrease of $6.7
million or 12.8%, due to the reasons described above.
Interest expense increased to $38.7 million for the year ended September
30, 1995 from $37.5 million for the same period in 1994, an increase of $1.2
million or 3.2%, due primarily to higher interest rates on short-term
borrowings.
Income tax expense decreased to $3.9 million for the year ended September
30, 1995 from $6.5 million for the same period in 1994, a decrease of $2.6
million or 40.0%. The effective tax rate for the year ended September 30, 1995
was 40.1% compared to 40.9% for the same period in 1994.
Net income decreased to $5.8 million for the year ended September 30, 1995
from $9.4 million for the same period in 1994, a decrease of $3.6 million or
38.3%, due to the reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business is highly seasonal with the majority of its net
cash inflows from operations realized in the second and third quarters of the
calendar year. The Company builds inventory throughout the year to satisfy the
high seasonal demands of the summer months when away-from-home consumption
increases. As a result, the Company requires access to working capital lines to
meet its production requirements during periods of reduced cash flow.
On September 28, 1996, the Company received $1.2 million of loans from the
State of Maryland and County of Baltimore Departments of Business and Economic
Development. The loans bear interest at 6.0% per annum with a ten year life and
require repayment in equal quarterly installments starting January 1, 1998. The
loans may convert to interest-free grants if the Company meets certain headcount
and capital spending criteria in the Maryland facility.
For the year ended September 30, 1996, $50.2 million of net capital
additions, the payment of $1.1 million for industrial revenue bond principal,
$1.4 million of Canadian term loan reductions, and a $12.9 million increase in
restricted cash were funded through $43.5 million of cash provided by
operations, $15.8 million of domestic revolving loan borrowings, $1.2 million of
long-term bond borrowings, $1.5 million of Canadian operating facility
borrowings, and a $3.6 million decrease in cash balances. At September 30,
1996, the Company had approximately $51.3 million of combined availability under
its domestic revolving loan and Canadian operating facilities. The maximum
combined month end outstanding balance of the domestic revolving loan and
Canadian operating facilities during the year ended September 30, 1996 was $27.1
million, while the average balance outstanding totaled approximately $12.2
million.
The Company's liquidity during the current year has been enhanced because
it has not been subject to current income taxes (other than the
Alternative Minimum Tax) due to the use of net operating loss carryforwards for
income tax purposes. At September 30, 1996, the Company's net operating loss
carryforwards for tax purposes are approximately $126 million. These net
operating loss carryforwards will expire, if not used, beginning in 2004.
The Company's principal uses of cash for the next several years will be
working capital requirements, capital expenditures and debt service
requirements. The reduction in debt service requirements following the
Acquisition has provided the Company with increased flexibility to make
discretionary capital expenditures that management believes will provide an
attractive return on investment. During the year ended September 30, 1996, the
Company made capital expenditures of approximately $50.2 million. New product
development and cost reduction accounted for approximately 19% and 43%,
respectively, of the total fiscal year 1996 expenditures. Non-discretionary
expenditures represented the balance of the current year spending. The Company
anticipates increased capital spending levels in the future for similar
projects. In addition, the Company may be required to fund various contingent
liabilities at any time, including amounts accrued for litigation, claims and
assessments reflected on the balance sheet as other current liabilities.
On September 20, 1994, the Company prepaid the $40.0 million Term Loan
under the Credit Agreement in connection with the issuance of $60.0 million of
Series 1994-1 A-V Trade Receivables Backed Notes (the "Notes") by Sweetheart
Receivables Corporation ("SRC"), a wholly owned, limited purpose, finance
subsidiary, created for this purpose. The interest rate on the Notes is LIBOR
plus 0.4% compared to LIBOR plus 2.5% on the Term Loan. After giving effect to
such transactions, the Company's total indebtedness increased from approximately
$351.3 million as of September 19, 1994 to $371.3 million as of September 20,
1994.
SRC purchases new receivables from Sweetheart Cup Company Inc. on an
ongoing basis subject to certain formulas resulting in over
collateralization of the Notes based on receivable collections and dilution
requirements. These amounts are invested by the Trustee on behalf of SRC and
are only available to the Company under limited circumstances. The balance of
cash in SRC was $28.9 million and $16.0 million at September 30, 1996 and 1995,
respectively, and is reported as restricted cash in the consolidated balance
sheet. The balance of restricted cash will fluctuate throughout the year based
on the level of receivables available to collateralize the Notes. Management
believes that the amount of the Notes is such that the restrictions on cash will
not have any impact on the Company's ability to meet its cash obligations.
In connection with the issuance of the Notes, certain terms and conditions
of the Credit Agreement were amended. The Revolving Loan Facility is limited to
50% of eligible inventory of Sweetheart Cup Company Inc. (up to a maximum of
$150 million of eligible inventory). In addition, the combined borrowing
outstanding under the Revolver plus the Notes less the aggregate amount of cash
on deposit in certain SRC accounts may not exceed $115 million in aggregate.
Management believes that cash generated by operations and funds available
for working capital borrowings under the Credit Agreement and the Lily Canada
Credit Agreement will be sufficient to meet the Company's expected operating
needs, planned capital expenditures and debt service requirements.
NET OPERATING LOSS CARRYFORWARDS
As of September 30, 1996 the Company had approximately $126 million of net
operating loss ("NOL") carryforwards for federal income tax purposes. The
Acquisition resulted in a significant limitation on the Company's ability to
utilize its NOL carryforwards. Although the Company has taken certain steps to
allow utilization of the NOL carryforwards and anticipates that a substantial
portion of its NOL carryforwards will be available to offset future taxable
income, there can be no assurance that its NOL carryforwards will become
available or that the Company will generate future taxable income. Accordingly,
all or a portion of its NOL carryforwards could expire unutilized, which could
adversely affect the Company's ability to satisfy its obligations as they become
due. The Company has reserved a portion of the tax benefit of its NOL
carryforwards for financial statement purposes. The Company believes that
future taxable income will be generated to realize the unreserved portion, due
primarily to management's commitment to cost reduction strategies (as indicated
by the Company's intent to significantly increase capital spending for cost
reduction opportunities).
EFFECT OF INFLATION
Inflation will increase the Company's costs, including the cost of
borrowing and raw materials. Depending upon business conditions, the Company
attempts to increase the sales price of its products to mitigate the effect of
such increases. There can be no assurance that the Company will be successful
in increasing the prices of its products to offset all, or any portion, of any
cost increases.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this
report, beginning on page 25.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages and positions of the directors,
executive officers and key employees of Sweetheart Holdings Inc. and Sweetheart
Cup Company Inc. as of December 20, 1996. All directors hold office until the
next annual meeting of shareholders and until their successors are duly elected
and qualified. Officers serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
- ----- --- ---------
<S> <C> <C>
Burnell R. Roberts 69 Chairman of the Board and Director of
Sweetheart Holdings Inc. and Sweetheart Cup
Company Inc.
William F. McLaughlin 48 President, Chief Executive Officer and
Director of Sweetheart Holdings Inc. and
Sweetheart Cup Company Inc.
W. Richard Bingham 61 Director of Sweetheart Holdings Inc. and
Sweetheart Cup Company Inc.
Theodore C. Rogers 62 Director of Sweetheart Holdings Inc. and
Sweetheart Cup Company Inc.
Peter W. C. Mather 61 Director of Sweetheart Holdings Inc. and
Sweetheart Cup Company Inc.
Charles E. Busse 58 Vice President of Research and Engineering of
Sweetheart Holdings Inc. and Sweetheart Cup
Company Inc.
Daniel M. Carson 50 Vice President, General Counsel and Corporate
Secretary of Sweetheart Holdings Inc. and
Sweetheart Cup Company Inc.
James R. Mullen 53 Vice President of Human Resources of
Sweetheart Holdings Inc. and Sweetheart Cup
Company Inc.
Rickey Schneider 47 Vice President of Manufacturing of Sweetheart
Holdings Inc. and Sweetheart Cup Company Inc.
Martin S. Yanover 43 Vice President and Chief Information Officer
of Sweetheart Holdings Inc. and Sweetheart Cup
Company Inc.
Roger A. Lindahl 39 Treasurer of Sweetheart Holdings Inc. and
Sweetheart Cup Company Inc.
Marguerite E. Davis 42 Vice President of Sweetheart Cup Company Inc.
William H. Haas 55 Vice President of Sweetheart Cup Company Inc.
Joseph A. Lucas 56 Vice President of Sweetheart Cup Company Inc.
Vincent J. Truant 49 Vice President of Sweetheart Cup Company Inc.
</TABLE>
Mr. Roberts is the former Chairman and Chief Executive Officer of Mead
Corporation ("Mead"), a paper products and electronic publishing
company. Mr. Roberts joined Mead in 1966 and served in a variety of positions,
including Controller, Vice President of Finance and Executive Vice President.
He was named President of Mead in 1981 and served as Chairman and Chief
Executive Officer from 1982 until May 1992. From May 1992 until May 1993, Mr.
Roberts served as a director of Mead. Mr. Roberts has been a director of AIPM
since he joined the firm in January 1993, and is a limited partner of American
Industrial Partners, L.P. ("AIP-LP"), the general partner of AIP. Mr. Roberts
is also a director of Rayonier Inc, Armco Inc., Perkin Elmer Corporation, DPL
Inc. and Universal Protective Packaging Co.
Mr. McLaughlin has served as President and Chief Executive Officer of
Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. since May 1994. Prior
to joining the Company, he was Executive Vice President of Nestle Brands
Foodservice, a leading supplier of food and beverage products to the foodservice
industry. Prior to 1991, he spent eight years in several positions, including
President of L.J. Minor Corporation, a Nestle subsidiary and specialty producer
of flavors for the foodservice industry.
Mr. Bingham co-founded AIPM and has been a director and officer of the
firm since 1989. He is also a general partner of AIP-LP. Prior to co-founding
AIPM, Mr. Bingham was a Managing Director of Shearson Lehman Brothers from 1984
until late 1987. Prior to joining Shearson Lehman Brothers, Mr. Bingham was
Director of the Corporate Finance Department, a member of the Board, and head of
Mergers & Acquisitions at Lehman Brothers Kuhn Loeb Inc. Prior thereto, he
directed investment banking operations at Kuhn Loeb & Company where he was a
Partner and member of the Board and Executive Committee. He formerly served on
the Boards of Avis Inc., ITT Life Insurance Corporation and Valero Energy
Corporation.
Mr. Rogers co-founded AIPM and has been a director and officer of the firm
since 1989. He is also a general partner of AIP-LP. From 1980 to 1987, he
served as Chairman, President and Chief Executive Officer of NL
Industries, Inc., a petroleum service and chemical company. Prior to 1980, he
served as an executive of Armco Inc., a diversified steel company, where he
managed numerous manufacturing operations in the United States and Mexico. Mr.
Rogers is a former director of Allied Stores Corporation, Allied-Signal Inc.,
Parsons Corporation and Southwest Bancshares. He is currently a director of
MCorp. and Derby International Corporation.
Mr. Mather is the former Vice President Management Information Services
(MIS) of Air Products and Chemicals Inc. (APCI), an industrial gases and
chemical company. Mr. Mather joined APCI in 1967, was appointed Vice President
MIS in 1982, and retired from the company in 1996. Mr. Mather is currently
serving as Assistant Secretary of Commerce for the state of Oklahoma.
Mr. Carson has served as Vice President, General Counsel and Corporate
Secretary of Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. since
October 1993 and has served as Vice President, General Counsel, and Corporate
Secretary of Sweetheart Cup Company Inc. and as Corporate Secretary of
Sweetheart Holdings Inc. since February 1993. He served as Assistant General
Counsel and Director of U.S. Legal Affairs of Avon Products, Inc., a consumer
products company, from September 1991 to February 1993 and was Of Counsel to
Bell, Boyd & Lloyd (Chicago, Illinois) from June 1991 to August 1991. From May
1981 until June 1991, Mr. Carson was Associate General Counsel for Continental
Can Company, Inc., a packaging and paper products company.
Mr. Mullen has served as Vice President of Human Resources of Sweetheart
Holdings Inc. and Sweetheart Cup Company Inc. since June 1994. From October
1984 to October 1993, Mr. Mullen was employed in two divisions of Sara Lee
Corporation, a consumer products company, as Vice President of Human Resources.
Prior to October 1984, Mr. Mullen was employed by Frito-Lay, a food company,
Xerox Corporation, a document company, and General Dynamics, a defense
contractor.
Mr. Schneider has served as Vice President of Manufacturing since October
1994. From October 1986 to September 1994, Mr. Schneider served in various
manufacturing capacities in Owings Mills including, Production Staff Manager,
Operations Manager, and Plant Manager. Prior to joining Sweetheart, Mr.
Schneider was employed for ten years by Boise Cascade Composite Can Division,
producing cans and plastic bottles for the food and oil industry. Mr. Schneider
held a number of manufacturing positions during his tenure.
Mr. Yanover has served as Vice President and Chief Information Officer of
Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. since August 1994.
From July 1993 to August 1994, Mr. Yanover was employed by Nestle Brands
Foodservice as Director of Management Information Systems. From June 1991 to
July 1993, Mr. Yanover was employed by Pepsi-Cola, a beverage company, as
Project Manager. Prior to June 1991, Mr. Yanover was employed by Technical
Connections and Source EDP, executive search firms, Great Western Bank, a
financial institution, and Baxter International, a pharmaceutical company.
Mr. Lindahl has served as Treasurer of Sweetheart Holdings Inc. and
Sweetheart Cup Company Inc. since October 1994. From November, 1989 to October,
1994, Mr. Lindahl served as Assistant Treasurer of Sweetheart Cup Company Inc.
Prior to 1989, Mr. Lindahl was employed by Fort Howard Corporation, a paper
company, and Bull Information Systems and its predecessors.
Mr. Busse has been employed by Sweetheart Cup Company Inc. and its
predecessors since 1963 and has served as Vice President of Research and
Engineering of Sweetheart Cup Company Inc. since 1983.
Ms. Davis has served as Vice President of National Accounts of Sweetheart
Cup Company Inc. since October, 1994. From 1990 to September, 1994, Ms. Davis
served as a Director of Marketing for Sweetheart Cup Company Inc. Prior to
joining the Company, Ms. Davis was employed for 15 years by the Quaker Oats
Company, a food company, in a number of marketing management, product
management, field sales and training program development positions.
Mr. Haas has served as Vice President of Foodservice Distribution of
Sweetheart Cup Company Inc. and its predecessors since 1985. Prior to joining
the Company, Mr. Haas was employed for more than 20 years by Carnation Co.,
Inc., a food products company, in various sales and sales management capacities
and by Nabisco, Inc., a food products company, as Director of National Account
Sales.
Mr. Lucas has served as Vice President of Packaging of Sweetheart Cup
Company Inc. since 1991. Prior to joining the Company, he was employed for
almost 28 years by Continental Can Company in various positions, including
President of Continental White Cap, Inc., a packaging company, and Vice
President of Sales and Marketing of Continental White Cap, Inc. and Continental
Bondware, Inc.
Mr. Truant has served as Vice President of McDonald's Sales of Sweetheart
Cup Company Inc. since October, 1994. From April, 1989 to September, 1994, Mr.
Truant served as Vice President of National Accounts for Sweetheart Cup Company.
Prior to joining the Company in 1983, Mr. Truant served as Vice President of
Marketing for Century Importers Ltd., a Philip Morris affiliate. Mr. Truant
also held several sales and marketing positions at Miller Brewing Co., a
division of Philip Morris, and Eli Lilly & Co., a pharmaceutical manufacturer.
COMPENSATION OF DIRECTORS
Mr. Mather has an agreement with the Company whereby he is compensated on
a quarterly basis in the amount of $4,500 per quarter, and receives $500 plus
expenses for each meeting attended. The remaining directors of Sweetheart
Holdings Inc. and Sweetheart Cup Company do not receive any direct
compensation from such companies for serving as a director. Certain directors of
Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. are employees of
Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. and receive
compensation as such, and others are employees of AIPM, to which Sweetheart Cup
Company Inc. pays fees for advisory and management services. See Item 13
"Certain Relationships and Related Transactions". Directors are reimbursed for
expenses incurred while serving on the Board.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
for the years ended September 30, 1996, 1995 and 1994, of the chief executive
officer and the four most highly compensated officers and key employees of
Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. (collectively, the
"named executive officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
- ------------------------- --------------------------------------- ------------
# of Options All Other
Name and Principal Fiscal Salary Bonus Granted Compensation
Position Year ($) ($)(1) (2) ($)
- ------------------------- -------- ------- --------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William F. McLaughlin 1996 400,000 498,000 - 18,207 (3)
President and Chief 1995 400,000 684,522 - 222,838 (4)
Executive Officer of 1994 (5) 150,000 200,000 10,965 41,369 (6)
Sweetheart Holdings Inc.
and Sweetheart Cup Company
Inc.
Joseph A. Lucas 1996 174,150 87,150 - 65,997 (7)
Vice President of 1995 169,950 102,089 - 96,608 (8)
Packaging of Sweetheart 1994 161,060 88,706 2,186 79,624 (9)
Cup Company Inc.
William H. Haas 1996 178,313 89,640 600 35,235 (10)
Vice President of 1995 171,187 103,357 - 6,111 (11)
Foodservice Distributio 1994 162,181 89,126 2,251 5,400 (12)
of Sweetheart Cup
Company Inc.
Daniel M. Carson 1996 170,625 60,133 - 49,214 (13)
Vice President, General 1995 162,500 94,476 - 5,721 (14)
Counsel and Corporate 1994 147,500 79,952 1,831 82,758 (15)
Secretary of Sweetheart
Holdings Inc. and
Sweetheart Cup Company
Inc.
Charles E. Busse 1996 176,325 63,766 - 5,369 (16)
Vice President of 1995 169,950 100,451 - 5,773 (17)
Research and Engineering 1994 156,691 87,067 1,930 4,593 (18)
of Sweetheart Holdings
Inc. and Sweetheart Cup
Company Inc.
<FN>
(1) Amounts shown were paid pursuant to the Company's Management Incentive
Plans.
(2) All such grants were made pursuant to the 1994 Stock Option and Purchase
Plan.
(3) Reflects $10,989 paid for relocation expenses, $6,000 contributed under the
401(k) Plan and $1,218 of term life insurance premiums paid by the Company.
(4) Reflects $113,563 paid for relocation expenses, $101,963 for the payment of
taxes on relocation expense reimbursements, $6,000 contributed under the
Sweetheart 401(k) Retirement Plan (the "401(k) Plan") (to which the Company
contributes an amount equal to 50% of the participant's contributions not
in excess of 6% of the participant's eligible earnings) and $1,312 of term
life insurance premiums paid by the Company.
(5) Mr. McLaughlin became President and Chief Executive Officer effective May
15, 1994. Amounts shown here were paid during the remainder of fiscal
year 1994.
(6) Reflects amounts paid for relocation related expenses.
(7) Reflects $59,026 paid for relocation expenses, $5,873 contributed under the
401(k) Plan and $1,098 of term life insurance premiums paid by the Company.
(8) Reflects $91,488 paid for relocation expenses, $4,586 contributed under the
401(k) Plan and $534 of term life insurance premiums paid by the Company.
(9) Reflects $74,624 paid under an agreement pursuant to the change in
ownership, $4,338 contributed under the 401(k) Plan and $662 of term life
insurance premiums paid by the Company.
(10) Reflects $30,000 paid for relocation expenses, $4,219 contributed under the
401(k) Plan and $1,016 of term life insurance premiums paid by the Company.
(11) Reflect $5,568 contributed under the 401(k) Plan and $543 of term life
insurance premiums paid by the Company.
(12) Reflects $4,721 contributed under the 401(k) Plan and $679 of term life
insurance premiums paid by the Company.
(13) Reflects $44,176 paid for relocation expenses, $4,376 contributed under the
401(k) Plan and $662 of term life insurance premiums paid by the Company.
(14) Reflects $5,123 contributed under the 401(k) Plan and $598 of term life
insurance premiums paid by the Company.
(15) Reflects $10,719 paid for relocation expenses, $6,593 contributed under the
401(k) Plan, $196 of term life insurance premiums paid by the Company, and
an initial employment bonus of $65,250.
(16) Reflects $4,271 contributed under the 401(k) Plan and $1,098 of term life
insurance premiums paid by the Company.
(17) Reflects $5,263 contributed under the 401(k) Plan and $510 of term life
insurance premiums paid by the Company.
(18) Reflects $4,058 contributed under the 401(k) Plan and $535 of term life
insurance premiums paid by the Company.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
Value of
Unexercised Options Unexercised Options
September 30, 1996 September 30,
Name Exercisable Unexercisable 1996 ($) (1)
---------------------- ----------- ------------- -----------------
<S> <C> <C>
William F. McLaughlin 4,265 6,700
Joseph A. Lucas 850 1,336
William H. Haas 871 1,975
Daniel M. Carson 712 1,119
Charles E. Busse 751 1,179
<FN>
(1) There is no market value for the Company's stock but the estimated
value of the stock is equal to the exercise price at September 30, 1996
of $100 per share.
</TABLE>
MCLAUGHLIN EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with William F. McLaughlin
dated as of May 15, 1994 (the "McLaughlin Agreement") pursuant to which the
Company employed Mr. McLaughlin to serve as president and chief executive
officer of the Company. Pursuant to the McLaughlin Agreement, Mr. McLaughlin is
entitled to participate in, among other things, the Company Management Incentive
Plan, a Stock Option and Purchase Plan and certain other employee benefit plans
and programs made available to other employees of the Company. Mr. McLaughlin
also purchased 1,000 shares of Sweetheart Holdings Inc. common stock for $100
per share and an additional 5,000 shares at the same price in exchange for a 5-
year promissory note at 6.43% interest per annum. Mr. McLaughlin's employment
is terminable by the Company at any time and by Mr. McLaughlin upon 30 days
prior notice. In the event of termination by the Company for any reason other
than cause, the Company will be obligated to pay Mr. McLaughlin's base salary
for a period of twelve months following the termination of his employment or
until he secures other employment, whichever comes first.
COMPENSATION COMMITTEE
The Sweetheart Holdings Inc. Compensation Committee of the Board of
Directors consisted of W. Richard Bingham, Burnell R. Roberts, and
Theodore C. Rogers, all of whom are Directors of the Company. Mr. Roberts is an
officer but not an employee of the Company. Neither Mr. Bingham nor Mr. Rogers
is an officer or employee of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Sweetheart Holdings Inc. common stock as of December 20,
1996, by holders having beneficial ownership of more than five percent of
Sweetheart Holdings Inc. common stock and certain other principal holders, by
each of the directors of Sweetheart Holdings Inc., by each of the named
executive officers and by all directors and executive officers of Sweetheart
Holdings Inc. as a group.
<TABLE>
<CAPTION>
Common Stock
------------------------------
Number of Percent of
Name of Beneficial Owner Shares Class
- --------------------------- ---------- ----------
<S> <C> <C>
American Industrial Partners Capital Fund, L.P. 538,825 51.51%
One Maritime Plaza
Suite 2525
San Francisco, CA 94111
Mellon Bank, N.A., as Trustee for First Plaza
Group Trust (1) .............................. 350,000 33.46
One Mellon Bank Center
Pittsburgh, PA 15258
Leeway & Co., as nominee for the AT&T Master
Pension Trust (2) ............................ 150,000 14.34
c/o State Street Bank & Trust Co.
Master Trust Division - W6C
1 Enterprise Drive
North Quincy, MA 02171
W. Richard Bingham (3) ...................... 538,825 51.51
Burnell R. Roberts (4) ...................... - -
Theodore C. Rogers (3) ...................... 538,825 51.51
Peter W. C. Mather .......................... - -
William F. McLaughlin ....................... 6,000 0.57
Joseph A. Lucas ............................. - -
William H. Haas ............................. - -
Daniel M. Carson ............................ - -
Charles E. Busse ............................ - -
Directors and executive officers as a group
(15 persons) (5) ............................ 544,825 52.08
- ---------
<FN>
(1) Mellon Bank, N.A., acts as the trustee (the "Trustee") for First Plaza
Group Trust ("First Plaza"), a trust under and for the benefit
of certain employee benefit plans of General Motors Corporation ("GM") and
its subsidiaries. These shares may be deemed to be owned beneficially by
General Motors Investment Management Corporation ("GMIMCo"), a wholly-owned
subsidiary of GM. GMIMCo's principal business is providing investment
advice and investment management services with respect to the assets of
certain employee benefit plans of GM and its subsidiaries and with respect
to the assets of certain direct and indirect subsidiaries of GM and
associated entities. GMIMCo is serving as First Plaza's investment manager
with respect to these shares and in that capacity it has the sole power to
direct the Trustee as to the voting and disposition of these shares.
Because of the Trustee's limited role, beneficial ownership of the shares
by the Trustee is disclaimed.
(2) State Street Bank & Trust Co. acts as trustee for a trust under and for
the benefit of certain employee benefit plans of American Telephone &
Telegraph Co. ("AT&T") and its subsidiaries. These shares may be deemed to
be owned beneficially by the AT&T Master Pension Trust (the "Trust").
(3) All of such shares are held of record by AIP. Messrs. Bingham and Rogers
are general partners of the general partner of AIP and share investment and
voting power with respect to the securities owned by AIP. The business
address of Mr. Bingham is One Maritime Plaza, Suite 2525, San Francisco, CA
94111, and the business address of Mr. Rogers is 551 Fifth Avenue, Suite
3800, New York, NY 10176.
(4) Mr. Roberts is a limited partner of the general partner of AIP and a
director of AIPM, but does not share investment or voting discretion with
respect to the securities held by AIP.
(5) All of such shares are held of record by AIP, except for the 6,000 shares
held by Mr. McLaughlin.
</TABLE>
All of the outstanding common stock of Sweetheart Cup Company Inc. is owned
by Sweetheart Holdings Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS' AGREEMENT
In connection with the Acquisition, Sweetheart Holdings Inc. and the
Investors entered into a Stockholders' Agreement pursuant to which the Investors
were granted certain registration rights and participation rights. Pursuant to
the Stockholders' Agreement, each of First Plaza Group Trust and Leeway & Co.
has the right to elect an individual to serve on the Board of Directors of each
of Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. so long as it holds
any of the securities issued to it pursuant to the Acquisition. AIP has the
right to elect the majority of the directors of Sweetheart Holdings Inc. and
Sweetheart Cup Company Inc. until the earlier of (i) the occurrence of certain
events and (ii) such time as AIP no longer holds any of the securities issued to
it pursuant to the Acquisition.
MANAGEMENT SERVICES AGREEMENT WITH AIPM
AIP, which is Sweetheart Holdings Inc.'s largest stockholder, is a private
investment partnership that makes equity investments, principally in industrial
and manufacturing companies in the United States. The firm was formed in 1989.
AIP is managed by AIPM, W. Richard Bingham and Theodore C. Rogers, each general
partners of AIP-LP.
AIPM receives an annual fee of $1.85 million for providing general
management, financial and other corporate advisory services to the Company,
payable semi-annually 45 days after the scheduled interest payment dates for the
Notes, and is reimbursed for out-of-pocket expenses. The fees are paid to AIPM
pursuant to a Management Services Agreement among AIPM, Sweetheart Holdings Inc.
and Sweetheart Cup Company Inc. AIPM, an affiliate of the
controlling shareholder of the Company, expects to provide substantial ongoing
financial and management services to the Company utilizing the extensive
operating and financial experience of the AIPM principals.
In addition, for the year ended September 30, 1996, the Company will
reimburse AIPM for $950,000 of expenses incurred in connection with an
investigation of the Company's strategic alternatives.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this report:
1. The financial statements listed in the "Index to Financial Statements."
2.The financial statement schedule listed in the "Index to Financial
Statement Schedules."
3. Exhibits
3.1 Certificate of Incorporation of Sweetheart Holdings Inc.
(incorporated by reference from Exhibit 3.1 of the Company's
report on Form 10-K dated December 22, 1993 (the "1993 10-K")).
3.2 By-laws of Sweetheart Holdings Inc. (incorporated by reference
from Exhibit 3.3 of the 1993 10-K).
4.1 Indenture for the Senior Secured Notes between Sweetheart Cup
Company Inc. and United States Trust Company of New York, as
Trustee (incorporated by reference from Exhibit 4.1 of Sweetheart
Holdings Inc.'s Report on Form 8-K dated October 6, 1993 (the
"1993 8-K")).
4.2 Indenture for the Senior Subordinated Notes between Sweetheart Cup
Company Inc. and U.S. Trust Company of Texas, N.A., as Trustee
(incorporated by reference from Exhibit 4.2 on the 1993 8-K).
10.1 Employment Agreement dated May 15, 1994 between Sweetheart
Holdings Inc. and William F. McLaughlin (incorporated by reference
from Exhibit 10.4 of the Company's report on Form 10-Q dated
August 12, 1994).
10.2 Receivables Purchase Agreement between Sweetheart Cup Company Inc.
and Sweetheart Receivables Corporation dated September 20, 1994
(incorporated by reference from Exhibit 10.5 of the Company's
report on Form 10-K dated December 9, 1994 (the "1994 10-K")).
10.3 Indenture and Security Agreement among Sweetheart Receivables
Corporation, Sweetheart Cup Company Inc. and Manufacturers and
Traders Trust Company dated September 20, 1994 (incorporated by
reference from Exhibit 10.6 of the 1994 10-K).
10.4 Supplemental Indenture for Series 1994-1 A-V Notes among
Sweetheart Receivables Corporation, Sweetheart Cup Company Inc.
and Manufacturers and Traders Trust Company dated September 20,
1994 (incorporated by reference from Exhibit 10.7 of the 1994 10-
K).
10.5 Credit Agreement among Sweetheart Inc., Sweetheart Cup Company
Inc., various banks and Bankers Trust Company, as Agent (the
"Credit Agreement") (incorporated by reference from Exhibit 28.1
of the 1993 8-K).
10.6 First Amendment to the Credit Agreement dated July 22, 1994
(incorporated by reference from Exhibit 10.9 of the 1994 10-K).
10.7 Management Services Agreement dated as of August 30, 1993 among
the Sweetheart Holdings Inc., Sweetheart Cup Company Inc. and
American Industrial Partners Management Company, Inc. (the
"Management Services Agreement") (incorporated by reference from
Exhibit 28.2 of the 1993 8-K).
10.8 Restated Management Services Agreement dated August 31, 1993
(incorporated by reference from Exhibit 10.11 of the 1994 10-K).
10.9 $1,000,000 Rockdale County, Georgia Industrial Revenue Bonds,
Series 1976: Loan Agreement dated as of August 1, 1976 between
Development Authority of Rockdale County, Georgia and Maryland Cup
Corporation; and Trust Indenture dated as of August 1, 1976
between Development Authority of Rockdale County, Georgia and The
Citizens and Southern National Bank, as Trustee (incorporated by
reference from Exhibit 10.8 of the Registration Statement).
10.10 $1,000,000 City of Sparks, Nevada Industrial Revenue Bonds, Series
1977: Lease and Agreement dated as of February 1, 1977 between
City of Sparks, Nevada and Sweetheart Plastics, Inc.; Trust
Indenture dated as of February 1, 1977 between City of Sparks,
Nevada and First National Bank of Nevada, Reno, Nevada; and
Guaranty Agreement dated as of February 1, 1977 between Maryland
Cup Corporation and First National Bank of Nevada,
Reno, Nevada (incorporated by reference from Exhibit 10.9 of the
Registration Statement).
10.11 $2,500,000 Manchester, New Hampshire Industrial Revenue Bonds,
Series 1979: Loan Agreement and Assignment in Trust dated as of
June 1, 1979 between the Industrial Development Authority of the
State of New Hampshire and Maryland Cup Corporation and State
Street Bank and Trust Company, Trustee; and Assumption Agreement
dated as of August 26, 1983 by MC Acquisition Corp. (incorporated
by reference from Exhibit 10.10 of the Registration Statement).
10.12 Term and Revolving Credit Facilities Agreement, dated as of
December 20, 1989, among Lily Canada, BT Bank of Canada and The
Bank of Nova Scotia and Amendment Agreement, dated as of August
30, 1993 between Lily Canada and The Bank of Nova Scotia
(incorporated by reference from Exhibit 10.8 of the 1993 10-K).
10.13 Asset Sale Agreement dated as of October 6, 1993 between
Sweetheart Holdings Inc. and Sweetheart Cup Company Inc.
(incorporated by reference from Exhibit 10.1 of the Company's
report on Form 10-Q dated February 11, 1994).
10.14 Bill of Sale, Assignment and Assumption Agreement dated as of
October 6, 1993 between Sweetheart Holdings Inc. and Sweetheart
Cup Company Inc. (incorporated by reference from Exhibit 10.2 of
the Company's report on Form 10-Q dated February 11, 1994).
10.15 Wraparound Note dated as of October 6, 1993 made by Sweetheart
Holdings Inc. to Sweetheart Cup Company Inc. (incorporated by
reference from Exhibit 10.3 of the Company's report on Form 10-Q
dated February 11, 1994).
10.16 Asset Distribution Agreement dated as of October 6, 1993 between
Sweetheart Holdings Inc. and Sweetheart Cup Company Inc.
(incorporated by reference from Exhibit 10.4 of the Company's
report on Form 10-Q dated February 11, 1994).
10.17 Manufacturing Agreement dated as of October 6, 1993 between
Sweetheart Holdings Inc. and Sweetheart Cup Company Inc. (the
"Manufacturing Agreement") (incorporated by reference from Exhibit
10.5 of the Company's report on Form 10-Q dated February 11,
1994).
10.18 First Amendment to Manufacturing Agreement dated February 25, 1994
(incorporated by reference from Exhibit 10.21 of the 1994 10-K).
10.19 Patent/Know-How License Agreement dated as of October 6, 1993
between Sweetheart Holdings Inc. and Sweetheart Cup Company Inc.
(incorporated by reference from Exhibit 10.6 of the Company's
report on Form 10-Q dated February 11, 1994).
10.20 Sweetheart Holdings Inc. Stock Option and Purchase Plan dated
December 17, 1993 (incorporated by reference from Exhibit 10.26 of
the 1994 10-K).
10.21 Sweetheart Holdings Inc. Management Incentive Plan dated as of
January 27, 1995 (incorporated by reference from Exhibit 10.1 of
the Company's report on Form 10-Q dated February 9, 1995).
10.22 Sweetheart Cup Company Inc. Severance Pay Plan (Effective July 1,
1994) (incorporated by reference from Exhibit 10.2 of the
Company's report on Form 10-Q dated February 9, 1995).
10.23 Sweetheart Cup Company Inc. Deferred Compensation Plan dated as of
January 27, 1995 (incorporated by reference from Exhibit 10.3 of
the Company's report on Form 10-Q dated February 9, 1995).
10.24 Registration Statement on Form S-8 dated April 17, 1995 for the
Sweetheart Cup Company Inc. Deferred Compensation Plan
(incorporated by reference from Exhibit 10.1 of the Company's
report on Form 10-Q dated May 11, 1995).
10.25 Separation agreement between Sweetheart Cup Company Inc. and John
R. Icke dated May 26, 1995 (incorporated by reference from Exhibit
10.1 of the Company's report on Form 10-Q dated August 10, 1995).
10.26 Second Amendment to the Credit Agreement dated September 6, 1996.
10.27 Loan Agreement dated August 1, 1996 between Sweetheart Holdings
Inc. and the State of Maryland Department of Business and Economic
Development.
10.28 Special Incentive Agreement between Sweetheart Holdings Inc. and
its subsidiary, Sweetheart Cup Company Inc. and William F.
McLaughlin dated Decemeber 9, 1996.
10.29 Special Incentive Agreement between Sweetheart Holdings Inc. and
its subsidiary, Sweetheart Cup Company Inc. and Joseph A. Lucas
dated November 18, 1996.
10.30 Special Incentive Agreement between Sweetheart Holdings Inc. and
its subsidiary, Sweetheart Cup Company Inc. and William H. Haas
dated November 18, 1996.
10.31 Special Incentive Agreement between Sweetheart Holdings Inc. and
its subsidiary, Sweetheart Cup Company Inc. and Daniel M. Carson
dated November 18, 1996.
10.32 Special Incentive Agreement between Sweetheart Holdings Inc. and
its subsidiary, Sweetheart Cup Company Inc. and Charles E. Busse
dated November 18, 1996.
21.1 Subsidiaries of the Company (incorporated by reference from
Exhibit 21.1 of the 1994 10-K).
27.0 September 30, 1996 Financial Data Schedule
(b) Current Reports on Form 8-K
None.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants 27
Consolidated Balance Sheets as of September 30, 1996
and September 30, 1995 28
Consolidated Statements of Operations for the years ended
September 30, 1996, 1995 and 1994 29
Consolidated Statements of Cash Flows for the years ended
September 30, 1996, 1995 and 1994 30
Consolidated Statements of Shareholders' Equity for the
years ended September 30, 1996, 1995 and 1994 31
Notes to Consolidated Financial Statements 32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Sweetheart Holdings Inc.:
We have audited the accompanying consolidated balance sheets of SWEETHEART
HOLDINGS INC. (a Delaware corporation) AND SUBSIDIARIES as of September 30, 1996
and 1995 and the related consolidated statements of operations, shareholders'
equity and cash flows for the years ended September 30, 1996, 1995 and 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sweetheart Holdings
Inc. and Subsidiaries as of September 30, 1996 and 1995, and the consolidated
results of their operations and their cash flows for the years ended September
30, 1996, 1995 and 1994 in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
November 25, 1996
<TABLE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------
AS OF SEPTEMBER 30, 1996 AND 1995
---------------------------------
(In thousands, except share data)
---------------------------------
<CAPTION>
September 30
Assets 1996 1995
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,371 $ 8,001
Restricted cash 28,870 15,966
Receivables, less allowances of $2,466
and $2,524, respectively 88,183 102,286
Inventories 192,937 172,059
Deferred income taxes 1,771 3,165
--------- ---------
Total current assets 316,132 301,477
--------- ---------
Property, plant and equipment 527,394 478,159
Less - Accumulated depreciation 99,561 60,596
--------- ---------
Net property, plant and equipment 427,833 417,563
--------- ---------
Other assets 18,645 22,866
--------- ---------
Total assets $ 762,610 $ 741,906
========= =========
Liabilities and Shareholders' Equity
-------------------------------------
Current liabilities:
Accounts payable $ 70,472 $ 65,213
Accrued payroll and related costs 47,828 43,155
Other current liabilities 33,918 36,649
Current portion of long-term debt and bonds 1,535 2,509
--------- ---------
Total current liabilities 153,753 147,526
--------- ---------
Long-term debt 381,879 366,581
Long-term bonds 3,700 2,600
Deferred income taxes 17,803 17,190
Other non-current liabilities 84,060 92,204
Shareholders' equity:
Common stock-
Par value $.01 per share; 3,000,000 shares
authorized; 1,046,000 shares issued and
outstanding 101,100 101,100
Cumulative translation adjustment (322) (141)
Retained earnings 21,060 15,346
Note receivable related to purchase of common
stock (423) (500)
--------- ---------
Total shareholders' equity 121,415 115,805
--------- ---------
Total liabilities and shareholders' equity $ 762,610 $ 741,906
========= =========
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<TABLE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
-----------------------------------------------------
(In thousands)
--------------
<CAPTION>
For the year ended September 30
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 903,308 $ 931,792 $ 845,510
Cost of sales 777,130 810,410 718,067
--------- --------- ---------
Gross income 126,178 121,382 127,443
Selling, general, and administrative 75,251 75,893 75,208
--------- --------- ---------
Operating income 50,927 45,489 52,235
Interest expense (38,832) (38,655) (37,460)
Other (expense) income (2,572) 2,889 1,041
--------- --------- ---------
Income before income taxes 9,523 9,723 15,816
Income taxes 3,809 3,903 6,462
--------- --------- ---------
Net income $ 5,714 $ 5,820 $ 9,354
========= ========= =========
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<TABLE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
-----------------------------------------------------
(In thousands)
--------------
<CAPTION>
For the year ended September 30
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,714 $ 5,820 $ 9,354
Depreciation and amortization 43,373 37,741 29,103
Deferred income tax expense 2,645 3,144 6,082
Changes in operating assets and
liabilities:
Receivables 14,103 (17,863) (11,122)
Inventories (20,878) 21,055 4,087
Accounts payable 5,259 4,852 7,590
Other (6,708) (3,850) (3,562)
--------- --------- ---------
Net cash provided by
operating activities 43,508 50,899 41,532
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant, and
equipment (50,236) (51,625) (39,428)
Proceeds from sales of property,
plant, and equipment - 111 6,847
--------- --------- ---------
Net cash used in investing
activities (50,236) (51,514) (32,581)
--------- --------- ---------
Cash flows from financing activities:
Debt issue costs - - (2,133)
Proceeds from debt 194,160 103,852 183,134
Repayment of debt (178,235) (103,535) (165,827)
Issuance of common stock - - 100
Payment received on common stock
note receivable 77 - -
Increase in restricted cash (12,904) (3,932) (12,034)
--------- --------- ---------
Net cash provided by (used in)
financing activities 3,098 (3,615) 3,240
--------- --------- ---------
Net (decrease) increase in cash and
cash equivalents (3,630) (4,230) 12,191
--------- --------- ---------
Cash and cash equivalents, beginning
of year 8,001 12,231 40
--------- --------- ---------
Cash and cash equivalents, end of year $ 4,371 $ 8,001 $ 12,231
========= ========= =========
Supplemental cash flow disclosures:
Interest paid $ 35,767 $ 35,748 $ 34,662
========= ========= =========
Income taxes paid $ 2,226 $ 1,061 $ 3,697
========= ========= =========
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<TABLE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
-----------------------------------------------------
(In thousands, except share data)
----------------------------------
<CAPTION>
Cumulative Total
Common Translation Retained Note Shareholders'
Stock Adjustment Earnings Receivable Equity
-------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1993 $100,500 $ (124) $ 172 $ - $ 100,548
Issuance of Company stock - 6,000
shares 600 - - - 600
Net income - - 9,354 - 9,354
Translation adjustment - (47) - - (47)
Note receivable - - - (500) (500)
------- -------- ------- -------- --------
Balance, September 30, 1994 101,100 (171) 9,526 (500) 109,955
Net income - - 5,820 - 5,820
Translation adjustment - 30 - - 30
------- -------- ------- -------- --------
Balance, September 30, 1995 101,100 (141) 15,346 (500) 115,805
Net income - - 5,714 - 5,714
Payment received on note - - - 77 77
receivable
Translation adjustment - (181) - - (181)
------- -------- ------- -------- --------
Balance, September 30, 1996 $101,100 $ (322) $21,060 $ (423) $ 121,415
======= ======== ======= ======== ========
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
</TABLE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SEPTEMBER 30, 1996, 1995 AND 1994
----------------------------------
As used in these notes, unless the context otherwise requires, the
"Company" shall refer to Sweetheart Holdings Inc. and its subsidiaries,
including Sweetheart Cup Company Inc.
(1) SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------
(a) Principles of Consolidation and Translation -
------------------------------------------------
The financial statements include all of the accounts of the Company and its
subsidiaries on a consolidated basis as of September 30, 1996 and 1995 and for
the years ended September 30, 1996, 1995 and 1994. For all periods presented,
the consolidated financial statements include all of the accounts of the
Company's United States operations (Sweetheart Holdings Inc. and its domestic
subsidiaries, Sweetheart Cup Company Inc. and Sweetheart Receivables
Corporation) and Lily Cups Inc., a Canadian subsidiary. Assets and liabilities
of Lily Cups Inc. are translated at the rates of exchange in effect at the
balance sheet date. Income amounts are translated at the average of the monthly
exchange rates. The cumulative effect of translation adjustments is deferred
and classified as a cumulative translation adjustment. All significant
intercompany and intergroup accounts and transactions have been
eliminated. Certain prior-period amounts have been reclassified to be
comparable with the current-period presentation.
(b) Cash and Cash Equivalents -
------------------------------
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash overdrafts are
reclassified to accounts payable and accrued payroll and related costs. Cash
balances related to Sweetheart Receivables Corporation are restricted from
transfer to other entities within the Company. Restricted cash is shown
separately on the balance sheet. The balance of restricted cash was $28.9
million and $16.0 million at September 30, 1996 and 1995, respectively.
(c) Inventories -
----------------
Inventories are carried at the lower of cost or market as described in
Note 3.
(d) Property, Plant and Equipment -
----------------------------------
Property, plant and equipment is recorded at cost, less accumulated
depreciation, and is depreciated on the straight-line method over the estimated
useful lives of the assets, with the exception of property, plant, and equipment
acquired prior to January 1, 1991, which is depreciated on the declining balance
method.
The asset lives of buildings and fixtures range between 12 and 50 years
and have an average useful life of 38 years. The asset lives of
equipment range between 5 and 18 years and have an average useful life of 13
years.
(e) Revenue Recognition -
------------------------
Sales of the Company's products are recorded based on shipment of
products.
(f) Income Taxes -
-----------------
Deferred income taxes are provided to recognize temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities. The principal differences relate to depreciation expense,
pension and postretirement benefits and LIFO inventory.
No deferred income taxes have been provided on the cumulative
undistributed earnings of the Canadian subsidiary of Sweetheart Cup Company Inc.
Those earnings (approximately $13.6 million) are considered permanently
reinvested under Accounting Principles Bulletin No. 23. The incremental U.S.
tax costs (deferred taxes) of repatriating these earnings would not be material.
(g) Employee Benefit Plans (also see Note 7) -
---------------------------------------------
The Company has various defined benefit plans and a defined contribution
plan for substantially all employees who meet eligibility requirements.
Benefits under the defined benefit plans are based on years of service, and
funding is in accordance with actuarial requirements of the plans, subject to
provisions of the Employee Retirement Income Security Act. The
Company makes contributions to the defined contribution plan in accordance with
the plan's provisions.
(h) Postretirement Health Care Plans (also see Note 8) -
-------------------------------------------------------
The Company sponsors various defined benefit postretirement health care
plans that cover substantially all employees who meet eligibility requirements.
These plans are not funded by the Company.
(i) Impact of Recently Issued Accounting Standards
---------------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in fiscal 1997, and the Company has not
calculated the impact of adoption.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock Based Compensation, which provides an alternative
to APB Opinion No. 25, Accounting for Stock Issued to Employees in accounting
for stock based compensation issued to employees. The Company will adopt
Statement 123 in fiscal 1997, and the effect is not expected to be material.
(j) 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 periods. Actual results could differ from those estimates.
(2) INVENTORIES
- -----------------
The components of inventories and their valuation methods are as follows
(in thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
----------- -----------
<S> <C> <C>
Components-
Raw materials and supplies $ 55,265 $ 67,452
Finished and partly finished
products 137,672 104,607
-------- --------
$ 192,937 $ 172,059
======== ========
Valued at lower of cost or market -
First in, first out ("FIFO") $ 17,011 $ 17,251
Last in, first out ("LIFO") 155,827 133,867
Average cost by specific lot 20,099 20,941
-------- --------
$ 192,937 $ 172,059
======== ========
</TABLE>
Had inventories valued on the LIFO basis been stated at current
replacement costs, inventories would have been $4,771,000 lower and $7,539,000
higher than reported at September 30, 1996 and 1995, respectively. Cost of
sales on a FIFO basis would have been higher by $12,310,000 for the year ended
September 30, 1996, and lower by $21,022,000 and $1,657,000 for the years ended
September 30, 1995 and 1994, respectively.
(3) PROPERTY, PLANT AND EQUIPMENT
- -----------------------------------
The Company's major classes of property, plant and equipment are as
follows (in thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------ -----------
<S> <C> <C>
Land $ 26,008 $ 25,953
Buildings 90,760 84,298
Machinery and equipment 375,404 321,425
Construction in progress 35,222 46,483
--------- --------
Total 527,394 478,159
---------- --------
Accumulated depreciation 99,561 60,596
---------- --------
Net property, plant and equipment $ 427,833 $417,563
========== ========
</TABLE>
(4) OTHER ASSETS
- ------------------
The components of other assets are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- ------------
<S> <C> <C>
Debt issuance costs, net of
accumulated amortization $ 12,874 $ 16,281
Intangible pension asset
(see Note 8) 2,484 2,028
Other 3,287 4,557
--------- --------
Total $ 18,645 $ 22,866
========= ========
</TABLE>
Amortization of the above debt issuance costs totaled approximately $3.6
million, $3.5 million and $3.2 million for the years ended September 30, 1996,
1995 and 1994, respectively.
(5) OTHER CURRENT LIABILITIES
- ------------------------------
The components of other current liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
----------- -----------
<S> <C> <C>
Sales allowances $ 6,023 $ 6,841
Restructuring costs 4,934 5,000
Taxes other than income taxes 2,288 2,994
Litigation, claims and assessments
(see Note 16) 15,196 16,342
Interest payable 2,798 2,742
Foreign income taxes payable - 223
Other 2,679 2,507
---------- ---------
Total $ 33,918 $ 36,649
========== =========
</TABLE>
(6) OTHER LONG-TERM LIABILITIES
- ---------------------------------
The components of other long-term liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Post retirement health care
benefits (see Note 8) $ 58,725 $ 55,972
Pensions 13,620 20,177
Other 11,715 16,055
---------- ---------
Total $ 84,060 $ 92,204
========== =========
</TABLE>
(7) EMPLOYEE BENEFIT PLANS
- ---------------------------
A majority of the employees ("participants") are covered under a 401(k)
defined contribution plan. The Company's annual contributions to this defined
contribution plan represent a 50% match on participant contributions. The
Company's match is limited to participant contributions up to 6% of participant
salaries. In addition, the Company is allowed to make discretionary
contributions. Costs charged against operations for this defined contribution
plan were approximately $3,715,000, $3,681,000 and $3,487,000 for the years
ended September 30, 1996, 1995 and 1994, respectively. Certain employees are
covered under defined benefit plans. Benefits under the plans are generally
based on fixed amounts for each year of service.
The components of net pension expense for domestic defined benefit plans
are as follows (in thousands):
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, 1996 September 30, 1995 September 30, 1994
------------------ ------------------ ------------------
<S> <C> <C> <C>
Service cost $1,078 $ 952 $1,039
Interest cost 3,545 3,230 3,021
Projected return
on assets (2,874) (1,637) (1,293)
Net amortization 188 16 -
-------- -------- --------
Net pension
expense $1,937 $2,561 $2,767
======== ======== ========
</TABLE>
The status of defined benefit pension plans using data as of the most
recent actuarial valuation dates is as follows (in thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
-------------- ------------
<S> <C> <C>
Actuarial present value of
benefit obligations -
Vested benefits $37,231 $ 35,629
Nonvested benefits 10,741 10,576
-------- --------
Accumulated and projected
benefit obligation 47,972 46,205
Plan assets at fair value 31,023 26,018
-------- --------
Funded status (16,949) (20,187)
Unrecognized prior service cost 2,484 2,028
Unrecognized net gain (626) (430)
Adjustment required to recognize
minimum liability (2,484) (2,028)
-------- --------
Net pension liability $(17,575) $(20,617)
======== ========
</TABLE>
As required by SFAS No. 87, "Employers' Accounting for Pensions," the
Company recognized additional pension liabilities of $2,484,000 and $2,028,000
as of September 30, 1996 and 1995, respectively, and equal amounts as other
assets.
Actuarial assumptions used in calculating the above amounts include a 10.0%
return on plan assets for the year ended September 30, 1996, a 9.0% return on
plan assets for the year ended September 30, 1995, an 8.0% discount rate on
benefit obligations as of September 30, 1996, a weighted average discount rate
of 7.75% for the first six months and 8.0% for the second six months of the year
ended September 30, 1996, a 7.75% discount rate on benefit obligations as of
September 30, 1995, and an 8.5% discount rate for the year ended September 30,
1995.
Data with respect to the Lily Cups Inc., Canada defined benefit plan is not
material and is not included in the above data.
(8) POSTRETIREMENT HEALTH CARE PLANS
- -------------------------------------
The Company sponsors various defined benefit postretirement health care
plans that cover substantially all full-time employees. The plans, in most
cases, pay stated percentages of most medical expenses incurred by retirees,
after subtracting payments by Medicare or other providers and after a stated
deductible has been met. Participants generally become eligible after reaching
age 60 with one year of participation. The majority of the Company's plans are
contributory, with retiree contributions adjusted annually. The accounting for
the plans anticipates future cost-sharing changes to the written plan that are
consistent with the Company's announced policies. The Company does not fund the
plans.
The following table analyzes the plans' unfunded, accrued postretirement
health care cost liability as reflected on the balance sheet (in thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Accumulated Postretirement Benefit
Obligation:
Retirees $25,596 $27,396
Other fully eligible participants 6,472 5,441
Other active participants 17,577 18,739
------- -------
49,645 51,576
Unrecognized prior service cost 1,536 1,675
Unrecognized actuarial gain 10,644 5,821
------- -------
Accrued postretirement health care
cost liability $61,825 $59,072
======= =======
</TABLE>
The components of net postretirement health care cost are as follows (in
thousands):
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 30, September 30,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Service cost-
benefits attributed
to service during
the period $1,533 $1,497 $1,772
Interest cost on
accumulated post-
retirement benefit
obligation 3,868 4,134 4,006
Net amortization
and deferral (187) (118) -
------- ------- -------
Net postretirement
health care cost $5,214 $5,513 $5,778
======= ======= =======
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0%, and 7.75% at September 30, 1996 and
1995, respectively. Net postretirement health care cost was computed using a
weighted average discount rate of 7.75% for the year ended September 30, 1996,
8.5% for the year ended September 30, 1995, and 7.75% for the year ended
September 30, 1994. For measuring the expected postretirement benefit
obligation, a 10.0% annual rate of increase in the per capita claims cost was
assumed for 1996. This rate is assumed to decrease by 1.0% per year to an
ultimate rate of 6.0%. The health care cost trend rate assumption
has a significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of September 30,
1996 and September 30, 1995 by approximately $2.8 million and $3.2 million,
respectively, and the aggregate of the service and interest cost components of
net postretirement health care cost by approximately $0.4 million for each of
the years ended September 30, 1996, 1995 and 1994.
(9) INCOME TAXES
- ------------------
The income tax provision includes the following components (in thousands):
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, 1996 September 30, 1995 September 30, 1994
------------------ ------------------ ------------------
<S> <C> <C> <C>
Current-
Federal $ - $ - $ -
State - - -
Foreign (1,164) (759) (380)
-------- -------- --------
Total current (1,164) (759) (380)
-------- -------- --------
Deferred -
Federal (2,315) (2,829) (5,458)
State (330) (315) (624)
Foreign - - -
-------- -------- --------
Total deferred (2,645) (3,144) (6,082)
-------- -------- --------
$ (3,809) $ (3,903) $ (6,462)
======== ======== ========
</TABLE>
The effective tax rate varied from the U.S. Federal tax rate of 35% for the
years ended September 30, 1996, 1995 and 1994 as a result of the following:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 30, September 30,
1996 1995 1994
------------- ------------- --------------
<S> <C> <C> <C>
U.S. Federal tax rate 35% 35% 35%
Effect of U.S. Federal
tax rate increase on
deferred tax balances - - -
State income taxes, net
of U.S. Federal tax 4 4 4
impact
Other, net 1 1 2
--- --- ---
Effective tax rate 40% 40% 41%
=== === ===
</TABLE>
At September 30, 1996, the Company had deferred tax liabilities of $173
million, of which $32 million are current in nature, and deferred tax assets of
$157 million, of which $34 million are current in nature. Deferred tax assets
and liabilities have been netted as a current asset and a non-current liability
in the accompanying Consolidated Balance Sheets. The Company has a $5 million
valuation allowance as it is deemed more likely than not that a portion of the
net operating losses will not be recognized. The principal temporary
differences included above are depreciation, an $85 million liability, LIFO
inventory, a $23 million liability, net operating loss carryforwards,
a $49 million asset, postretirement health and pension benefits, a $28 million
asset, and $15 million of other net miscellaneous asset items.
The Company has net operating loss carryforwards for income tax purposes of
approximately $126 million, of which $9 million expire in 2004, $51 million
expire in 2005, $25 million expire in 2006, $13 million expire in 2007 and $28
million expire in 2008.
(10) LONG-TERM OBLIGATIONS
- ----------------------------
Long-term debt, including amounts payable within one year, is as follows
(in thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------ -------------
<S> <C> <C>
(i) Sweetheart Cup Company Inc.
Senior Secured Notes, at 9.625%, interest
payable semiannually on March 1 and
September 1 of each year, commencing March
1, 1994, due on September 1, 2000, and are
subject to redemption on or after
September 1, 1997 at the option of the
Company, in whole or in part, at the
redemption prices set forth below
(expressed as percentages of the principal
amount), plus accrued interest to the
redemption date, for redemptions during $190,000 $190,000
the 12 month period beginning September 1,
of the following years:
1997 -- 103.208%, 1998 -- 101.604%, and
1999 -- 100.000%
Senior Subordinated Notes, at 10.50%,
interest payable semiannually on March 1
and September 1 of each year, commencing
March 1, 1994, due on September 1, 2003,
and are subject to redemption on or after
September 1, 1998 at the option of the
Company, in whole or in part, at the
redemption prices set forth below
(expressed as percentages of the principal
amount), plus accrued interest to the
redemption date, for redemption during the
12 month period beginning September 1, of 110,000 110,000
the following years:
1998 -- 103.938%, 1999 -- 102.625%,
2000 -- 101.313%, and 2001 and
thereafter -- 100.000%
Revolving Loan at Bankers Trust's prime rate
plus 1.50%, or Bankers Trust's Eurodollar
rate plus 2.50%, subject to certain
limitations as well as downward adjustment
for any interest period beginning after
October 1, 1994 upon the satisfaction of 15,800 -
certain financial criteria, due on August
30, 1998 (interest rate - 7.91% at
September 30, 1996)
(ii) Sweetheart Receivables Corporation
Sweetheart Receivables Corporation Series
1994-1 A-V Trade Receivables-Backed Notes,
a private placement, at Telerate one month
LIBOR plus .40%. Interest payable monthly
commencing on October 17, 1994 through the
Scheduled Pay-Out Period starting July 31, 60,000 60,000
1999 (interest rates-5.90% and 6.28% at
September 30, 1996 and 1995).
(iii) Lily Cups Inc.
Term Facility, at Bank of Nova Scotia's
prime rate plus 1.25% payable quarterly,
due in equal annual repayments commencing
October 31, 1994 and ending October 31,
1998 (interest rates--7.0% and 9.50% at $ 4,210 $ 5,635
September 30, 1996 and September 30, 1995)
Operating Facility, at Bank of Nova Scotia's
prime rate plus 1.25%, repaid and
reborrowed until October 31, 1998, subject
to satisfaction of certain conditions on
the date of any such borrowing (interest
rates--7.0% and 9.50% at September 30, 3,304 2,355
1996 and September 30, 1995) -------- --------
383,314 367,990
-------- --------
Less - Current portion of long-term debt (1,435) (1,409)
-------- --------
$381,879 $366,581
======== ========
</TABLE>
The aggregate annual maturities of long-term debt at September 30, 1996 are
as follows (in thousands):
1997 $ 1,435
1998 17,188
1999 64,691
2000 190,000
2001 -
2002 and thereafter 110,000
---------
$ 383,314
========
Long-term bonds consist of four industrial development bonds and a loan
from the State of Maryland with interest rates ranging from 6.0% to 6.75%, due
in varying amounts through 2006. The aggregate annual maturities of long-term
bonds at September 30, 1996 are as follows (in thousands):
1997 $ 100
1998 -
1999 2,500
2000 -
2001 -
2002 and thereafter 1,200
-------
$ 3,800
======
The maximum month-end balances outstanding, average amounts outstanding,
and the weighted average interest rates on the domestic Revolving Loan Facility
and Canadian Operating Facility during the years ended September 30 were as
follows (in thousands, except for interest rates):
<TABLE>
<CAPTION>
Domestic Revolving Loan Canadian Operating
Facility Facility
------------------------ -----------------------
1996 1995 1996 1995
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Maximum month-end
balances outstanding $23,000 $14,800 $4,321 $3,840
======= ======= ======= =======
Average amounts
outstanding $8,660 $4,362 $3,564 $2,716
======= ======= ======= =======
Weighted average
interest rates 8.63% 9.21% 8.16% 10.1%
======= ======= ======= =======
</TABLE>
1993 Credit Agreement
- ---------------------
On August 30, 1993, the Company entered into the 1993 Credit Agreement,
which provided for a $40 million Term Loan and a $75 million Revolving Loan
Facility. The Company prepaid the $40 million Term Loan on September 20, 1994
in connection with the issuance of the Sweetheart Receivables Corporation 1994-1
A-V Trade Receivables-Backed Notes and it may not be reborrowed. Additionally,
certain terms and conditions of the Credit Agreement were amended. The Revolving
Loan Facility is limited to 50% of eligible inventory of Sweetheart Cup Company
Inc. (up to a maximum of $150 million of eligible inventory). In addition, the
combined borrowings outstanding under the Revolver plus the Sweetheart
Receivables Corporation 1994-1 A-V Trade Receivables-Backed Notes less the
aggregate amount of cash on deposit in certain Sweetheart Receivables
Corporation accounts may not exceed $115 million in aggregate. The Revolving
Loan borrowings were $15.8 million at September 30, 1996 and fully repaid at
September 30, 1995.
The borrowings under the 1993 Credit Agreement bear interest, at Sweetheart
Cup Company Inc.'s option, at Bankers Trust Company's prime rate plus 1.50% or,
subject to certain limitations, at Bankers Trust Company's Eurodollar rate plus
2.50%. Interest rates may be reduced by 0.25% as of October 1, 1994, and on the
first day of any fiscal quarter thereafter, depending upon Sweetheart Cup
Company Inc.'s ratios of cash flow coverage to interest expense. Up to $15
million of the Revolving Loan Facility may be utilized to issue Letters of
Credit. Approximately $9.7 million in Letters of Credit were issued on behalf
of Sweetheart Cup Company Inc. as of September 30, 1996 and 1995. The 1993
Credit Agreement also provides for the payment of a commitment fee of 0.5% per
annum on the daily average unused amount of the commitments under the Revolving
Loan Facility (approximately $299,600 and $307,800 for the years ended September
30, 1996 and 1995, respectively, as well as a 2.75% per annum fee on outstanding
Letters of Credit (approximately $272,400 and $286,800 for the years ended
September 30, 1996 and 1995, respectively).
Loans made pursuant to the Revolving Loan Facility can be borrowed, repaid,
and reborrowed from time to time until final maturity on August 30, 1998. The
1993 Credit Agreement provides for partial mandatory prepayments upon the
issuance of equity by Sweetheart Holdings Inc. or any of its subsidiaries, and
full repayment upon any change of control (as defined in the 1993 Credit
Agreement). The Revolving Loan Facility also requires a $20 million clear-down
period between December 1 and January 31 of each year, commencing December 1,
1994, whereby the average unused revolver during any consecutive 31-day period
within the clear-down period must average $20 million; failure to do so results
in an immediate reduction of the Revolving Loan Facility by $20 million
effective immediately succeeding February 1.
The indebtedness of Sweetheart Cup Company Inc. under the 1993 Credit
Agreement is guaranteed by Sweetheart Holdings Inc. and secured by a first
priority perfected security interest in inventory, spare
parts and all proceeds of the foregoing of Sweetheart Cup Company Inc., a first
priority security interest, shared with the holders of the Senior Secured Notes,
in Shared Collateral (as defined in the 1993 Credit Agreement to include
primarily all capital stock owned by Sweetheart Holdings Inc. and Sweetheart Cup
Company Inc. and of each of their respective present and future direct
subsidiaries, all intercompany indebtedness payable to Sweetheart Holdings Inc.
or Sweetheart Cup Company Inc. by Sweetheart Holdings Inc., Sweetheart Cup
Company Inc. or their respective present and future subsidiaries, and any
proceeds from business interruption insurance), and a second priority perfected
security interest in the Senior Secured Note collateral as described below.
The 1993 Credit Agreement contains various covenants which limit, or
restrict, among other things, indebtedness, dividends, leases, capital
expenditures, the use of proceeds from asset sales and certain other business
activities, as well as requiring the Company to maintain on a consolidated basis
certain specified ratios and levels at specified times, including, without
limitation, maintenance of minimum interest coverage, a minimum current ratio
and maximum indebtedness. The Company is currently in compliance with all
covenants under the 1993 Credit Agreement.
Senior Secured Notes and Senior Subordinated Notes
- --------------------------------------------------
Sweetheart Cup Company Inc. is the obligor with respect to $190 million of
Senior Secured Notes and $110 million of Senior Subordinated Notes. The Senior
Secured Notes were issued pursuant to an Indenture among Sweetheart Cup Company
Inc., Sweetheart Holdings Inc., as Guarantor, and United States Trust Company of
New York, as Trustee (the "Senior Secured Indenture"). The Senior Secured Notes
bear interest at 9.625% per annum, payable semi-annually in arrears on March 1
and September 1 each year to holders of record on February 15 or August 15 next
preceding the interest payment date. The Senior Secured Notes mature
on September 1, 2000 and were issued in denominations of $1,000 and integral
multiples thereof.
The Senior Secured Notes are secured by a first priority lien on the Senior
Secured Note collateral (which includes all material properties and equipment
and substantially all of the other assets of Sweetheart Cup Company Inc., but
excludes collateral under the 1993 Credit Agreement, the capital stock of its
subsidiaries, and intercompany indebtedness) and by a second lien on collateral
under the 1993 Credit Agreement (primarily accounts receivable, inventory, and
proceeds thereof as described above). The Senior Secured Notes and borrowings
under the 1993 Credit Agreement are also jointly secured by Shared Collateral
(comprised of pledges of the capital stock of Lily Canada, the capital stock of
any direct subsidiaries formed or acquired in the future, future intercompany
notes, and the proceeds of business interruption insurance).
The Senior Secured Indenture contains various covenants which prohibit, or
limit, among other things, asset sales, change of control, dividend payments,
equity repurchases or redemptions, the incurrence of additional indebtedness,
the issuance of disqualified stock, certain transactions with affiliates, the
creation of additional liens, and certain other business activities. The Senior
Secured Notes may be redeemed at the dates and prices indicated in the table
above.
The Senior Subordinated Notes were issued pursuant to an Indenture among
Sweetheart Cup Company Inc., Sweetheart Holdings Inc., as Guarantor, and U.S.
Trust Company of Texas, N.A., as Trustee (the "Senior Subordinated Indenture").
The Senior Subordinated Notes bear interest at 10.50% per annum, payable semi-
annually in arrears on March 1 and September 1 each year to holders of record on
the February 15 or August 15 next preceding the interest payment date. The
Senior Subordinated Notes mature on September 1, 2003 and were issued in
denominations of $1,000 and integral multiples thereof.
The Senior Subordinated Notes are subordinate in right of payment to the
prior payment in full of all Senior Secured Notes, all borrowings under the 1993
Credit Agreement, and all other indebtedness not otherwise prohibited. As a
result of the subordination provisions, and in the event of an insolvency or
liquidation proceeding, holders of the Senior Subordinated Notes may recover a
lesser percentage of their investment than other creditors of the Company.
The Senior Subordinated Indenture contains various covenants which
prohibit, or limit, among other things, asset sales, change of control, dividend
payments, equity repurchases or redemptions, the incurrence of additional
indebtedness, the issuance of disqualified stock, certain transactions with
affiliates, the creation of additional liens, and certain other business
activities. The Senior Subordinated Notes may be redeemed at the dates and
prices indicated in the table above.
Sweetheart Receivables Corporation Series 1994-1 A-V Trade Receivables-Backed
- ----------------------------------------------------------------------------
Notes
- -----
Sweetheart Cup Company Inc. securitizes its receivables through its wholly
owned limited purpose, bankruptcy-remote finance subsidiary, Sweetheart
Receivables Corporation ("SRC"). This structure is intended to segregate
receivables from Sweetheart Cup Company Inc.'s other assets or liabilities and
achieve a lower cost of funds based on the credit quality of the receivables.
On September 20, 1994, SRC issued and sold to Bankers Trust as Placement
Agent, $60 million of Series 1994-1 A-V Trade Receivables-Backed Notes (the
"Notes"), under an indenture and security agreement. The proceeds of the notes
were used to purchase substantially all of the receivables of
Sweetheart Cup Company Inc. on the closing date. SRC's share of the proceeds of
collections on those receivables will be used to purchase newly generated
receivables from Sweetheart Cup Company Inc. on an ongoing basis.
SRC's purchase of receivables from Sweetheart Cup Company Inc. is intended
to be a "true sale" for bankruptcy law purposes and without recourse to
Sweetheart Cup Company Inc., except that Sweetheart Cup Company Inc. will be
required to make payment to SRC for certain dilution of the receivables and will
remain liable for making payments in connection of certain customary
representations and covenants.
SRC grants the Trustee, Manufacturer's and Traders Trust, a first perfected
security interest in the receivables and certain other related assets, subject
to certain limited exceptions. The holders of the Notes have no recourse to the
assets of SRC in respect of obligations under the Notes. Noteholders are
protected by over-collateralization of receivables on the Notes requiring
certain amounts to be set aside in an equalization account and four months of
interest set aside in the carrying cost account by the Trustee. These amounts
may be invested by SRC in highly rated liquid investments such as A-1+
commercial paper and AAA moneymarket funds as rated by Standard & Poors
Corporation. These amounts are shown on the consolidated balance sheet as
restricted cash. Restricted cash totaled $28.9 million and $16.0 million at
September 30, 1996 and 1995, respectively. Sweetheart Cup Company Inc. retains
a promissory note which pays interest monthly at prime rate, subject to certain
limitations, on these and other balances due from SRC.
Sweetheart Cup Company Inc. acts as servicer of the receivables sold. The
interest rate is based on Telerate's one month LIBOR plus .40% and is paid
monthly. The Notes have a first scheduled principal payment date of July 31,
1999 and have a stated maturity date of September 30, 2000. There are certain
early voluntary and involuntary liquidation events. Noteholders are
entitled to certain breakage payments if the Notes are prepaid in part or whole
prior to July 31, 1998. The breakage payment is equal to the present value of
the .40% spread for the period from the prepayment date until the first
scheduled principal payment date, multiplied by the amount of principal
prepayment.
The SRC promissory note and equity held by Sweetheart Cup Company Inc.
constitute Shared Collateral which is a first priority interest shared under the
Credit Agreement and Senior Secured Notes.
Canadian Credit Agreement
- -------------------------
On December 20, 1989, Lily Cups Inc. entered into a Term and Revolving
Credit Facilities Agreement (the "Canadian Credit Agreement"), consisting of CDN
$14.0 million of Term Advances and CDN $6.0 million of Operating Advances.
Effective August 30, 1993, the Canadian Credit Agreement was renegotiated and
extended to provide for equal annual repayments on the remaining CDN $9.5
million Term Facility of CDN $1.9 million beginning October 31, 1994 and ending
October 31, 1998 and to provide for an additional CDN $1.0 million of Operating
Advances in addition to the CDN $6.0 million Operating Facility previously
available. The renegotiated and extended Operating Facility provides for a
final repayment on October 31, 1998. Lily Cups Inc. has pledged substantially
all its assets as collateral for the Canadian Credit Agreement. The Company is
charged a 0.5% fee with respect to any unused balance available under the
Canadian Credit Agreement as renegotiated and extended. At September 30, 1996
and 1995, the available capacity under the Canadian Credit Agreement was CDN
$2.4 million and CDN $3.8 million, respectively (U.S. $1.8 million and U.S. $2.9
million, respectively).
(11) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments held by the Company:
Current assets and current liabilities - The carrying amount approximates
fair value because of the short maturity of those instruments.
Long-term bonds - The carrying amount approximates fair value based on the
nature of the instrument.
Long-term debt - The fair value of the Company's Senior Secured Notes and
the Senior Subordinated Notes are based on the quoted market prices at the
end of the fiscal years. The other instruments have variable interest
rates that fluctuate along with current market conditions.
The estimated fair values of the Company's financial instruments at
September 30 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
----------------------- ------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 4,371 $ 4,371 $ 8,001 $ 8,001
Other current assets 311,761 311,761 293,476 293,476
Current portion of long-
term debt and bonds 1,535 1,535 2,509 2,509
Other current liabilities 152,218 152,218 145,017 145,017
Long-term bonds 3,700 3,700 2,600 2,600
Long-term debt 381,879 388,792 366,581 366,970
</TABLE>
The fair value of the Company's long-term debt is estimated to be
$6,913,000 higher than the carrying value at September 30, 1996 and $389,000
higher than the carrying value at September 30, 1995. The differences are
primarily the result of fluctuations in the interest rate market since the
issuance of the Company's Senior Secured Notes and Senior Subordinated Notes.
(12) LEASE COMMITMENTS
- -----------------------
The Company leases certain transportation vehicles, warehouse and office
facilities, and machinery and equipment under both cancelable and
non-cancelable operating leases, most of which expire within ten years and may
be renewed by the Company. Rent expense under such arrangements totaled
$15,636,000, $12,417,000 and $12,125,000 for the years ended September 30, 1996,
1995 and 1994, respectively. Future minimum rental commitments under non-
cancelable operating leases in effect at September 30, 1996 are as follows (in
thousand of dollars):
1997 $7,284
1998 5,659
1999 4,752
2000 4,125
2001 3,170
2002 and thereafter 5,978
--------
$30,968
=======
Data with respect to Lily Cups Inc.'s rental commitments for the years 1997
and thereafter is not material and is not included in the above table.
(13) SHAREHOLDERS' EQUITY
- --------------------------
Sweetheart Holdings Inc. has a single-class capital structure consisting of
3,000,000 shares of common stock, par value $.01 per share. As of August 30,
1993, 1,040,000 shares of single-class stock were issued to AIP,
First Plaza Group Trust (Mellon Bank, N.A., as Trustee) and AT&T Master Pension
Trust (Leeway and Company as nominee) for approximately $100.5 million. All
outstanding shares of single-class common stock are deemed fully paid and
nonassessable. The single-class common stock is neither redeemable nor
convertible, and the holders thereof have no preemptive or other subscription
rights to purchase any securities of Sweetheart Holdings Inc. There currently
is no public market for this common stock. During the third quarter of fiscal
year 1994, the Company issued 6,000 authorized shares of common stock for $100
per share. The Company received approximately $100,000 in cash and a $500,000
promissory note in consideration for the shares. The promissory note is
reflected as a reduction to shareholders' equity in the consolidated balance
sheet. There were 1,046,000 shares of single-class common stock outstanding as
of September 30, 1996 and 1995.
Subject to Delaware law and limitations in certain debt instruments (Senior
Secured Notes, Senior Subordinated Notes, and borrowings under the 1993 Credit
Agreement), common shareholders are entitled to receive such dividends as may be
declared by Sweetheart Holdings Inc.'s Board of Directors out of funds legally
available thereof. In the event of a liquidation, dissolution or winding up of
Sweetheart Holdings, Inc., common shareholders are entitled to share ratably in
all assets remaining after payment or provision for payment of debts or other
liabilities of Sweetheart Holdings Inc. Each outstanding common share is
entitled to one vote on any matter submitted to a vote of stockholders. This
single-class common stock has no cumulative voting rights.
The Board of Directors of Sweetheart Holdings Inc. approved the Stock
Option and Purchase Plan (the "Plan") during fiscal year 1994 which provides for
the granting of nonqualified and incentive stock options as defined by the
Internal Revenue Code. The Plan is administered by the Compensation Committee
(the "Committee") of the Board of Directors. The Committee has the authority to
select participants, grant stock purchase options, and make all
necessary determinations for the administration of the Plan. The exercise price
per share of common stock under each option is fixed by the Committee at the
time of the grant of the option and is equal to at least 100% of the fair market
value of a share of common stock on the date of grant, but not less than $100
per share. The Committee determines the term of each option which may not
exceed ten years from the date of grant of the option. Options are exercisable
in equal increments over fiscal years 1994, 1995, 1996, and 1997, depending on
certain operating results of the Company. Any options not exercisable within
the above years are exercisable on the ninth anniversary of the grant of the
option. Under the provisions of the Plan, the Committee may also grant
participants the short-term option to purchase shares of common stock at a price
per share equal to not less than the fair market value of the common stock on
the date of grant. Short-term options expire 30 days after the date of grant to
the extent not exercised.
The Plan provides for the issuance of up to 103,000 shares of common stock
in connection with the stock options granted under the Plan. Options that are
canceled or expire unexercised are available for future grants. Key managers
were granted a total of 54,737 options at the onset of the Plan while the
remainder of the options were reserved for future allocation by the Board of
Directors. The Company granted 10,400 and 6,070 options during 1996 and 1995,
respectively. Options canceled totaled 6,140 and 8,322 during 1996 and 1995,
respectively. At September 30, 1996, 2,664 shares were available for the
granting of additional options. As the Company's stock is privately held, the
value of the common stock is assumed to be $100 per share at all times during
the year. Although no options were exercised during fiscal year 1995, 15,747
shares were exercisable at September 30, 1996.
(14) RELATED-PARTY TRANSACTIONS
- --------------------------------
AIP, which is Sweetheart Holdings Inc.'s largest stockholder and is a
private investment partnership which makes equity investments, principally in
industrial and manufacturing companies in the United States, is managed by AIPM,
an affiliate of AIP. AIPM receives an annual fee of approximately $1.85 million
for providing general management, financial and other corporate advisory
services, and is reimbursed for certain out-of-pocket expenses. The fees are
paid to AIPM pursuant to a management services agreement among AIPM, Sweetheart
Holdings Inc. and Sweetheart Cup Company Inc.
In addition, for the year ended September 30, 1996, the Company will
reimburse AIPM for $950,000 of expenses incurred in connection with an
investigation of the Company's strategic alternatives.
(15) BUSINESS SEGMENT AND MAJOR CUSTOMERS
- -------------------------------------------
The Company operates in a single industry which is the manufacture and
distribution of paper and plastic related products. Sales to a major customer
accounted for 13.6% of net sales for the year ended September 30, 1996, and
13.0% of net sales for both the years ended September 30, 1995 and 1994.
(16) CONTINGENCIES
- -------------------
An action entitled Allan C. Aldridge, et al. v. Lily-Tulip, Inc. Salary
Retirement Plan Benefits Committee and Fort Howard Cup Corporation, Civil Action
No. CV 187-084, is currently pending against The Lily-Tulip, Inc. Salary
Retirement Plan Benefits Committee and Sweetheart Cup Company Inc. in the United
States District Court for the Southern District of Georgia. The class action
was originally brought in the state court in Georgia in April 1987 against Lily-
Tulip. The original complaint contained vacation pay claims asserted by a
putative class of approximately 780 salaried employees of Lily-Tulip as of
December 31, 1982 who were entitled to vacation benefits. The complaint alleged
that Lily-Tulip wrongfully deprived these employees of vacation pay allegedly
earned during the 1982 calendar year. Based upon these alleged facts, the
complaint contained causes of action for breach of contract, fraud, breach of
trust, conversion, a violation of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and violations of the federal and Georgia state RICO
statutes. In May 1987, the state court action was removed to the United States
District Court for the Southern District of Georgia. The plaintiff subsequently
amended the complaint adding new counts for relief alleging that Lily-Tulip
committed certain wrongful actions in connection with the December 31, 1986
termination of the Lily-Tulip, Inc. Salary Retirement Plan (the "Plan"),
including that Lily-Tulip allegedly forced certain employees to take early
retirement, and that a lump-sum retirement benefit had been calculated using
incorrect actuarial assumptions. Based upon these Plan-related allegations, the
plaintiff charged that Lily-Tulip had violated ERISA and further asserted that
Lily-Tulip's motive was to force retirement upon this class of people. Lily-
Tulip moved to dismiss the amended complaint in its entirety.
A second complaint was thereafter filed in March 1988 against the
defendants. It purported to be on behalf of a larger class of
plaintiffs and named two additional class representatives (purportedly
representing an ADEA (as defined below) and an ERISA class containing three sub-
classes). The complaint made new, additional charges of Lily-Tulip's
understating of retirement benefits, including alleged ERISA and common law and
Age Discrimination in Employment Act ("ADEA") violations. The plaintiffs in the
putative ADEA class alleged that they were forced to retire as a result of the
termination of the Plan. These plaintiffs sought back pay, forward pay,
interest, punitive damages and attorney's fees. In April 1988, defendants moved
to dismiss the majority of the second complaint, opposed plaintiff's motion for
class certification, and moved for a stay of all discovery, except that related
to the issue of plaintiffs' class certification motion. The discovery motion
was subsequently granted.
In May 1989, the Court consolidated the two separate actions and ordered
plaintiffs to "recast" their complaints, and renew their motion for class
certification. On June 5, 1989 plaintiffs refiled their complaint alleging
basically the same three categories of violations (vacation pay, ERISA, and
ADEA). Defendants again moved to dismiss most of the complaint and again
opposed class certification. On November 22, 1989, the Court granted
plaintiffs' motion for class certification. On June 11, 1990, the Court
rendered its decision on defendants' motion to dismiss plaintiffs' ERISA and
vacation benefit claims in Aldridge, et al. v. Lily-Tulip, Inc. Salary
Retirement Plan Benefits Committee, et al., 741 F. Supp. 906 (S.D. Ga. 1990),
denying defendants' motion to dismiss the vacation benefit claims and granting
the motion as to all but one of the ERISA claims. The District Court certified
most of the issues for interlocutory appeal to the United States Court of
Appeals for the Eleventh Circuit pursuant to 28 U.S.C. 1292(b). On February 12,
1992, the Eleventh Circuit affirmed the District Court's decision with respect
to the dismissal of the ERISA claims and reversed the District Court's decision
denying dismissal of the vacation benefit RICO claims. This decision is
reported at Aldridge v. Lily-Tulip, Inc. Salary Retirement Plan Benefits
Committee, et al., 953 F.2d 587 (11th Cir. 1992).
Following the Circuit Court decision, the parties filed cross motions for
summary judgment with the District Court and the Company renewed its motion to
discuss certain of the vacation pay claims. On September 15, 1993, the District
Court rendered a decision granting plaintiffs' motion for partial summary
judgment and denying the Company's cross motion for partial summary judgment
with respect to the alleged violations of ERISA as well as the Company's renewed
dismissal motion. As to the ERISA claims, the District Court held that the Plan
had not been effectively terminated on December 31, 1986, that it is therefore
ongoing, and that the Company is required to fund contributions to the Plan for
periods after December 31, 1986 in accordance with the funding requirements of
ERISA. The District Court, however, also sua sponte stayed implementation of
its decision pending appeal.
On December 27, 1994, the Eleventh Circuit reversed the District Court's
decision that the Lily Plan was not terminated, held that the plan was, in fact,
terminated on December 31, 1986, and remanded the case to the district court.
Plaintiffs then moved before the Eleventh Circuit for rehearing or rehearing en
banc, and that motion was denied on June 30, 1995.
On July 6, 1995, the Company moved before the District Court for an order
dismissing the action in its entirety in conformity with the Eleventh Circuit's
decision noted above. On July 19, 1995 , plaintiffs cross-moved for judgment in
their favor or, alternatively, for trial of certain allegedly unresolved factual
issues. Oral argument on the motions was heard on July 20, 1995. The motions
before the District Court remain sub judice.
On September 28, 1995, plaintiffs filed a petition for a writ of certiorari
with the United States Supreme Court. The Supreme Court denied the petition on
December 4, 1995.
On October 15, 1993, the Company reached an agreement to settle all claims
in the Aldridge litigation, except the ERISA claims pending before the District
Court. In return for complete releases for all non-ERISA claims, the Company
deposited $3,000,000 into a settlement fund which has been distributed to class
members. The administrative costs of the settlement and Plaintiffs' counsel
fees and expenses were also paid from the settlement fund. The settlement did
not have a material adverse effect on the Company's financial position or
results of operations.
On March 22, 1996, the United States District Court ordered entry of
judgment in favor of the Company regarding Allan C. Aldridge, et al. v. Lily-
Tulip, Inc. Salary Retirement Plan Benefits Committee and Fort Howard Cup
Corporation, Civil Action No. CV 187-084. On April 1, 1996, the Plaintiffs
filed a Motion for Amendment, Reconsideration, or Correction of the District
Court Order. The motion remains sub judice.
Management believes that the Company will ultimately prevail on the
remaining issues in this action. This position is buttressed by the fact that
the Internal Revenue Service previously issued a favorable determination letter
approving the termination effective as of December 31, 1986, and by the fact
that the Pension Benefit Guaranty Corporation ("PBGC") supports the Company's
position. Due to the complexity of the claims and the varying assumptions that
may be employed in making calculations in this area, the Company cannot
determine at the present time with any certainty the amount of damages it would
be required to pay should plaintiffs prevail; however, there can be no assurance
that such amount would not have a material adverse effect on the Company's
financial position or results of operations.
The Company is subject to a variety of environmental and pollution control
laws and regulations in all jurisdictions in which it operates. Moreover, the
Company is presently conducting an environmental investigation at one Company
location. While it is possible that this matter may be resolved unfavorably to
the Company, management believes that such resolution will not materially affect
the Company's financial position or results of operations.
The Company is involved in various other claims and lawsuits incidental to
its business. In the opinion of management, the ultimate liabilities, if any,
after considering the reserves established, will not materially affect the
Company's financial position or results of operations.
(17) ASSET TRANSFER
- --------------------
On October 6, 1993, the manufacturing assets and manufacturing employees of
Sweetheart Cup Company Inc. located in Illinois, Massachusetts, Maryland,
Missouri, and New Hampshire were transferred to Sweetheart Holdings Inc. These
assets were transferred subject to the mortgage and liens granted in favor of
the trustee under the Senior Secured Notes Indenture. Under such Indenture,
Sweetheart Cup Company Inc. and Sweetheart Holdings Inc. delivered to such
trustee a solvency letter and certain officers' certificates with respect to the
terms of the transfer. The transferred assets are pledged to such trustee to
secure Sweetheart Holdings Inc.' s obligations under its secured guarantee. In
connection with this transfer, Sweetheart Cup Company Inc. contracts with
Sweetheart Holdings Inc. to manufacture certain Sweetheart Cup Company Inc.' s
products. This transfer, as completed, has no effect on the holders of the
Senior Secured or Senior Subordinated Notes.
(18) SUMMARIZED FINANCIAL INFORMATION FOR SWEETHEART CUP COMPANY INC.
- -----------------------------------------------------------------------
The following tables provide summarized financial information for
Sweetheart Cup Company Inc. and subsidiaries (in thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------ ------------
<S> <C> <C>
Current assets $572,259 $557,248
Noncurrent assets 174,006 173,051
Current liabilities 127,728 122,259
Noncurrent liabilities 519,635 529,171
</TABLE>
<TABLE>
<CAPTION>
For the For the For the
year ended year ended year ended
September 30, September 30, September 30,
1996 1995 1994
------------- -------------- -------------
<S> <C> <C> <C>
Net sales $903,309 $931,792 $845,510
Gross income 107,606 80,362 87,310
Net income (loss) 20,213 766 3,092
</TABLE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
----
Report of Independent Public Accountants 52
Schedule II - Valuation and Qualifying Accounts 53
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Sweetheart Holdings Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Sweetheart Holdings Inc. and Subsidiaries
included in this Form 10-K and have issued our reports thereon dated November
25, 1996. Our audits were made for the purpose of forming an opinion
on the basic consolidated financial statements taken as a whole. The schedule
listed in the accompanying index is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
November 25, 1996
<TABLE>
SCHEDULE II
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<CAPTION>
Additions
------------------------
Balance at Charged to Charged Balance at
beginning of costs and to other Deductions end of
Classifications period expenses (1) accounts (2) (3) period
------------------ ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Year ended September $2,524 $369 $ 46 $473 $2,466
30, 1996
Year ended September 2,468 556 9 509 2,524
30, 1995
Year ended September 2,309 544 27 412 2,468
30, 1994
<FN>
- -------------------------
(1) Current year provision for doubtful accounts.
(2) Includes recoveries on accounts previously written off, translation
adjustments and reclassifications.
(3) Accounts written off.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Owings
Mills, State of Maryland, on December 20, 1996.
SWEETHEART HOLDINGS INC.
(Registrant)
By: /s/ WILLIAM F. McLAUGHLIN
-------------------------------------------
William F. McLaughlin
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on December 20, 1996, by the following persons in
the capacities indicated:
SIGNATURE CAPACITY
---------- ----------
/s/ BURNELL R. ROBERTS Chairman of the Board
---------------------------------
Burnell R. Roberts
/s/ WILLIAM F. McLAUGHLIN President and Director (Chief Executive
-------------------------------- Officer)
William F. McLaughlin
/s/ W. RICHARD BINGHAM Director
--------------------------------
W. Richard Bingham
/s/ THEODORE C. ROGERS Director
--------------------------------
Theodore C. Rogers
/s/ PETER W. C. MATHER Director
-------------------------------
Peter W. C. Mather
/s/ ROGER A. LINDAHL Treasurer (Principal Financial Officer
-------------------------------- and Principal Accounting Officer)
Roger A. Lindahl
- 107 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Sweetheart Holdings Inc. 1996 10-K and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 33241
<SECURITIES> 0
<RECEIVABLES> 90649
<ALLOWANCES> 2466
<INVENTORY> 192937
<CURRENT-ASSETS> 316132
<PP&E> 527394
<DEPRECIATION> 99561
<TOTAL-ASSETS> 762610
<CURRENT-LIABILITIES> 153753
<BONDS> 385579
0
0
<COMMON> 10460
<OTHER-SE> 110955
<TOTAL-LIABILITY-AND-EQUITY> 762610
<SALES> 903308
<TOTAL-REVENUES> 903308
<CGS> 777130
<TOTAL-COSTS> 777130
<OTHER-EXPENSES> 75251
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38832
<INCOME-PRETAX> 9523
<INCOME-TAX> 3809
<INCOME-CONTINUING> 5714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5714
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
September 6, 1996, among SWEETHEART HOLDINGS INC., a Delaware corporation
("Holdings"), SWEETHEART CUP COMPANY INC., a Delaware corporation (the
"Borrower"), the financial institutions party hereto (the "Banks"), and BANKERS
TRUST COMPANY, as Agent for the Banks (the "Agent"). All capitalized terms used
herein and not otherwise defined shall have the respective meanings provided
such terms in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, Holdings, the Borrower, the Banks and the Agent are parties
to a Credit Agreement, dated as of August 30, 1993 (as amended, modified or
supplemented through the date hereof, the "Credit Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement as
herein provided;
NOW, THEREFORE, it is agreed:
On and after the Second Amendment Effective Date (as defined below),
Section 9.05 of the Credit Agreement is hereby amended by (i) deleting the word
"and" appearing at the end of clause (xii) of said Section, (ii) deleting the
period at the end of clause (xiii) of said Section and inserting in lieu thereof
the text "; and" and (iii) inserting the following new clause (xiv) immediately
following clause (xiii) appearing in said Section:
"(xiv) Indebtedness of the Borrower (x) owing to the
Department of Business and Economic Development of the State
of Maryland in an aggregate principal amount at any time
outstanding not to exceed $1,080,000 and (y) owing to
Baltimore County, Maryland in an aggregate principal amount
at any time outstanding not to exceed $120,000."
2. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that:
(a) no Default or Event of Default exists as of the Second Amendment
Effective Date both before and after giving effect to this Amendment; and
(b) all of the representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects on the Second Amendment Effective Date both before and
after giving effect to this Amendment, with the same effect as though such
representations and warranties had been made on and as of the Second
Amendment Effective Date (it being understood that any representation or
warranty made as of a specific date shall be true and correct in all
material respects as of such specific date).
3. This Amendment is limited as specified and shall not constitute
a modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
4. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent.
5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
6. This Amendment shall become effective on the date (the "Second
Amendment Effective Date") when each of Holdings, the Borrower and the Required
Banks shall have signed a copy hereof (whether the same or different copies) and
shall have delivered (including by way of facsimile transmission) the same to
the Agent at its Notice Office.
7. From and after the Second Amendment Effective Date, all
references in the Credit Agreement and each of the other Credit Documents to the
Credit Agreement shall be deemed to be references to the Credit Agreement as
amended hereby.
* * *
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
SWEETHEART HOLDINGS INC.
By /s/ Roger A. Lindahl
--------------------------------
Title: Treasurer
SWEETHEART CUP COMPANY INC.
By /s/ Roger A. Lindahl
--------------------------------
Title: Treasurer
BANKERS TRUST COMPANY,
Individually and as Agent
By /s/ Christopher Kinslow
---------------------------------
Title: Vice President
MIDLAND BANK PLC
By /s/ Michelle Spencer
---------------------------------
Title: Executive Vice President
ABN AMRO BANK, N.V.
San Francisco International Branch
By /s/ Dianne D. Waggoner
---------------------------------
Title: Group Vice President
By /s/ David P. Tyler
---------------------------------
Title: Assistant Vice President
ABN AMRO BANK, N.V.
New York Branch
By
----------------------------------
Title:
FIRST NATIONAL BANK OF MARYLAND
By /s/ Andrew W. Fish
----------------------------------
Title: Vice President
WELLS FARGO BANK, N.A.
By /s/ Margot N. Golding
----------------------------------
Title: Senior Vice President
U.S. BANK OF OREGON
By /s/ Tom Lee
----------------------------------
Title: Vice President
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is entered into as of this 24th day
of September, 1996, by and between the DEPARTMENT OF BUSINESS AND ECONOMIC
DEVELOPMENT, one of the principal departments of the State of Maryland (the
"Department") and SWEETHEART CUP COMPANY INC., a Delaware corporation (the
"Borrower").
RECITALS
1. Pursuant to the provisions of Section 7-314 of the State Finance and
Procurement Article of the Annotated Code of Maryland (the "Act"), the Economic
Development Opportunities Program Fund (the "Fund") was created in order to
maximize extraordinary economic development opportunities in the State of
Maryland (the "State").
2. Pursuant to the provisions of the Act, the Governor of the State, with
the approval of the Joint Legislative Policy Committee of the Maryland General
Assembly (the "Legislative Policy Committee"), is empowered to transfer funds by
budget amendment into the expenditure account of an executive agency, which
funds may be loaned by the executive agency for the purposes, and pursuant to
the criteria, set forth in the Act.
3. The Fund is not intended to substitute for funds from other State or
local programs for which a project may be eligible and for which sufficient
resources exist.
4. Pursuant to the approval of the Legislative Policy Committee, the
Department will make a loan to the Borrower in the principal sum not to exceed
$1,080,000 (the "Loan").
5. The Loan is subject to the terms and conditions of this Agreement and
1
evidenced by a Promissory Note of even date herewith made by the Borrower
payable to the Department in the principal amount of the Loan.
6. The Borrower will: (a) renovate its facility located at 10100
Reisterstown Road, Owings Mills, Maryland (the "Facility") to accommodate the
transfer of the Borrower's corporate headquarters from Chicago, Illinois to the
Facility; (b) retain 2,000 existing jobs at the Facility; (c) invest a minimum
of $30,000,000 in the Facility; (d) acquire and install new printing equipment
into the Facility; and (e) transfer at least OR hire up to 50 new employees at
the Facility (collectively, the "Project").
2
7. The Loan proceeds will be used for the Improvements (defined below).
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth below, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Department and the Borrower
agree as follows:
ARTICLE I
--------
DEFINITIONS
------------
All accounting terms not specifically defined herein shall have the
meanings determined by generally accepted accounting principles, consistently
applied. All terms previously defined in this Agreement are incorporated herein
by reference. Unless specifically provided otherwise or the context otherwise
requires, when used in this Agreement:
"Application" means the collectively, the letter from James D. Fielder,
Jr., to Thomas V. Miller and Casper R. Taylor dated March 8, 1996, the letter
from William S. Ratchford, II to the Legislative Policy Committee dated March
25, 1996, and the letter from Michael Volk to James T. Brady dated May 3, 1996.
"Baltimore County" means Baltimore County, Maryland, a political
subdivision of the State of Maryland.
"Best Efforts" means that Borrower shall, to the maximum extent permitted
by law, use and apply all of its powers.
"Borrower's Contribution" means the Borrower's provision of at least
$30,000,000 for the Project to be expended as set forth in the Project Budget.
3
"County Loan" means the $120,000 loan made by Baltimore County to the
Borrower to be expended as set forth in the Project Budget evidenced by the
County Note and subject to the County Loan Agreement.
"County Loan Agreement" means the Loan Agreement of even date herewith
executed by the Borrower in connection with the County Loan.
"County Loan Documents" means all of the documents executed and delivered
in connection with the County Loan, including the County Loan Agreement and the
County Note, and other documents evidencing or securing the County Loan, and any
amendments or modifications thereto.
"County Note" means the promissory note of even date herewith made by the
Borrower payable to the order of Baltimore County evidencing the County Loan.
"Employee Completion Date" means December 31, 1997.
"Equipment" means the equipment purchased by the Borrower with the proceeds
of the Loan as set forth in the Project Budget.
"Existing Employee Positions" means 2,000 employee positions at the
Facility filled by Permanent, Full-time Employees hired by the Borrower as of
April 30, 1996.
"Facility Completion Date" means December 31, 1996.
"Governmental Authority" means the United States, the State, or any of
their political subdivisions, agencies, departments, commissions, boards,
bureaus or instrumentalities, including any local authority having jurisdiction
over any aspect of the Project.
"Improvements" means that portion of the Project financed, in whole or
4
part, with the proceeds of the Loan as shown in the Project Budget, and
generally described as follows: the purchase and installation of Equipment all
as may be more fully described in the Application.
"Loan Documents" mean all documents executed and delivered in connection
with the Loan and the Obligations, including this Agreement, the Note and any
other document, evidencing or securing the Loan, and any amendments or
modifications thereto.
"MITP" means the Maryland Industrial Training Program.
"MITP Grant" means the grant or grants in the aggregate amount of $200,000
from MITP to the Borrower for the Project to be expended as set forth in the
Project Budget.
"MITP Grant Documents - $120,000 Grant" means all of the documents executed
in connection with the MITP Grant for $120,000 in Grant proceeds.
"MITP Grant Documents - $80,000 Grant" means all of the documents executed
in connection with the MITP Grant in the aggregate amount of $80,000.
"New Employee Positions" means 50 upper management employee positions at
the Facility each receiving a minimum salary of $35,000 and with the average
annual salaries of New Employee Positions being at least $50,000. The New
Employee Positions shall be in addition to the Existing Employee Positions and
will be filled by Permanent, Full-time Employees hired or transferred by the
Borrower after April 30, 1996.
"Note" means the promissory note of even date herewith, in the principal
amount of the Loan, duly executed and delivered by the Borrower, evidencing
Borrower's payment obligations to the Department.
5
"Obligations" means all duties of payment, performance and completion owed
by the Borrower to the Department, under the Loan Documents and by law,
including: (a) the duty of the Borrower promptly to pay the principal,
interest, and other sums due on the Note, this Agreement, and any other Loan
Documents, as well as all future advances; and (b) the strict observance and
performance of all of the provisions of the Loan Documents, time being of the
essence, and under all other related documents and instruments evidencing or
giving rise to the indebtedness of the Borrower to the Department, including,
the repayment of all sums advanced, to be advanced, or which may be advanced by
the Department pursuant to or under authorizations contained in this Agreement,
or in any other Loan Document.
"Participating Party" means any person, firm, corporation or entity other
than the Borrower or an agent or agency of Borrower identified in the
Application as participating in the Project, and further described in Section
3.03 of the Agreement. Identification as a Participating Party signifies that
the Department, in determining to make the Loan to the Borrower, relied upon a
representation that the Participating Party will complete a specified portion of
the Project activity necessary for the completion of the Project.
"Permanent, Full-time Employees" means an employee who is employed by the
Borrower for at least 40 hours per week, without a fixed term of employment and
who receives similar benefits as other employees of the Borrower.
"Project Budget" means the budget for the Project attached hereto as
Exhibit B and made a part hereof by reference, and as described in Section 3.01.
- ---------
"Property" means the real property owned by the Borrower on which the
Project is located and is more particularly described in Exhibit A.
---------
6
"Requirement" means any law, ordinance, code, order, rule or regulation of
a Governmental Authority, including, but not limited to, those relating to equal
opportunity, prevailing wage, building, and zoning.
"Secretary" means the Secretary of Business and Economic Development, or a
designee.
"State" means the State of Maryland.
ARTICLE II
----------
TERMS OF THE LOAN AND DISBURSEMENT
----------------------------------
Section 2.01. The Loan.
------------ --------
Subject to the terms and conditions of this Agreement, the Department
agrees to extend the Loan to the Borrower.
Section 2.02. Repayment and Interest.
------------ ----------------------
All sums advanced under the Loan shall be evidenced by the Note and shall
be repaid with interest in accordance with the provisions of the Note, the terms
and conditions of which are incorporated herein by reference.
Section 2.03. Adjustments to Amount of Loan.
------------ -----------------------------
To determine the amount of the Loan, the Department relied in part upon the
cost estimates submitted in the Application for the costs of the Project and
7
upon the investment commitments of any Participating Party. The Department
reserves the right to reduce the Loan (a) to conform to any modification to
which the Borrower and the Department may agree with respect to the Project
Budget; (b) if the actual costs for activities are lower than those set forth in
the Project Budget; or (c) if the investment by any Participating Party is less
than the amounts specified in the Project Budget. No increase in the amount of
the Loan may be made.
Section 2.04. Disbursements.
------------ -------------
(a) In General. Subject to the continued compliance by the Borrower
----------
with all of the terms and conditions of this Agreement and the Loan Documents,
the continued satisfaction of all conditions precedent to the making of
disbursements hereunder, and the continued non-existence of a Default or any
event, circumstance, act or omission which with the giving of notice, the
passage of time, or both would constitute a Default, the Department shall
disburse to the Borrower such sums as the Borrower may request pursuant to a
Request for Disbursement, the form of which is attached hereto as Exhibit C.
---------
(b) Monthly Disbursement. All requests for disbursement are to be made
---------------------
to the Department at the address specified in Section 6.01, or at any other
place that the Department designates. Requests for disbursement shall, at the
option of the Department, be submitted no later than 10 business days before the
date of the requested disbursement.
(c) Disbursements to or on Behalf of Borrower. All disbursements are to
------------------------------------------
be made directly from the Department to the Borrower by check. The Department
8
shall make disbursements upon presentation by the Borrower of an affidavit by
the Borrower acceptable to the Department as satisfactory proof of payments to
reimburse the Borrower for payments made for the Improvements.
(d) Conditions for All Disbursements. The obligation of the Department
---------------------------------
to make any disbursements of the Loan, including without limitation the first
through final disbursements, is subject to the satisfaction of the following
conditions as of the date the disbursement is made:
(i) Receipt of Request for Disbursement. The Department shall have
-----------------------------------
received a completed Request for Disbursement.
(ii) Representations True. No representation or warranty of the
--------------------
Borrower contained herein shall be or have become materially incorrect or
inaccurate.
(iii) No Defaults. There shall be no breach, default or event of
-----------
default under the terms of any of the Loan Documents, or any Default hereunder,
and no event, circumstance, act, or omission shall exist which with the giving
of notice, the passage of time, or both would constitute an event of default
under any of the Loan Documents or a Default hereunder.
(iv) Time to Complete Facility. There shall be sufficient time, in
-------------------------
the reasonable opinion of the Department, to complete the Project by the
Facility Completion Date.
(v) Funds to Complete. In the opinion of the Department, the
9
-----------------
undisbursed amount of the Loan and the total remaining funds available from each
Participating Party specified in the Project Budget are sufficient to pay all
unpaid costs of completing the Project.
(vi) Solvency Certifications. If requested by the Department, the
-----------------------
Department shall have received evidence satisfactory to it that there is not
pending against the Borrower, a petition in bankruptcy, voluntary or otherwise,
any assignment for the benefit of creditors, any petition seeking reorganization
or arrangement under bankruptcy laws of the United States or of any state, or
any other action brought under the aforesaid bankruptcy laws. The Department
shall have the right to request such certifications at any time during the Loan
term.
(vii) No Adverse Change. There shall have been no materially
-----------------
adverse change in the Borrower's financial condition from that reflected in its
financial statements most recently submitted to the Department prior to the
closing.
(e) The Borrower's right to borrow hereunder shall terminate on the
Facility Completion Date.
(f) Upon each disbursement, the Borrower shall be deemed to have issued
each of the representations and warranties contained in Section 4.01 of this
Agreement.
Section 2.06. Conditions Precedent to Initial Disbursement For
------------
the Improvements.
10
Before making the initial disbursement of Loan proceeds for
the Improvements, the Department shall receive the following in form and content
satisfactory to the Department:
(a) An opinion of Maryland counsel to the Borrower addressed to the
Department.
(b) Copies of the insurance certificates required in Section 4.02 (g) of
this Agreement.
(c) A copy of the executed Loan Documents.
(d) Title report on the Property.
(e) A copy of the recorded deed of conveyance of the Property to the
Borrower and any unrecorded deeds.
(f) A completed Request for Disbursement, in the form attached hereto as
Exhibit C.
(g) A copy of the recorded Articles of Incorporation and the By-laws of
the Borrower.
(h) A corporate resolution of the Borrower, authorizing it to enter into
the documents executed in connection with the Loan and the County Loan.
(i) Good Standing Certificates for the State and the State of Delaware,
stating that the Borrower is a corporation in good standing in its state of
incorporation and is in good standing and qualified to do business in the State.
(j) Executed copies of the County Loan Documents.
11
(k) Executed copies of the MITP Grant Documents -$120,000 Grant.
(l) A certificate signed by an officer of the Borrower that certifies that
the Borrower has hired the Permanent, Full-time Employees for the Existing
Employee Positions.
(m) Any other documents, instruments, opinions and agreements as the
Department and its counsel reasonably may require.
(n) List of Equipment purchased for the Project.
(o) Affidavit of Borrower certifying that Borrower has purchased the
Equipment.
(p) Affidavit of Borrower certifying that Borrower has transferred its
corporate headquarters to the Facility and has acquired and installed new
printing equipment at the Facility.
Section 2.07. Certification
------------
Within 10 days after the Facility Completion Date, the Department has
received and approved a certification of the total costs of the Project in the
form attached hereto as Exhibit D.
---------
ARTICLE III
----------
PROJECT BUDGET AND ACTIVITIES
----------------------------
12
Section 3.01. Project Budget.
------------ --------------
The Project Budget sets forth all Project costs. No changes may be made to
any item in the Project Budget without the approval of the Department.
Section 3.02. Participating Parties.
------------ ---------------------
The Participating Parties and the activities to be carried out by each
Participating Party in connection with the Project shall consist of the
following, and the failure of the Participating Party to complete the activities
shall constitute a default under this Agreement :
(a) Baltimore County, which shall make the County Loan to the Borrower.
Section 3.03. Employee Requirements of Recipient.
------------ ----------------------------------
(a) The Department will forgive the principal amount of the Loan (the
"Forgiven Principal"), and the interest attributable to the Forgiven Principal
if all of the following are satisfied:
(i) The Borrower is not in default under the Loan Documents;
(ii) The Borrower is not in default under the County Loan Documents;
(iii) The Borrower invests the Borrower's Contribution in the
Project by the Facility Completion Date;
(iv) In the reasonable discretion of the Department, the requisite
13
number of Existing Employee Positions have been filled with Permanent, Full-time
Employees from April 30, 1996 to the Employee Completion Date;
(v) In the reasonable discretion of the Department, the Borrower
hires Permanent, Full-time Employees in the New Employee Positions by the
Facility Completion Date and maintains the requisite number until the Employee
Completion Date;
(vi) The Borrower installs new printing equipment at the Facility by
the Facility Completion Date; and
(vii) The Borrower has completed the relocation of its
headquarters to the Facility by the Facility Completion Date.
(b) Before the Department is obligated to provide forgiveness set forth in
(a) above, the Borrower must provide the Department at least 60 days prior
written notice of the anticipated date that the Borrower will have satisfied the
requirements of (a) above and supporting documentation acceptable to the
Department.
Section 3.05. Employee Reporting Requirements.
------------ --------------------------------
(a) On the first day of the third month after the date of this Agreement
and on the same day of each succeeding third month during the term of the Loan,
and on the date on which the Borrower requests forgiveness of the Loan, the
Borrower shall submit to the Department: (i) An affidavit with the number of
the Permanent, Full-time Employees employed in the Existing Employee Positions,
and (ii) An authorization permitting the Department to obtain a copy of
DLLR/OUI16 from the Maryland Department of Labor, Licensing and Regulation, to
be accompanied by a certificate signed by an officer of the Borrower that
14
certifies that affidavit is true and accurate and that the Existing Employee
Positions were held by Permanent Full-time Employees.
(b) On the first day of the third month after the date of this Agreement,
and on the same day of each succeeding third month thereafter during the term of
the Loan, the Borrower shall submit to the Department; (i) a list of the names
of the Permanent, Full-time Employees employed in the New Employee Positions,
and (ii) the social security number, the hourly or annual pay rate, and a
general description of available benefits for each listed Permanent, Full-time
Employee, to be accompanied by a certificate signed by an officer of the
Borrower that certifies that the report and list are true and accurate and that
the New Employee Positions were held by Permanent Full-time Employees.
(c) Upon the request of the Department, the Borrower shall provide the
Department with any information and reports that the Department determines, in
its discretion, are needed to confirm or verify the employment information
submitted by the Borrower. The Borrower shall permit the Department to inspect
the employee records of the Borrower to confirm the employee information
submitted by the Borrower to the Department.
(d) If the Department forgives the Loan as provided in Section 3.04 (a),
the Borrower shall continue to submit to the Department the reports required in
Section 3.05(a) and (b) until 6 months after the Loan is forgiven.
ARTICLE IV
----------
REPRESENTATIONS, WARRANTIES AND
--------------------------------
COVENANTS OF THE BORROWER
--------------------------
Section 4.01. Representations and Warranties.
------------ ------------------------------
The Borrower represents and warrants as follows:
(a) The Borrower:
(i) Is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware;
(ii) Has the power and authority to consummate the transactions
contemplated hereby; has taken all necessary action to authorize the execution,
delivery, and performance of this Agreement and the other Loan Documents
executed and delivered by it; and
(iii) Is duly qualified to do business and is in good standing in
the State and in each jurisdiction in which the character of properties owned by
it or the transaction of its business make such qualification necessary.
(b) The Borrower has full power and authority to enter into this
Agreement, to make the borrowings hereunder, to execute and deliver the Note and
the other Loan Documents to which it is a party, and to perform and comply with
the terms, conditions, and agreements set forth herein and therein, all of which
have been duly authorized by all proper and necessary action of the Borrower.
No consent or approval of any other person or public authority or regulatory
body is required as a condition to the validity of this Agreement, the Note, or
the other Loan Documents, or, if required, the same has been obtained.
(c) This Agreement and each of the Loan Documents have been properly
executed and delivered by the Borrower, in the manner and form as to comply
with all requirements necessary to make this Agreement, the Note and the Loan
Documents the valid and legally binding and enforceable act and agreement of the
Borrower.
16
(d) There is no controversy, proceeding, or litigation of any nature now
pending or threatened in any court or before any governmental agency which:
(i) Questions the validity or enforceability of this Agreement and
the other Loan Documents, or any action taken or to be taken under it; or
(ii) Is likely to result in any material adverse change in the
authorities, properties, assets, liabilities, or conditions (financial or
otherwise) of the Borrower which would materially and substantially impair the
Borrower's ability to perform any of the obligations imposed upon the Borrower
by this Agreement and the other Loan Documents.
(e) The representations, statements, and other matters in the Application
were true and complete in all material respects as of the date of the
Application. The Borrower is aware of no event which would require any
amendment to the Application in order to make such representations, statements,
and other matters true and complete in all material respects and not misleading
in any material respect as of the effective date of this Agreement, and the
Borrower is aware of no event or other fact which should have been, and has not
been, reported in the Application as material information.
(f) The Borrower has obtained, or has caused to be obtained, all approvals
from and reviews by all Governmental Authorities of the Requirements for the
Project, or has reasonable assurances that such approvals will be obtained.
(g) There is no Default on the part of the Borrower under this Agreement
or the Note, and no event has occurred or is continuing which with notice, or
the passage of time, or both, would constitute a Default under this Agreement or
the Loan Documents.
(h) The Borrower has complied and will continue to comply with all
17
Requirements, except as set forth in Exhibit E of this Agreement.
(i) The Borrower shall comply with the State's policy concerning drug and
alcohol free workplaces, as set forth in COMAR 01.01.1989.18 and 21.11.08, and
shall remain in compliance throughout the term of this Agreement.
(j) All utility services necessary for the construction and operation of
the Project and the Property for its intended purposes are available to the
Project and the Property, including water supply of sufficient quantity and
pressure, storm and sanitary sewer facilities of adequate capacities, gas,
electric and telephone facilities. The Borrower has procured, or hereby agrees
to use its best efforts to procure, from the appropriate State, county,
municipal, and other authorities and corporations, connection and discharge
arrangements for the supply of water, gas, electricity and other utilities and
sewage and industrial waste disposal for the operation of the Project and the
Property.
(k) All roads necessary for the full utilization of the Property and the
Project for its intended purposes have either been completed or the necessary
rights of way therefor have either been acquired by the Borrower or the
appropriate Governmental Authority or have been dedicated to public use and
accepted by such Governmental Authority or will be so acquired or dedicated
within a period of time satisfactory to the Department, and all necessary steps
have been taken by the Borrower and such governmental authority to assure the
complete construction and installation thereof in accordance with law and all
applicable governmental or quasi-governmental requirements.
(l) The intended use of the Property and the Project will not violate any
zoning or other ordinance, regulation or law, restrictive covenant or agreement
of the Borrower (either now in existence or known by the Borrower to be
proposed) applicable to the Property or its use, and all requirements for such
use have been satisfied.
18
(m) The Borrower intends that the proceeds of the Loan will be used solely
for the Improvements.
(n) There is no provision in the Borrower's Articles of Incorporation or
By-laws or provision of any existing mortgage, deed of trust, indenture,
contract or agreement binding on the Borrower or affecting its property or the
Property which would conflict with or in any way prevent the execution,
delivery, or performance of the terms of this Agreement, or of any of the other
Loan Documents executed and delivered by the Borrower, or which would be in
default or violated as a result of such execution, delivery or performance.
(o) The Borrower's financial statements previously delivered to the
Department or reviewed by the Department, have been prepared in accordance with
generally accepted accounting principles consistently applied, except as set
forth therein, and are complete and correct and fairly and accurately present
the financial condition of the Borrower as of their date and the results of its
operations for the period(s) then ended. The Borrower represents that there has
been no material adverse change in the financial condition of the Borrower or
the results of its operations since the date(s) of such financial statements.
(p) All information contained in any financial statement, application,
schedule, report, certificate, opinion, or any other document given by the
Borrower in connection with the Loan or with any of the Loan Documents is in all
material respects true and accurate, and the Borrower has not omitted to state
any material fact or any fact necessary to make such information not misleading.
(q) All taxes imposed upon the Borrower, the Facility and its other
properties, operations, and income have been paid and discharged prior to the
date when any interest or penalty would accrue for nonpayment.
(s) The Borrower has hired Permanent, Full-time Employees to fill the
19
Existing Employee Positions.
Section 4.02. Borrower's Covenants.
------------ --------------------
The Borrower covenants as follows:
(a) The Borrower shall satisfy all applicable Requirements for operation
of the Facility by the Facility Completion Date. However, the violations set
forth in Exhibit E shall be satisfied by the Borrower by January 1, 1997.
(b) If at any time the unpaid costs of the Project exceed the undisbursed
balance of the Loan and the Borrower's Contribution, the Department may require
the Borrower to provide (from sources other than the Loan and the Borrower's
Contribution) the funds necessary to pay the difference between the undisbursed
balance of the Loan and the funds required to complete the Improvements in
compliance with all Requirements. Any funds so required shall be advanced
before any further disbursement of the Loan proceeds.
(d) The Borrower shall:
(i) Promptly pay the Obligations and the principal of and the
interest accruing on the Loan, at the date and place and in the manner provided
in the Note; and
(ii) Punctually keep and perform all of the Obligations.
(e) The Borrower shall:
(i) Keep and maintain, or cause to be kept and maintained, the
Property and the Project in good order, condition and repair;
20
(ii) Make or cause to be made all needed and proper replacements
to the Property and the Project so that the Property and the Project will at all
times be in good condition, fit and proper for the purposes for which they were
originally erected or installed;
(iii) Not permit any waste of the Property and the Project;
(iv) Observe and comply with, or cause to be observed and
complied with, all Requirements, provided however, the violations set forth in
Exhibit E shall be satisfied by the Borrower by January 1, 1997;
(v) Operate, or cause to be operated, the Project in the manner in
which similar projects are operated by persons operating a first-class business
of a similar nature;
(vi) Keep and maintain all portions of the Property and the
sidewalks, curbs and passageways adjoining the same in a clean and orderly
condition, free of dirt, rubbish, snow, ice and unlawful obstructions;
(vii) Procure, or cause to be procured, any and all necessary
permits, certificates, licenses or other authorizations required for the
Property's use as set forth in the Application, and observe and comply with all
conditions and requirements necessary to preserve and extend any and all rights,
licenses, permits, privileges, franchises and concessions which are now
applicable to the Property or which may be applicable in the future;
(viii) Not use or occupy the Project and the Property or permit
the same to be used or occupied in any manner which would cause structural
injury to the Property or which would cause the value or the usefulness of the
Property or any part thereof to diminish (ordinary wear and tear for its
business excepted), or which would constitute a public or private nuisance, or
waste.
21
(f) The Borrower shall deliver to the Department as soon as available
executed copies of the MITP Grant Documents - $80,000 Grant.
(g) The Borrower shall maintain, or cause to be maintained, the following
types of insurance coverage on the Project:
(i) "All risk" coverage in amounts necessary to prevent the
application of any co-insurance provisions up to the full replacement value of
the Project but in no event less than the aggregate amount of the Loan
outstanding from time to time;
(ii) General public liability and property damage coverage in
amounts usually carried by similar operations against claims for bodily injury,
death, or damage to property occurring on the Project;
(iii) Workers' Compensation insurance coverage covering all of
Borrower's employees at the Facility; and
(iv) During any period of construction on the Project, builders
risk insurance of the type customarily carried in the case of similar
construction for the full replacement cost of work in place and materials stored
at or upon the Project.
All such insurance policies shall be with responsible companies acceptable to
the Department.
(h) The Borrower releases the Department and the State from, agrees that
the Department and the State shall not have any liability for, and agrees to
protect, indemnify and save harmless the Department and the State from and
against any and all liabilities, suits, actions, claims, demands, losses,
expenses and costs of every kind and nature incurred by, or asserted or imposed
22
against, the Department or the State, as a result of or in connection with the
Project. All money expended by the Department as a result of such liabilities,
suits, actions, claims, demands, losses, expenses or costs, together with
interest at the rate provided in the Note from the date of such payment, shall
constitute an additional indebtedness of the Borrower and shall be immediately
and without notice due and payable by the Borrower to the Department. This
Section 4.02 (h) shall survive the termination of this Agreement.
(i) The Borrower shall keep and maintain any books, records, and other
documents that may be required by any procedures now or hereafter applicable to
loans made by the Department from the Fund, and as may be reasonably necessary
to reflect and disclose fully the amount and disposition of the Loan, the total
cost of the activities paid for, in whole or in part, with the proceeds of the
Loan, and the amount and nature of all investments related to such activities
which are supplied or to be supplied by other sources. All books, records and
other documents shall be maintained at the offices of the Borrower (except that
books, records, and other documents of a Participating Party which are subject
to this Section may be maintained at the offices of such Participating Party)
for inspection, copying, audit and examination at all reasonable times by any
duly authorized representative of the Department. All such books, records and
other documents shall be maintained until the first to occur of (i) three years
after completion of the Project or (ii) the completion of an audit of the
Project by the State.
(j) Any duly authorized representative of the Department shall, at all
reasonable times, have access to all portions of the Project and the Property.
(k) The Borrower certifies that it does not discriminate, and covenants
that it shall not discriminate, on the basis of (1) political or religious
opinion or affiliation, marital status, race, color, creed or national origin,
or (2) sex or age, except where sex or age constitutes a bona fide occupational
qualification, or (3) the physical or mental disability of a qualified
23
individual with a disability. The Borrower shall submit to the Department, at
the Department's request, information relating to the Borrower's operations,
with regard to political or religious opinion or affiliation, marital status,
physical or mental disability, race, color, creed, sex, age, or national origin,
on a form to be prescribed by the Department.
(l) The Borrower certifies and covenants that it shall make a good faith
effort to eliminate illegal drug use and alcohol and drug abuse from its
workplace during the term of this Agreement. Specifically, the Borrower shall:
(i) Prohibit the unlawful manufacture, distribution, dispensation,
possession, or use of drugs in its workplace;
(ii) Prohibit its employees from working under the influence of
alcohol or drugs;
(iii) Not hire or assign to work on an activity funded in whole or
part with State funds, anyone whom it knows, or in the exercise of due diligence
should know, currently abuses alcohol or drugs and is not actively engaged in a
bona fide rehabilitation program;
(iv) Promptly inform the appropriate law enforcement agency of every
drug related crime that occurs in its workplace if it or its employee has
observed the violation or otherwise has reliable information that a violation
has occurred; and
(v) Notify employees that drugs and alcohol abuse are banned in the
workplace, impose sanctions on employees who abuse drugs and alcohol in the work
place, and institute steps to maintain a drug and alcohol free workplace.
(m) The Borrower will furnish to the Department during the term of the
Loan, and if the Loan is forgiven as provided in Section 3.04(a), for six (6)
24
months after such time:
(i) As soon as available but in no event more than 90 calendar days
after the close of each of the Borrower's fiscal years a copy of the Borrower's
annual SEC form 10-K report, if any; and
(ii) Any additional information, reports or statements as the
Department may from time to time reasonably request.
(n) The Borrower shall comply with all applicable federal, state and local
laws, rules and regulations in connection with the Project and the Facility.
However, the violations set forth in Exhibit E shall be satisfied by the
Borrower by January 1, 1997.
(o) The Borrower will promptly notify the Department of any action or
prospective claims or litigation, including tax deficiencies, which may be
asserted against the Borrower, and any prospective condemnation, change of
zoning, or other action affecting the Property or the Project.
(p) If at any time the Property is in, or becomes located in, an area that
has been identified by the Federal Insurance Administration as having special
flood hazards, and in which the sale of flood insurance has been made available
under the National Flood Insurance Act of 1968, as amended, the Borrower shall
purchase and maintain a flood insurance policy satisfactory to the Department.
In the event that the Property is not in an area having special flood hazards,
the Borrower shall deliver to the Department on or prior to the initial
disbursement of the Loan proceeds and thereafter upon request, a certificate or
letter issued by its insurance company stating that the Property is not in such
a flood hazard area.
(q) The Borrower shall not, without the prior written consent of the
Department, initiate, join in, or consent to any change in, any restrictive
25
covenant, easement, zoning ordinance, or other public or private restriction
limiting or defining the uses which may be made of the Property and the Project
or any part thereof. The Borrower will promptly perform and observe, or cause
to be performed and observed, all of the terms, covenants and conditions of all
instruments of record affecting the Property, non-compliance with which may
affect the security of this Agreement, or which may impose any duty or
obligation upon the Borrower or any lessee or other occupant of the Property, or
any part thereof, and the Borrower shall do or cause to be done all things
necessary to preserve intact and unimpaired any and all easements, appurtenances
and other interests and rights in favor of, or constituting any portion of, the
Property.
(r) The Borrower will not amend the terms of the documents executed in
connection with the County Loan without the prior written consent of the
Department.
(s) The Borrower will maintain the requisite number of, Permanent, Full-
time Employees in the Existing Employee Positions at the Facility during the
term of this Agreement.
(t) The Borrower will maintain its corporate headquarters in the State.
(u) The Borrower covenants to resolve the violations set forth in Exhibit
E by January 1, 1997.
ARTICLE V
---------
DEFAULT AND REMEDIES
--------------------
Section 5.01. Defaults.
------------ --------
26
A Default shall have occurred:
(a) If the Borrower fails to pay the principal amount of the Loan and
interest thereon according to the terms and conditions of the Note ; or
(b) If the Borrower fails to perform the Obligations; or
(c) If the Borrower fails to maintain the Permanent, Full-time Employees
in the Existing Employee Positions during the term of this Agreement; or
(d) If any Loan proceeds are used for any purpose other than as authorized
in the appropriate provisions contained in this Agreement or in the Loan
Documents; or
(e) If the Borrower breaches any covenant, agreement or provision in this
Agreement or in any other document executed by the Borrower in connection with
the Loan; or
(f) If the Borrower defaults under the terms of the County Loan Documents;
or
(g) Any change in any zoning ordinance or any other public restriction is
enacted, limiting or defining the uses which may be made on the Facility or any
part thereof; or
(h) The Borrower fails to comply with any requirement of any Governmental
Authority having jurisdiction within 30 days after notice in writing of such
requirement shall have been given to the Borrower; or if any proceeding is
commenced or action taken to enforce any remedy for a violation of any
requirement of a Governmental Authority or any restrictive covenant affecting
the Property or any part thereof;
27
(i) If any portion of the Property is condemned that results in any
reduction of the Borrower's operations at the Facility; or
(j) Any representation or warranty made herein or any statement or
representation made in any certificate, report or opinion (including legal
opinions), financial statement or other instrument furnished in connection with
this Agreement (including Requests for Disbursements submitted under Article II
hereof) or any of the other Loan Documents, prove to be incorrect in any
material respect;
(k) If any court of competent jurisdiction makes a final order (i)
adjudicating the Borrower a bankrupt, (ii) appointing a trustee or receiver of
the Property or substantial part of the property of the Borrower, (iii)
approving a petition for, or effecting an arrangement in, bankruptcy, a
reorganization pursuant to federal bankruptcy law, or any other judicial
modification or alteration of the rights of the Department or of other creditors
of the Borrower, or (iv) assuming custody or sequestering any substantial part
of the property of the Borrower; or if the Borrower (A) files such a petition,
(B) takes or consents to any other actions seeking any such judicial order, (C)
makes an assignment for the benefit of creditors, or (D) makes an admission in
writing of an inability to pay debts generally as they become due; or
(l) If final judgment for the payment of money in excess of $300,000 is
rendered against the Borrower and the judgment is not discharged or a stay of
execution thereon or a supersedeas bond is not procured within thirty (30) days
from the date of entry thereof, or if thereafter the judgment remains
unsatisfied for a period of thirty (30) days after the termination of any such
stay of execution thereon or supersedeas bond; or
(m) Unless the written consent of the Department is previously obtained,
which consent will not be unreasonably withheld, the sale of all or
28
substantially all of the business assets of the Borrower or the commencement of
any proceeding to dissolve or liquidate the Borrower, or the occurrence of any
change in the form of business entity through which the Borrower presently
conducts its business, or the occurrence of any merger or consolidation
involving the Borrower; or
(n) Without the Department's prior express written consent thereto, the
Borrower:
(i) Is dissolved either by operation of law, or in any other manner,
voluntarily or otherwise; or
(o) If any Participating Party does not complete the activities required
under this Agreement or defaults under any documents executed in connection with
activities required under this Agreement; or
(p) If the Borrower ceases to operate at the Facility.
Section 5.02 Remedies.
------------ --------
(a) Upon the occurrence of any Default, the Department may:
(i) Suspend the Borrower's authority to receive any undisbursed Loan
proceeds at any time. If termination occurs, the Borrower's authority to receive
Loan proceeds shall terminate as of the date of the Default, and the Borrower
shall have no right, title or interest in or to any remaining Loan proceeds; and
(ii) Notwithstanding the schedule of payments referred to in the Note,
require immediate prepayment of the entire outstanding principal indebtedness
and accrued interest;; and
29
(iii) At any time or from time to time proceed to protect and
enforce all rights and remedies available to the Department under the Loan
Documents, this Agreement by suit or by any other appropriate proceedings,
whether for specific performance of any covenant or agreement contained in the
Agreement, or damages, or other relief, or proceed to take any action authorized
or permitted under applicable law or regulations.
(b) All remedies provided for in this Agreement are cumulative and shall
be in addition to any and all other rights and remedies available to the
Department at law or in equity. The exercise of any right or remedy by the
Department shall not in any way constitute a cure or waiver of any default by
the Borrower, nor invalidate any act done pursuant to any notice of Default, nor
prejudice the Department in the exercise of those rights.
(c) The failure of the Department to insist upon performance of any term
of this Agreement shall not be deemed to be a waiver of any term of this
Agreement. No act of the Department shall be construed as an election to
proceed under any one provision in this Agreement to the exclusion of any other
provision.
(d) If the Department suspends or terminates this Agreement, the rights
and remedies available to the Department shall survive the suspension or
termination.
ARTICLE VI
----------
MISCELLANEOUS
--------------
Section 6.01. Notices.
------------ -------
30
(a) All amendments, notices, requests, objections, waivers, rejections,
agreements, approvals, disclosures and consents of any kind made pursuant to
this Agreement shall be in writing.
(b) Any communication shall be deemed effective for all purposes as of the
date the communication is mailed, postage prepaid, by registered or certified
mail, return receipt requested, to be delivered only to the office of the
addressee, addressed as follows:
(i) Communications to the Department shall be mailed to:
Director, Community Financing Group
DEPARTMENT OF BUSINESS AND ECONOMIC
DEVELOPMENT
217 East Redwood Street, 22nd Floor
Baltimore, Maryland 21202
With a copy to the Counsel to the Community Financing Group, on the 11th Floor
at the same address.
(ii) Communications to Borrower shall be mailed to:
SWEETHEART CUP COMPANY INC.
10100 Reisterstown Road
Owings Mills, Maryland 21117 ATTN: Vice President and General Counsel
Section 6.02. Assignment.
------------ -----------
No right, benefit, or advantage inuring to the Borrower under this
Agreement and no burden imposed on the Borrower hereunder may be assigned
without the prior written approval of the Department.
31
Section 6.03. Successors Bound.
------------ ----------------
This Agreement shall bind, and the rights, benefits and advantages shall
inure to, the Borrower's successors.
Section 6.04. Severability.
------------ ------------
The invalidity of any article, section, subsection, clause or provision of
this Agreement shall not affect the validity of the remaining articles,
sections, subsections, clauses or provisions hereof.
Section 6.05. Entire Agreement.
------------ ----------------
This Agreement constitutes the entire agreement between the parties and
supersedes all prior oral and written agreements between the parties hereto with
respect to the Loan.
Section 6.06. Amendment of this Agreement.
------------ ---------------------------
This Agreement, or any part hereof, may be amended from time to time
hereafter only in writing executed by the Department and the Borrower.
Section 6.07. Section References.
------------ ------------------
All references in this Agreement to particular sections refer to sections
32
of this Agreement, unless otherwise noted.
Section 6.08. Disclaimer of Relationships.
------------ ---------------------------
The Borrower acknowledges that the obligation of the Department is limited
to making the Loan in the manner and on the terms set forth in this Agreement.
Nothing in this Agreement, nor any act of either the Department or of the
Borrower, shall be deemed or construed by either of them, or by third persons,
to create any relationship of third-party beneficiary, principal and agent,
limited or general partnership, or joint venture, or of any association or
relationship whatsoever involving the Borrower and the Department.
Section 6.09. Governing Law.
------------ -------------
This Agreement shall be governed by and construed according to the laws of
the State.
Section 6.10. Effective Date.
------------ --------------
The effective date of this Agreement shall be the date that the Department
enters on the face of this Agreement.
Section 6.11. Term of This Agreement.
------------ ----------------------
Unless sooner terminated pursuant to Article V of this Agreement, or by the
mutual consent of the Borrower and the Department, this Agreement shall continue
and remain in full force and effect until the Loan, together with interest and
all other sums due and owing in connection with this Agreement or the Loan, have
33
been paid in full to the satisfaction of the Department. Upon payment in full of
the Loan together with interest and all other sums due and owing in connection
with this Agreement or the Loan from any source whatsoever, this Agreement
shall be terminated.
IN WITNESS WHEREOF, the Borrower and the Department hereto have caused
this Agreement to be executed, sealed and delivered as of the day and year first
above written.
WITNESS: DEPARTMENT OF BUSINESS AND
ECONOMIC DEVELOPMENT
/s/ Patricia J. Reed By: /s/ James D. Fielder, Jr. (SEAL)
---------------------- -------------------------
James D. Fielder, Jr. Ph.D.
Deputy Secretary
WITNESS: SWEETHEART CUP COMPANY INC.
By: /s/Lawrence W. Ward, Jr. (SEAL)
-------------------
Lawrence W. Ward, Jr.
Vice President and Chief Financial
Officer
34
Approved for form and legal sufficiency this 18th day of September, 1996.
/s/ Ilene S. Hunter
- -------------------
Assistant Attorney General
STATE OF MARYLAND, COUNTY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY that on this 25th day of September, 1996, before me, a
Notary Public of the State of Maryland, in and for the State and City/County
aforesaid, personally appeared James D. Fielder, Jr., Ph.D., who acknowledged
himself to be the Deputy Secretary of BUSINESS AND ECONOMIC DEVELOPMENT of the
State of Maryland, a principal department of the State of Maryland, known or
satisfactorily proven to me to be the person whose name is subscribed to the
within instrument, and acknowledged that he executed the foregoing Agreement on
behalf of the DEPARTMENT OF BUSINESS AND ECONOMIC DEVELOPMENT for the purposes
therein contained as the duly authorized Deputy Secretary of BUSINESS AND
ECONOMIC DEVELOPMENT of the State.
AS WITNESS my hand and Notarial Seal.
/s/ Jane B. Silver
- ------------------
Notary Public:
My Commission expires:
November 1, 1998
STATE OF MARYLAND, CITY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY that on this 9th day of September, 1996, before me, a
35
Notary Public in and for the State of Maryland, personally appeared Lawrence W.
Ward, Jr., who acknowledged that he executed the foregoing Agreement on behalf
of the Borrower for the purposes therein contained as its duly authorized Vice
President and General Counsel.
AS WITNESS my hand and Notarial Seal.
/s/ Marlene Theresa Glaeser
- ---------------------------
Notary Public
My Commission expires:
April 27, 1999
<TABLE>
<CAPTION>
Item EDOP Baltimore County Borrower's MITP Total
Loan Contribution Grant
---- ---------------- ---------- ---- -----
<S> <C> <C> <C> <C> <C>
1. M.I.S. Hardware, Software and Installation $ 1,080,000 $ 120,000 $ 14,000,000 $ 15,200,000
2. Renovation Costs $ 750,000 $ 1,000,000
3. Training Costs - Existing Employees $ 200,000 $ 200,000
4. Plant and Equipment $ 15,250,000 $ 15,000,000
----------- -------------- -------------- --------- ------------
5. Total Costs $ 1,080,000 $ 120,000 $ 30,000,000 $ 200,000 $ 31,400,000
=========== ============== ============== ========= ============
</TABLE>
Exhibit C
Page 1 of 3
REQUEST FOR DISBURSEMENT
------------------------
1. Project Name: SWEETHEART CUP COMPANY INC. No.:
2. Applicant: SWEETHEART CUP COMPANY INC.
3. Request No. (number consecutively):
4. Period Covered: From - - to - -
5.
Activity Actual Cost (& Amount Requested Cumulative Amount
Contract # if from Department in Requested from
applicable) this Request Department to date
a. MIS Software $ 15,200,000 $ 1,080,000 $ 1,080,000
37
Total: $ 15,200,000 $ 1,080,000 $ 1,080,000
Instructions:
- ------------
(1) For each activity, list in the first column the actual cost respective
activity, e.g., Contract 7A, Sewage Pump Station, $5,000, anticipated from the
Department. $2,500; in the second column list the amount being requested from
the Department for that activity.
(2) Cost figures must be supported by adequate documentation (paid invoices for
equipment, etc.).
38
(3) The Department will not honor requests for disbursement of an amount
greater than the lesser of: the amount the Department is to pay for a
particular activity in the Project Budget, or the actual cost of the work
performed.
Certification:
- -------------
We certify that the attached request is for work actually performed in
connection with the Project as approved by the Department; that this request is
not for previously requested funds, and that an inspection has been made and the
undersigned have found it to be satisfactory, and have accepted the work
performed, for which payment is requested.
We further certify that the attached request for Equipment is for equipment
for the Project that has been purchased and installed at the Facility and an
inspection has been made and the undersigned have found it to be satisfactory
and have accepted the Equipment for which payment is requested.
We further certify that, for initial disbursements, the conditions to be
satisfied prior to the initial disbursement of funds as set forth in the Loan
Agreement between the Borrower and the Department ("Agreement"), have been met.
We further certify that no default exists under the Agreement or the
Promissory Note, executed in connection with the Agreement.
We further certify that the representations and warranties made by the
Borrower in the Agreement remain true and correct, as of the date of this
disbursement request.
39
We further certify that, in the opinion of the undersigned, there is
sufficient time to complete the Improvements and the Project, by the dates
required in the Agreement.
By: By:
Signature (Architect/Engineer) Signature
Name & Title Typed Name & Title Typed
Date: Date:
SWEETHEART CUP
COMPANY INC.
By:
Name:
Title:
40
EXHIBIT D
ECONOMIC DEVELOPMENT OPPORTUNITIES PROGRAM FUND ("EDOP")
FINAL REPORT AND CERTIFICATION OF COMPLETION COSTS
(THE "FINAL REPORT")
1. Project Name: SWEETHEART CUP COMPANY INC.
2. Borrower: SWEETHEART CUP COMPANY INC.
3. Period Covered: From / / through / /
Costs Paid By Costs Paid By
4. Activity EDOP Loan Other Sources*
--------- -------------
a. MIS Software $1,080,000
b. Machinery
c. Renovations
d. Training
e. Plant and Equipment
TOTAL $1,080,000 $30,320,000
*(Please specify in parenthesis the entity which paid each particular cost.)
CERTIFICATION:
I certify that the above costs have been incurred for work actually
performed in accordance with an EDOP loan to Sweetheart Cup Company Inc., (the
"Recipient") for the above named Project. This Final Report is being submitted
to the Director of the Community Financing Group within 10 days after the
Facility Completion Date of the Project. Within 30 days of approval of this
Final Report by the Director of the Community Financing Group, any funds
received by Sweetheart Cup Company Inc. pursuant to the terms of the EDOP loan
which exceed the approved total of Project costs to be paid by the EDOP loan
shall be returned to the State of Maryland through the Director of the Community
Financing Group.
ATTEST: SIGNED:
Name: Name:
Title: Title:
Date:
SPECIAL INCENTIVE AGREEMENT
This Special Incentive Agreement (the "Agreement") is made and entered into
effective the 9th day of December, 1996 by and between Sweetheart Holdings Inc.
and its subsidiary, Sweetheart Cup Company Inc., (collectively the "Company")
and William F. McLaughlin (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to induce the Executive to remain in the
management of the Company for a period of over three years from the date hereof
by paying to the executive a series of special incentive bonuses; and
WHEREAS, the Executive agrees to forfeit any such incentive bonuses that
have not been paid under certain circumstances.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency whereof the parties hereby
acknowledge, the parties agree as follows:
1. Special Incentive Bonus Payments.
---------------------------------
The Company agrees to pay as a special incentive bonus to the Executive the
total amount of $500,000, which amount shall be paid in four equal installments
on March 15, 1997, 1998, 1999 and 2000.
2. Condition Precedent to Payment of Special Incentive Bonus Payments.
-------------------------------------------------------------------
To be eligible to receive the Special Incentive Bonus Payments the
Executive must not have terminated his employment with the Company prior to the
date such payment is to be made, or have had his employment involuntarily
terminated for cause by the Company. For purposes of this Agreement, the term
"involuntarily termination for cause" shall be limited to termination of
employment for theft or embezzlement from the Company, or such other act to the
detriment of the Company or its business for which the Executive could be
indicted for a felony under the laws of the State of Maryland.
3. Governing Law; Dispute Resolution
---------------------------------
(a) This Agreement shall be governed by and construed under the laws of
the State of Maryland, excluding its conflict of laws provisions.
(b) (i) The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation between the
Executive and the Company. If the matter has not been resolved within thirty
(30) days of a party's request for negotiation, either party may initiate
arbitration as provided hereafter.
(ii) Any dispute not resolved through negotiation as provided above
shall be settled by arbitration in Baltimore, MD in accordance with the American
Arbitration Association Employment Dispute Resolution Rules, and judgment upon
the award rendered by the Arbitrator may be entered in any Court having
jurisdiction thereof. The arbitrator in determining an award may include the
costs and expenses of the arbitration.
IN WITNESS WHEREOF, the Executive and the Company, by a duly authorized
officer, have executed this Agreement the day and year first above written.
Sweetheart Holdings Inc. Executive
Sweetheart Cup Company Inc.
By: /s/ Daniel M. Carson /s/ William F. McLaughlin
---------------------------- ---------------------------
Name: Daniel M. Carson William F. McLaughlin
Title: Vice President
SPECIAL INCENTIVE AGREEMENT
This Special Incentive Agreement (the "Agreement") is made and entered into
effective the 18th day of November, 1996 by and between Sweetheart Holdings Inc.
and its subsidiary, Sweetheart Cup Company Inc., (collectively the "Company")
and Joseph A. Lucas (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to induce the Executive to remain in the
management of the Company for a period of at least two years from the date
hereof by paying to the executive a series of special incentive bonuses; and
WHEREAS, the Executive agrees to forfeit any such incentive bonuses that
have not been paid under certain circumstances.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency whereof the parties hereby
acknowledge, the parties agree as follows:
1. Special Incentive Bonus Payments.
---------------------------------
The Company agrees to pay as a special incentive bonus to the Executive the
total amount of $350,000.00, which amount shall be paid in three equal
installments. The first such payment shall be made on January 3, 1997. The
second and third such payments shall be made on November 28, 1997 and November
30, 1998, respectively.
2. Condition Precedent to Payment of Special Incentive Bonus Payments.
-------------------------------------------------------------------
To be eligible to receive the Special Incentive Bonus Payments the
Executive must not have terminated his employment with the Company prior to the
date such payment is to be made, or have had his employment involuntarily
terminated for cause by the Company. For purposes of this Agreement, the term
"involuntarily termination for cause" shall be limited to termination of
employment for theft or embezzlement from the Company, or such other act to the
detriment of the Company or its business for which the Executive could be
indicted for a felony under the laws of the State of Maryland.
3. Confidentiality
---------------
Except as provided below, the Executive agrees to maintain the existence
and terms of this Agreement in strictest confidence and not to disclose any
information regarding this Agreement or its existence to any person including
any other employee of the Company. Any questions the Executive may have
regarding this Agreement shall be addressed to the President and Chief Executive
Officer or the Vice President and General Counsel of the Company. The Executive
may also disclose the terms of this Agreement to his spouse, or personal
accounting, tax and legal advisors solely for purposes of receiving advice
regarding the Agreement, all such disclosures to be made with the same
obligation of confidentiality as required of the Executive hereunder.
4. Governing Law; Dispute Resolution
---------------------------------
(a) This Agreement shall be governed by and construed under the laws of
the State of Maryland, excluding its conflict of laws provisions.
(b) (i) The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation between the
Executive and the Company. If the matter has not been resolved within thirty
(30) days of a party's request for negotiation, either party may initiate
arbitration as provided hereafter.
(ii) Any dispute not resolved through negotiation as provided above
shall be settled by arbitration in Baltimore, MD in accordance with the American
Arbitration Association Employment Dispute Resolution Rules, and judgment upon
the award rendered by the Arbitrator may be entered in any Court having
jurisdiction thereof. The arbitrator in determining an award may include the
costs and expenses of the arbitration.
IN WITNESS WHEREOF, the Executive and the Company, by a duly authorized
officer, have executed this Agreement the day and year first above written.
Sweetheart Holdings Inc. Executive
Sweetheart Cup Company Inc.
By: /s/ William F. McLaughlin /s/ Joseph A. Lucas
--------------------------------- --------------------
Name: William F. McLaughlin Joseph A. Lucas
Title: President and Chief Executive
Officer
SPECIAL INCENTIVE AGREEMENT
This Special Incentive Agreement (the "Agreement") is made and entered into
effective the 18th day of November, 1996 by and between Sweetheart Holdings Inc.
and its subsidiary, Sweetheart Cup Company Inc., (collectively the "Company")
and William H. Haas (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to induce the Executive to remain in the
management of the Company for a period of at least two years from the date
hereof by paying to the executive a series of special incentive bonuses; and
WHEREAS, the Executive agrees to forfeit any such incentive bonuses that
have not been paid under certain circumstances.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency whereof the parties hereby
acknowledge, the parties agree as follows:
1. Special Incentive Bonus Payments.
---------------------------------
The Company agrees to pay as a special incentive bonus to the Executive the
total amount of $360,000.00, which amount shall be paid in three equal
installments. The first such payment shall be made on January 3, 1997. The
second and third such payments shall be made on November 28, 1997 and November
30, 1998, respectively.
2. Condition Precedent to Payment of Special Incentive Bonus Payments.
-------------------------------------------------------------------
To be eligible to receive the Special Incentive Bonus Payments the
Executive must not have terminated his employment with the Company prior to the
date such payment is to be made, or have had his employment involuntarily
terminated for cause by the Company. For purposes of this Agreement, the term
"involuntarily termination for cause" shall be limited to termination of
employment for theft or embezzlement from the Company, or such other act to the
detriment of the Company or its business for which the Executive could be
indicted for a felony under the laws of the State of Maryland.
3. Confidentiality
---------------
Except as provided below, the Executive agrees to maintain the existence
and terms of this Agreement in strictest confidence and not to disclose any
information regarding this Agreement or its existence to any person including
any other employee of the Company. Any questions the Executive may have
regarding this Agreement shall be addressed to the President and Chief Executive
Officer or the Vice President and General Counsel of the Company. The Executive
may also disclose the terms of this Agreement to his spouse, or personal
accounting, tax and legal advisors solely for purposes of receiving advice
regarding the Agreement, all such disclosures to be made with the same
obligation of confidentiality as required of the Executive hereunder.
4. Governing Law; Dispute Resolution
---------------------------------
(a) This Agreement shall be governed by and construed under the laws of
the State of Maryland, excluding its conflict of laws provisions.
(b) (i) The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation between the
Executive and the Company. If the matter has not been resolved within thirty
(30) days of a party's request for negotiation, either party may initiate
arbitration as provided hereafter.
(ii) Any dispute not resolved through negotiation as provided above
shall be settled by arbitration in Baltimore, MD in accordance with the American
Arbitration Association Employment Dispute Resolution Rules, and judgment upon
the award rendered by the Arbitrator may be entered in any Court having
jurisdiction thereof. The arbitrator in determining an award may include the
costs and expenses of the arbitration.
IN WITNESS WHEREOF, the Executive and the Company, by a duly authorized
officer, have executed this Agreement the day and year first above written.
Sweetheart Holdings Inc. Executive
Sweetheart Cup Company Inc.
By: /s/ William F. McLaughlin /s/ William H. Haas
--------------------------------- --------------------
Name: William F. McLaughlin William H. Haas
Title: President and Chief Executive
Officer
SPECIAL INCENTIVE AGREEMENT
This Special Incentive Agreement (the "Agreement") is made and entered into
effective the 18th day of November, 1996 by and between Sweetheart Holdings Inc.
and its subsidiary, Sweetheart Cup Company Inc., (collectively the "Company")
and Daniel M. Carson (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to induce the Executive to remain in the
management of the Company for a period of at least two years from the date
hereof by paying to the executive a series of special incentive bonuses; and
WHEREAS, the Executive agrees to forfeit any such incentive bonuses that
have not been paid under certain circumstances.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency whereof the parties hereby
acknowledge, the parties agree as follows:
1. Special Incentive Bonus Payments.
---------------------------------
The Company agrees to pay as a special incentive bonus to the Executive the
total amount of $172,500.00, which amount shall be paid in three equal
installments. The first such payment shall be made on January 3, 1997. The
second and third such payments shall be made on November 28, 1997 and November
30, 1998, respectively.
2. Condition Precedent to Payment of Special Incentive Bonus Payments.
-------------------------------------------------------------------
To be eligible to receive the Special Incentive Bonus Payments the
Executive must not have terminated his employment with the Company prior to the
date such payment is to be made, or have had his employment involuntarily
terminated for cause by the Company. For purposes of this Agreement, the term
"involuntarily termination for cause" shall be limited to termination of
employment for theft or embezzlement from the Company, or such other act to the
detriment of the Company or its business for which the Executive could be
indicted for a felony under the laws of the State of Maryland.
3. Confidentiality
---------------
Except as provided below, the Executive agrees to maintain the existence
and terms of this Agreement in strictest confidence and not to disclose any
information regarding this Agreement or its existence to any person including
any other employee of the Company. Any questions the Executive may have
regarding this Agreement shall be addressed to the President and Chief Executive
Officer or the Vice President and General Counsel of the Company. The Executive
may also disclose the terms of this Agreement to his spouse, or personal
accounting, tax and legal advisors solely for purposes of receiving advice
regarding the Agreement, all such disclosures to be made with the same
obligation of confidentiality as required of the Executive hereunder.
4. Governing Law; Dispute Resolution
---------------------------------
(a) This Agreement shall be governed by and construed under the laws of
the State of Maryland, excluding its conflict of laws provisions.
(b) (i) The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation between the
Executive and the Company. If the matter has not been resolved within thirty
(30) days of a party's request for negotiation, either party may initiate
arbitration as provided hereafter.
(ii) Any dispute not resolved through negotiation as provided above
shall be settled by arbitration in Baltimore, MD in accordance with the American
Arbitration Association Employment Dispute Resolution Rules, and judgment upon
the award rendered by the Arbitrator may be entered in any Court having
jurisdiction thereof. The arbitrator in determining an award may include the
costs and expenses of the arbitration.
IN WITNESS WHEREOF, the Executive and the Company, by a duly authorized
officer, have executed this Agreement the day and year first above written.
Sweetheart Holdings Inc. Executive
Sweetheart Cup Company Inc.
By: /s/ William F. McLaughlin /s/ Daniel M. Carson
--------------------------------- -------------------------
Name: William F. McLaughlin Daniel M. Carson
Title: President and Chief Executive
Officer
SPECIAL INCENTIVE AGREEMENT
This Special Incentive Agreement (the "Agreement") is made and entered into
effective the 18th day of November, 1996 by and between Sweetheart Holdings Inc.
and its subsidiary, Sweetheart Cup Company Inc., (collectively the "Company")
and Charles E. Busse (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to induce the Executive to remain in the
management of the Company for a period of at least two years from the date
hereof by paying to the executive a series of special incentive bonuses; and
WHEREAS, the Executive agrees to forfeit any such incentive bonuses that
have not been paid under certain circumstances.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency whereof the parties hereby
acknowledge, the parties agree as follows:
1. Special Incentive Bonus Payments.
---------------------------------
The Company agrees to pay as a special incentive bonus to the Executive the
total amount of $355,800.00, which amount shall be paid in three equal
installments. The first such payment shall be made, on November 29, 1996 The
second and third such payments shall be made on November 28, 1997 and November
30, 1998, respectively.
2. Condition Precedent to Payment of Special Incentive Bonus Payments.
-------------------------------------------------------------------
To be eligible to receive the Special Incentive Bonus Payments the
Executive must not have terminated his employment with the Company prior to the
date such payment is to be made, or have had his employment involuntarily
terminated for cause by the Company. For purposes of this Agreement, the term
"involuntarily termination for cause" shall be limited to termination of
employment for theft or embezzlement from the Company, or such other act to the
detriment of the Company or its business for which the Executive could be
indicted for a felony under the laws of the State of Maryland.
3. Confidentiality
---------------
Except as provided below, the Executive agrees to maintain the existence
and terms of this Agreement in strictest confidence and not to disclose any
information regarding this Agreement or its existence to any person including
any other employee of the Company. Any questions the Executive may have
regarding this Agreement shall be addressed to the President and Chief Executive
Officer or the Vice President and General Counsel of the Company. The Executive
may also disclose the terms of this Agreement to his spouse, or personal
accounting, tax and legal advisors solely for purposes of receiving advice
regarding the Agreement, all such disclosures to be made with the same
obligation of confidentiality as required of the Executive hereunder.
4. Governing Law; Dispute Resolution
---------------------------------
(a) This Agreement shall be governed by and construed under the laws of
the State of Maryland, excluding its conflict of laws provisions.
(b) (i) The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation between the
Executive and the Company. If the matter has not been resolved within thirty
(30) days of a party's request for negotiation, either party may initiate
arbitration as provided hereafter.
(ii) Any dispute not resolved through negotiation as provided above
shall be settled by arbitration in Baltimore, MD in accordance with the American
Arbitration Association Employment Dispute Resolution Rules, and judgment upon
the award rendered by the Arbitrator may be entered in any Court having
jurisdiction thereof. The arbitrator in determining an award may include the
costs and expenses of the arbitration.
IN WITNESS WHEREOF, the Executive and the Company, by a duly authorized
officer, have executed this Agreement the day and year first above written.
Sweetheart Holdings Inc. Executive
Sweetheart Cup Company Inc.
By: /s/ William F. McLaughlin /s/ Charles E. Busse
--------------------------------- -------------------------
Name: William F. McLaughlin Charles E. Busse
Title: President and Chief Executive
Officer
