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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-26013
PROSPECTUS
FEBRUARY 9, 1998
LOGO
OFFER TO EXCHANGE ITS 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ANY AND ALL OF ITS OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MARCH 11,
1998, UNLESS EXTENDED.
BWAY Corporation, a Delaware corporation ("BWAY" or the "Company") hereby
offers (the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 10 1/4%
Senior Subordinated Notes due 2007, Series B (the "Exchange Notes"), registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant
to a Registration Statement of which this prospectus is a part, for each $1,000
principal amount of its outstanding 10 1/4% Senior Subordinated Notes due 2007
(the "Old Notes"), of which $100,000,000 principal amount is outstanding. The
form and terms of the Exchange Notes are the same as the form and term of the
Old Notes except that (i) the Exchange Notes will bear a Series B designation,
(ii) the issuance of the Exchange Notes will have been registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (iii) holders of the Exchange Notes will
not be entitled to certain rights of holders of Old Notes under the
Registration Rights Agreement (as defined). The Old Notes and the Exchange
Notes are sometimes referred to herein collectively as the "Notes." The
Exchange Notes will evidence the same debt as the Old Notes (which they
replace) and will be issued under and be entitled to the benefits of the
Indenture dated as of April 11, 1997 (the "Indenture") by and among the
Company, the Subsidiary Guarantors (as defined) and Harris Trust and Savings
Bank, as trustee, governing the Notes. See "The Exchange Offer" and
"Description of Exchange Notes."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on March 11, 1998,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
See "The Exchange Offer."
The Old Notes were sold by the Company on April 11, 1997 to BT Securities
Corporation, Bankers Trust International plc, Bear, Stearns & Co. Inc. and
NationsBanc Capital Markets, Inc. (the "Initial Purchasers") in a transaction
not registered under the Securities Act in reliance upon an exemption under the
Securities Act (the "Initial Offering"). The Initial Purchasers subsequently
placed the Old Notes with (i) qualified institutional buyers in reliance upon
Rule 144A under the Securities Act, (ii) a limited number of institutional
accredited investors that agreed to comply with certain transfer restrictions
and other conditions and (iii) qualified buyers outside the United States in
reliance upon Regulation S under the Securities Act. Accordingly, the Old Notes
may not be reoffered, resold or otherwise transferred in the United States or
to U.S. Persons (as defined in Regulation S under the Securities Act) unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange
Notes are being offered hereunder in order to satisfy the obligations of the
Company and the Subsidiary Guarantors under the Registration Rights Agreement
entered into by the Company, the Subsidiary Guarantors and the Initial
Purchasers in connection with the Initial Offering (the "Registration Rights
Agreement"). See "The Exchange Offer."
(Continued on following page)
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DESCRIPTION OF CERTAIN RISKS TO
BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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(continued from previous page)
Interest on the Notes will accrue from their date of original issuance and
will be payable semi-annually in arrears on April 15 and October 15 of each
year, commencing October 15, 1997 with respect to the Old Notes and April 15,
1998 with respect to the Exchange Notes, at the rate of 10 1/4% per annum. The
Notes will be redeemable, in whole or in part, at the option of the Company on
or after April 15, 2002, at the redemption prices set forth herein plus
accrued and unpaid interest to the date of redemption. In addition, at any
time and from time to time prior to April 15, 2000, the Company may, at its
option, redeem up to 33 1/3% of the aggregate principal amount of the Notes
with the net cash proceeds of one or more Equity Offerings (as defined), at a
redemption price equal to 110 1/4% of the principal amount thereof plus
accrued and unpaid interest to the date of redemption; provided, however, that
after giving effect to any such redemption, at least 66 2/3% of the aggregate
principal amount of the Notes originally issued remains outstanding. Upon a
Change in Control (as defined), the Company will be required to make an offer
to repurchase the Notes at a price equal to 101% of the principal amount
thereof plus accrued and unpaid interest to the date of repurchase. In
addition, the Company will be obligated to offer to repurchase the Notes at
100% of the principal amount thereof plus accrued and unpaid interest to date
of repurchase in the event of certain Asset Sales (as defined). See
"Description of Exchange Notes."
The Notes will be general unsecured senior subordinated obligations of the
Company and will be subordinated in right of payment to all existing and
future Senior Indebtedness (as defined) of the Company and will be effectively
subordinated to all secured Indebtedness (as defined) of the Company to the
extent of the value of the assets securing any such Indebtedness. The Notes
will rank pari passu with any future senior subordinated indebtedness of the
Company and will rank senior to all other subordinated indebtedness of the
Company. The Notes will be fully and unconditionally guaranteed (the
"Guarantees") on a senior subordinated basis, jointly and severally, by all
direct and indirect Restricted Subsidiaries (as defined) of the Company,
whether now owned or hereafter acquired (subject to certain exceptions) (the
"Subsidiary Guarantors"). The Guarantees will be general unsecured senior
subordinated obligations of the Subsidiary Guarantors and will be subordinated
in right of payment to all existing and future Guarantor Senior Indebtedness
(as defined) (including Indebtedness outstanding under the Credit Agreement).
The Guarantees will rank pari passu with any and all future senior
subordinated Indebtedness of the Subsidiary Guarantors and will rank senior to
all other subordinated Indebtedness of the Subsidiary Guarantors. As of
September 30, 1997, the Company had outstanding approximately $15.5 million of
Senior Indebtedness and no Indebtedness subordinated to the Notes. See
"Description of Exchange Notes--Guarantees" and "--Certain Covenants--
Additional Subsidiary Guarantees."
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and such holder
has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. See "The Exchange Offer--Resale of the
Exchange Notes." Holders of Old Notes wishing to accept the Exchange Offer
must represent to the Company, as required by the Registration Rights
Agreement, that such conditions have been met. Each broker-dealer (a
"Participating Broker-Dealer") that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of up to 180
days after the Expiration Date, it will make this Prospectus available to any
Participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter
is being used in connection with the Exchange Offer.
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Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. See "The
Exchange Offer."
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Absence of a Public Market
Could Adversely Affect the Value of Exchange Notes." Moreover, to the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SUBSIDIARY GUARANTORS. NEITHER THE DELIVERY
OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
UNTIL MAY 11, 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM.
EXCEPT AS DESCRIBED UNDER "BOOK-ENTRY; DELIVERY AND FORM", THE COMPANY EXPECTS
THAT THE EXCHANGE NOTES ISSUED PURSUANT TO THE EXCHANGE OFFER WILL BE
REPRESENTED BY A GLOBAL NOTE (AS DEFINED), WHICH WILL BE DEPOSITED WITH, OR ON
BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC") AND REGISTERED IN ITS NAME OR
IN THE NAME OF CEDE & CO., ITS NOMINEE. BENEFICIAL INTERESTS IN THE GLOBAL
NOTE REPRESENTING THE EXCHANGE NOTES WILL BE SHOWN ON, AND TRANSFERS THEREOF
WILL BE EFFECTED THROUGH, RECORDS MAINTAINED BY DTC AND ITS PARTICIPANTS.
AFTER THE INITIAL ISSUANCE OF THE GLOBAL NOTE, NOTES IN CERTIFICATED FORM WILL
BE ISSUED IN EXCHANGE FOR THE GLOBAL NOTE ONLY UNDER LIMITED CIRCUMSTANCES AS
SET FORTH IN THE INDENTURE. SEE "BOOK-ENTRY; DELIVERY AND FORM."
PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE NOT TO CONSTRUE THE CONTENTS
OF THIS PROSPECTUS AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD
CONSULT ITS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX,
BUSINESS, FINANCIAL AND RELATED ASPECTS OF THE EXCHANGE NOTES. NEITHER THE
COMPANY OR ANY OF THE SUBSIDIARY GUARANTORS IS MAKING ANY REPRESENTATION TO
ANY PROSPECTIVE INVESTOR IN THE EXCHANGE NOTES REGARDING THE LEGALITY OF AN
INVESTMENT THEREIN BY SUCH PERSON UNDER APPROPRIATE LEGAL INVESTMENT OR
SIMILAR LAWS.
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MARKET DATA USED THROUGHOUT THIS PROSPECTUS WERE OBTAINED FROM INTERNAL
COMPANY SURVEYS AND INDUSTRY PUBLICATIONS, WHICH THE COMPANY BELIEVES TO BE
RELIABLE. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED THIS MARKET DATA.
SIMILARLY, INTERNAL COMPANY SURVEYS, WHILE BELIEVED BY THE COMPANY TO BE
RELIABLE, HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES.
THROUGHOUT THIS PROSPECTUS, REFERENCES TO THE COMPANY'S "SHARE" OR "SALES
SHARE" REFER TO THE COMPANY'S ESTIMATE OF ITS UNIT SALES AS A PERCENTAGE OF
ALL UNITS SOLD IN THE UNITED STATES ON A PRO FORMA BASIS AFTER GIVING EFFECT
TO THE RECENT ACQUISITIONS. "SHARE" AND "SALES SHARE," UNLESS SPECIFICALLY
STATED TO THE CONTRARY, HAVE BEEN DERIVED FROM THE MOST RECENTLY PUBLISHED CAN
MANUFACTURERS INSTITUTE AND U.S. DEPARTMENT OF COMMERCE CENSUS BUREAU DATA AND
THE COMPANY'S ESTIMATE OF SUBSEQUENT CHANGES IN MARKET SHARE BASED UPON
CHANGES IN THE COMPANY'S NET SALES FROM SUCH PRODUCT LINES.
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE UNITED STATES
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS
PROSPECTUS, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE COMPANY'S
FUTURE FINANCIAL POSITION, BUSINESS STRATEGY, BUDGETS, PROJECTED COSTS AND
PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, ARE FORWARD-LOOKING
STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN
SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT
SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S
EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION
WITH THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS. ALL
SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
ISSUER, THE SUBSIDIARY GUARANTORS, OR PERSONS ACTING ON THEIR BEHALF, ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the Exchange Notes being offered hereby. This Prospectus does not contain all
the information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Company and the Exchange Offer,
reference is made to the Exchange Offer Registration Statement. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Exchange
Offer Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports and other information with the
Commission. The Exchange Offer Registration Statement, including the exhibits
thereto, and periodic reports and other information filed by the Company with
the Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at its regional offices located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
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In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the Commission (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company was required to file such Forms, including for each a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereof by the Company's
independent certified public accountants and (ii) all reports that would be
required to be filed on Form 8-K if it were required to file such reports. In
addition, for so long as any of the Notes remain outstanding, the Company has
agreed to make available to any prospective purchaser of the Notes or
beneficial owner of the Notes, in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act.
The Company, a corporation organized under the laws of Delaware, has its
principal executive offices located at 8607 Roberts Drive, Suite 250, Atlanta,
Georgia 30350; its telephone number is (770) 645-4800.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission pursuant to the
Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
September 28, 1997 (File No. 0-26178), excluding the financial statements
included therein.
2. The Company's Current Reports on Form 8-K/A dated May 28, 1996, filed
August 12, 1996 (File No. 0-26178), and dated June 17, 1996, filed August
30, 1996 (File No. 0-26178) and the Company's Current Reports on Form 8-K
dated October 28, 1996, filed November 12, 1996 (File No 0-26178), and
dated March 25, 1997, filed April 1, 1997 (File No. 0-26178).
3. The description of the Company's common stock and preferred share
purchase rights under the caption "Item 1. Description of Registrant's
Securities to be Registered" contained in each of the Company's
Registration Statements on Form 8-A (File No. 0-26178) that were filed with
the Commission on November 5, 1996 pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), including any amendments or
reports filed for the purpose of updating such descriptions.
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the Expiration Date, shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in any other subsequently filed document which also is incorporated
or deemed to be incorporated by reference herein) modifies or supersedes such
previous statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Registration Statement.
The Company will provide without charge to each person, including any
beneficial owner, to whom a prospectus is delivered a copy of any and all of
the information that has been incorporated by reference in this Prospectus
(not including exhibits to the information incorporated by reference into the
information that the Prospectus incorporates) upon written or oral request
from Blair G. Schlossberg, General Counsel and Secretary of BWAY Corporation,
8607 Roberts Drive, Suite 250, Atlanta, Georgia 30350, telephone: (770) 645-
4800. In order to ensure timely delivery of the documents, any request should
be made by March 4, 1998 (five business days prior to the Expiration Date).
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Consolidated Financial Statements and the notes thereto included elsewhere
in this Prospectus. Unless otherwise stated in this Prospectus or unless the
context otherwise requires, the "Company" shall mean BWAY Corporation and its
subsidiaries.
THE COMPANY
BWAY Corporation is a holding company whose principal subsidiaries, Brockway
Standard, Inc., Brockway Standard (New Jersey), Inc., Milton Can Company, Inc.
and Brockway Standard (Ohio), Inc., are leading developers, manufacturers and
marketers of steel containers for the general line category of the North
American container industry. The Company has six major product lines: (i) paint
cans, (ii) aerosol cans, (iii) oblong cans, (iv) steel pails, (v) food cans and
(vi) specialty cans. The Company's principal products include a wide variety of
steel cans and pails used for packaging paint and related products, lubricants,
cleaners, roof and driveway sealants, food (principally coffee and vegetable
oil) and household and personal care aerosol products. The Company also
manufactures steel ammunition boxes and provides metal decorating services. The
Company's business is focused on product lines and geographic areas where the
Company has, or management believes it can develop, a leading market presence
and achieve a low cost manufacturing position. See "Summary Consolidated
Historical and Pro Forma Financial Data."
The Company believes it is an industry leader in each of its major product
lines (other than aerosol cans, a product line the Company entered as a part of
the Recent Acquisitions (as defined)) due to a number of competitive
advantages, including highly efficient and technologically advanced
manufacturing facilities, strategically located operations and a reputation for
quality and service. The Company's products are sold to over 750 customers,
including diverse groups of manufacturers of nationally branded products for
the hardware, automotive, personal care, consumer and food industries. The
Company's major customers include Benjamin Moore & Company, CL Smith Company,
Colgate-Palmolive Company, PPG Industries, Inc., The Procter & Gamble Company
and The Sherwin-Williams Company.
The Company is the successor to a business founded in 1875. In January 1989,
the Company was purchased from Owens-Illinois Corporation ("Owens-Illinois") in
a leveraged transaction led by management and other industry investors. Over
the past eight years, the Company's net sales have grown from $131.9 million in
fiscal 1990 to $402.2 million in fiscal 1997. The successful application of
management's 3R strategic initiative to Rationalize, Reengineer and
Recapitalize its existing and acquired operations has resulted in meaningful
growth in Adjusted EBITDA (as defined in Note 5 on page 12). In fiscal 1993,
the Company acquired and successfully integrated Armstrong Containers, Inc., DK
Container, Inc., and the Monotop(R) business of Ellisco, Inc., which was the
primary reason for the net sales increase from fiscal 1992 to fiscal 1994 of
approximately 67%. In fiscal 1996, the Company completed the strategic
acquisitions of Milton Can Company, Inc. and the Davies Can division of the Van
Dorn Company, a wholly owned subsidiary of Crown Cork & Seal Company, Inc.,
and, in fiscal 1997, the Company completed the strategic acquisition of the
aerosol can business of Ball Metal Food Container Corporation, a wholly owned
subsidiary of Ball Corporation (collectively, the "Recent Acquisitions"). Since
1989 the Company has purchased 21 facilities, opened two new facilities and
sold or closed nine facilities. Management currently plans to close three
facilities during fiscal 1998.
The Company believes that metal cans are the preferred container for
significant portions of the solvent, paint and coatings industry due to the
attractive strength and non-permeable characteristics of steel versus other
materials, such as plastic. Steel containers offer a number of significant
advantages over alternative materials, including fire safety, efficiencies in
packaging and transport, the capacity for vacuum or pressure packaging and the
ability to hold highly volatile or oil-based liquids. In addition, management
believes that steel containers are
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easier and less costly to recycle and have a higher rate of recycling than
alternative materials. The Company believes that the metal can's position in
the market will be enhanced by increasing environmental awareness and recycling
efforts.
The Company has its principal executive offices located at 8607 Roberts
Drive, Atlanta, Georgia 30350; its telephone number is (770) 645-4800.
COMPETITIVE STRENGTHS
Strong Market Positions. The Company has established a leading position in
each of its major product lines (other than aerosol cans, a product line the
Company entered as part of the Recent Acquisitions). The Company estimates that
it holds the number one share in round paint cans, oblong cans, and steel
pails, with unit shares in 1996 of approximately 60%, 50% and 31%,
respectively. The Company attributes its leadership position primarily to its
broad product offering, low cost manufacturing position, reputation for quality
and high levels of customer service. These qualities have enabled the Company
to establish long-standing relationships with existing customers and to attract
new customers.
Proven Management Team. The Company has assembled a strong management team at
both the corporate and operating levels with extensive experience in the
packaging industry. Since 1989, the Company's management team has successfully
implemented a focused strategy to complete strategic acquisitions, successfully
integrate and rationalize acquisitions, maintain a strong financial position,
broaden its product offerings and strengthen its key customer relationships.
State-of-the-Art Manufacturing Technologies. The Company employs leading edge
manufacturing methods to consistently improve its process efficiency, product
quality and product performance. The Company has converted substantially all of
its production lines from soldered to welded technology. Welding lines operate
at higher speeds, greater efficiency and lower costs. In addition to the
benefits inherent to the welded technology conversion, the Company has
internally developed equipment technology and modifications that allow the
majority of the Company's assembly lines to operate significantly faster than
original design specifications. The Company has also invested in design and
process technology that enable it to improve product quality. For the five
fiscal years ended September 30, 1997, the Company has invested approximately
$64 million in capital expenditures which have meaningfully enhanced
manufacturing efficiency, increased line speeds and lowered scrap levels.
Examples include conversion to the "powder striping" process of coating the
inside of cans at the weld to improve can performance and the development of
high performance light weight pails meeting the stricter United Nations
performance test criteria for pails containing volatile materials. The Company
will continue to make targeted capital investments to improve product quality,
manufacturing throughput and efficiency and increase sales.
Low-Cost Production. The Company believes that its manufacturing costs are
among the lowest in its industry primarily due to: (i) the economies of scale
provided by the Company's high production volumes, (ii) high plant utilization
attained by the rationalization of less efficient facilities, (iii) an industry
leading safety record which dramatically lowers workers' compensation costs and
related expenses, (iv) manufacturing techniques that minimize raw materials
requirements, reduce scrap and enhance productivity, (v) the ability to attain
favorable steel prices based on its significant raw material purchases, (vi)
the low transportation costs resulting from the proximity of manufacturing
facilities to its major customers and (vii) continued capital investment
directed at achieving the highest levels of operating efficiency and
productivity.
STRATEGY
Rationalize, Reengineer, and Recapitalize. The Company implements a 3R
business strategy designed to Rationalize, Reengineer and Recapitalize its
existing and acquired operations to facilitate sales and Adjusted
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EBITDA (as defined in Note 5 on page 12) growth. Consistent with its business
strategy, the Company rationalizes operations by closing less efficient
facilities, relocating production lines and optimizing production levels within
efficiently loaded facilities. Through continued reengineering of process and
equipment, the Company has increased line speeds, enhanced product quality,
improved plant safety and reduced scrap. Investments in state-of-the-art
technology and equipment allow the Company to recapitalize operations and
develop world class production facilities providing the highest quality
products to its customers at competitive pricing.
The Company has a successful track record of achieving cost reductions and
productivity enhancements through consolidation of manufacturing operations and
selected capital investments in state-of-the-art manufacturing equipment. Since
1989 the Company has purchased 21 facilities, opened two new facilities and
sold or closed nine facilities. Management currently plans to close three
facilities during fiscal 1998. Consequently, at the end of calendar 1997 the
Company anticipates it will be operating 11 manufacturing facilities. For the
five fiscal years ended September 30, 1997, the Company has invested
approximately $64 million in capital expenditures which have meaningfully
enhanced manufacturing efficiency, increased line speeds and lowered scrap
levels.
New Products and Markets. The Company continues to enhance current product
lines and expand into new product lines in an effort to provide its existing
customers with a comprehensive offering of general line products. In late 1994,
new Department of Transportation regulations became effective in the United
States requiring stricter performance criteria for steel pails. The Company
responded to this regulatory change by developing a unique pail design and
manufacturing process. The Company has increased unit sales by approximately
29% over its fiscal 1994 unit sales and the Company estimates it is now the
leading provider of steel pails. The Company also provides steel shearing,
coating and lithography services ("Materials Center Services") for its can
assembly facilities and third party customers. To enhance its offering of
Materials Center Services, the Company has initiated a major capital investment
program in state-of-the-art lithography and coating equipment. The Company
believes this investment will significantly enhance its ability to expand third
party sales of Materials Center Services. In November 1997, the Company
announced the formation of a new strategic business unit, BMAT, to manage its
Materials Center Services.
Strategic Acquisitions. The Company has a successful history of making
strategic acquisitions in core or complementary product lines. The Company will
continue to evaluate and selectively pursue acquisitions which it believes are
strategically important in meeting its customers' needs, attracting new
customers, adding new products, complementing its existing business, expanding
its geographic reach in North America and enhancing the Company's
profitability.
Leverage Strong Customer Relationships. The Company enjoys long-standing
relationships with the majority of its customers. The Company intends to
enhance these relationships by delivering a broader range of products and
services. With the BSNJ Acquisition (as defined) and the MCC Acquisition (as
defined), the Company now has the ability to offer aerosol cans to its
customers. The Company estimates that this product line will increase the
volume of cans that it sells to many of its major general line customers. The
Company also believes its recent commitment to increasing its Materials Center
Services capabilities will enhance existing relationships with these customers
through the offering of high quality lithographed containers. In November 1997,
the Company announced the formation of a new strategic business unit, BMAT, to
manage its Materials Center Services.
3
<PAGE>
THE INITIAL OFFERING
<TABLE>
<S> <C>
Notes..................... The Old Notes were sold by the Company on April 11,
1997 to BT Securities Corporation, Bankers Trust
International plc, Bear, Stearns & Co. Inc. and
NationsBanc Capital Markets, Inc. (the "Initial
Purchasers") pursuant to a Purchase Agreement dated
April 8, 1997 (the "Purchase Agreement"). The
Initial Purchasers subsequently resold the Old Notes
to (i) qualified institutional buyers pursuant to
Rule 144A under the Securities Act, (ii) a limited
number of institutional accredited investors that
agreed to comply with certain transfer restrictions
and other conditions and (iii) qualified buyers
outside the United States in reliance upon
Regulation S under the Securities Act.
Registration Rights Pursuant to the Purchase Agreement, the Company, the
Agreement................ Subsidiary Guarantors and the Initial Purchasers
entered into a Registration Rights Agreement dated
as of April 11, 1997 (the "Registration Rights
Agreement"), which grants the holder of the Old
Notes certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange
rights which terminate upon the consummation of the
Exchange Offer. Upon consummation of the Exchange
Offer, the Company and the Subsidiary Guarantors
will have no further obligation under the
Registration Rights Agreement to register Old Notes
except in the limited circumstances in which the
Company has agreed to file a Shelf Registration
Statement. See "Prospectus Summary--The Exchange
Offer--Untendered Old Notes" and "The Exchange
Offer--Purpose and Effect of the Exchange Offer."
THE EXCHANGE OFFER
Securities Offered........ $100,000,000 aggregate principal amount of 10 1/4%
Senior Subordinated Notes due 2007, Series B, of the
Company (the "Exchange Notes").
The Exchange Offer........ $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of Old
Notes. As of the date hereof, $100,000,000 aggregate
principal amount of Old Notes are outstanding. The
Company will issue the Exchange Notes to holders on
or promptly after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
business and that such holder does not intend to
participate and has no arrangement or understanding
with any person to participate in the distribution
of such Exchange Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of market-
making activities or other trading activities may be
a statutory underwriter. Each
Participating Broker-Dealer that receives Exchange
Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Old Notes where such
Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making
activities or other trading activities. The Company
has agreed that, for a period of up to 180 days
after the Expiration Date, they will make this
Prospectus available to any Participating Broker-
Dealer for use in connection with any such resale.
See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff of
the Commission enunciated in no-action letters and,
in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery
requirements of the Securities Act in connection
with any resale transaction. Failure to comply with
such requirements in such instance may result in
such holder incurring liability under the Securities
Act for which the holder is not indemnified by the
Company.
Expiration Date........... 5:00 p.m., New York City time, on March 11, 1998
unless the Exchange Offer is extended, in which case
the term "Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
Accrued Interest on the
Exchange Notes and the Each Exchange Note will bear interest from its
Old Notes................ issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the issuance
date of the Exchange Notes. Such interest will be
paid with the first interest payment on the Exchange
Notes. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the
Exchange Notes.
Conditions to the Exchange The Exchange Offer is subject to certain customary
Offer.................... conditions, which may be waived by the Company. See
"The Exchange Offer--Conditions."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Procedures for Tendering Each holder of Old Notes wishing to accept the
Old Notes................ Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof (or, in the case of a book-entry
transfer, deliver an Agent's Message (as defined) in
lieu thereof), in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile (or, in the case of a book-entry transfer,
deliver an Agent's Message (as defined) in lieu
thereof), together with the Old Notes and any other
required documentation to the Exchange Agent (as
defined) at the address set forth herein. By
executing the Letter of Transmittal (or, in the case
of a book-entry transfer, delivering an Agent's
Message in lieu thereof), each holder will represent
to the Company that, among other things, the
Exchange Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of
business of the person receiving such Exchange
Notes, whether or not such person is the holder,
that neither the holder nor any such other person
has any arrangement or understanding with any person
to participate in the distribution of such Exchange
Notes and that neither the holder nor any such other
person is an "affiliate," as defined under Rule 405
of the Securities Act, of the Company. See "The
Exchange Offer--Purpose and Effect of the Exchange
Offer" and "--Procedures for Tendering."
Untendered Old Notes...... Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but who
do not tender their Old Notes will not have any
further exchange rights and such Old Notes will
continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market
for such Old Notes could be adversely affected.
Consequences of Failure to The Old Notes that are not exchanged pursuant to the
Exchange................. Exchange Offer will remain restricted securities.
Accordingly, such Old Notes may be resold only (i)
to the Company, (ii) pursuant to Rule 144A or Rule
144 under the Securities Act or pursuant to some
other exemption under the Securities Act, (iii)
outside the United States to a foreign person
pursuant to the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act. See
"The Exchange Offer--Consequences of Failure to
Exchange."
Shelf Registration If any holder of the Old Notes (other than any such
Statement................ holder which is an "affiliate" of the Company or a
Subsidiary Guarantor within the meaning of Rule 405
under the Securities Act) is not eligible under
applicable securities laws to participate in the
Exchange Offer, and such holder has satisfied
certain conditions relating to the provision of
information to the Company for use therein, the
Company and the Subsidiary Guarantors have agreed to
register the Old Notes on a shelf registration
statement (the "Shelf Registration Statement") and
use their best efforts to cause it to be declared
effective by the Commission as promptly
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
as practical on or after the consummation of the
Exchange Offer. The Company and Subsidiary
Guarantors have agreed to maintain the effectiveness
of the Shelf Registration Statement for, under
certain circumstances, a maximum of two years, to
cover resales of the Old Notes held by any such
holders.
Special Procedures for Any beneficial owner whose Old Notes are registered
Beneficial Owners........ in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing and
executing the Letter of Transmittal (or, in the case
of a book-entry transfer, delivering an Agent's
Message in lieu thereof) and delivering its Old
Notes, either make appropriate arrangements to
register ownership of the Old Notes in such owner's
name or obtain a properly completed bond power from
the registered holder. The transfer of registered
ownership may take considerable time. The Company
will keep the Exchange Offer open for at least
thirty days (or longer if required by applicable
law) in order to provide for the transfer of
registered ownership.
Guaranteed Delivery Holders of Old Notes who wish to tender their Old
Procedures............... Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes, the
Letter of Transmittal (or, in the case of a book-
entry transfer, an Agent's Message in lieu thereof)
or any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply with
the procedures for book-entry transfer) prior to the
Expiration Date must tender their Old Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes
and Delivery of Exchange The Company will accept for exchange any and all Old
Notes.................... Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Use of Proceeds........... There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
Exchange Agent............ Harris Trust and Savings Bank.
</TABLE>
THE EXCHANGE NOTES
<TABLE>
<S> <C>
General...................... The form and terms of the Exchange Notes are the
same as the form and terms of the Old Notes (which
they replace) except that (i) the Exchange Notes
bear a Series B designation, (ii) the
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Exchange Notes have been registered under the
Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (iii) the
holders of Exchange Notes will not be entitled to
certain rights under the Registration Rights
Agreement, including the provisions providing for an
increase in the interest rate on the Old Notes in
certain circumstances relating to the timing of the
Exchange Offer, which rights will terminate when the
Exchange Offer is consummated. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer."
The Exchange Notes will evidence the same debt as
the Old Notes and will be entitled to the benefits
of the Indenture. See "Description of Exchange
Notes." The Old Notes and the Exchange Notes are
referred to herein collectively as the "Notes."
Securities Offered......... $100,000,000 aggregate principal amount of 10 1/4%
Senior Subordinated Notes due 2007, Series B.
Issuer..................... BWAY Corporation.
Maturity Date.............. April 15, 2007.
Interest Payment Dates..... Interest on the Exchange Notes will accrue from the
date of original issuance (the "Issue Date") and
will be payable semi-annually in arrears on April 15
and October 15 of each year, commencing on April 15,
1998.
Ranking.................... The Exchange Notes will be general unsecured senior
subordinated obligations of the Company and will be
subordinated in right of payment to all existing and
future Senior Indebtedness of the Company and will
be effectively subordinated to all secured
Indebtedness of the Company to the extent of the
value of the assets securing any such Indebtedness.
The Exchange Notes will rank pari passu with any
future senior subordinated indebtedness of the
Company and will rank senior to all other
subordinated indebtedness of the Company. As of
September 30, 1997, the Company had approximately
$15.5 million of Senior Indebtedness outstanding and
no indebtedness subordinated to the Notes. See
"Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and
Capital Resources."
Guarantees................. The Exchange Notes will be fully and unconditionally
guaranteed on a senior subordinated basis, jointly
and severally, by all current direct and indirect
Restricted Subsidiaries of the Company (subject to
certain exceptions). In addition, the Exchange Notes
will be unconditionally guaranteed by certain future
Restricted Subsidiaries. The Guarantees will be
general unsecured senior subordinated obligations of
the Subsidiary Guarantors and will be subordinated
in right of payment to all existing and future
Guarantor Senior Indebtedness (including
Indebtedness outstanding under the Credit
Agreement). See "Description of Exchange Notes--
Guarantees" and "--Certain Covenants--Additional
Subsidiary Guarantees."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Optional Redemption........ The Exchange Notes will be redeemable, in whole or
in part, at the option of the Company on or after
April 15, 2002, at the redemption prices set forth
herein plus accrued and unpaid interest to the date
of redemption. In addition, at any time and from
time to time prior to April 15, 2000, the Company
may, at its option, redeem up to 33 1/3% of the
aggregate principal amount of the Notes with the net
cash proceeds of one or more Equity Offerings, at a
redemption price equal to 110 1/4% of the principal
amount thereof plus accrued and unpaid interest to
the date of redemption; provided, however, that
after giving effect to any such redemption at least
66 2/3% of the aggregate principal amount of the
Notes remains outstanding.
Change of Control.......... Upon a Change of Control, the Company will be
required to make an offer to repurchase the Notes at
a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest,
if any, to the date of repurchase.
Certain Covenants.......... The indenture governing the Notes (the "Indenture")
contains certain covenants that limit the ability of
the Company and its Restricted Subsidiaries to,
among other things, incur additional indebtedness,
pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into
certain transactions with affiliates, incur
indebtedness that is subordinate in right of payment
to any Senior Indebtedness and senior in right of
payment to the Notes, incur liens, impose
restrictions on the ability of a Restricted
Subsidiary to pay dividends or make certain payments
to the Company and its Restricted Subsidiaries,
merge or consolidate with any other person or sell,
assign, transfer, lease, convey or otherwise dispose
of all or substantially all of the assets of the
Company. In addition, under certain circumstances,
the Company will be required to offer to purchase
the Notes at a purchase price equal to 100% of the
principal amount thereof plus accrued and unpaid
interest to the date of repurchase with the Net Cash
Proceeds (as defined) of certain Asset Sales.
</TABLE>
For additional information regarding the Exchange Notes, see "Description of
Exchange Notes."
9
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds to the Company or the Subsidiary Guarantors
from the exchange pursuant to the Exchange Offer. The net proceeds from the
Initial Offering were used to repay approximately $96.0 million of Indebtedness
outstanding under the Credit Agreement. See "Use of Proceeds."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered before tendering Old Notes in exchange for Exchange Notes. These
risk factors are generally applicable to the Old Notes as well as the Exchange
Notes.
10
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical consolidated financial data have been
derived from the consolidated financial statements of the Company. The data as
of and for the years ended September 30, 1995, 1996 and 1997 are derived from
the financial statements of the Company audited by Deloitte & Touche LLP. The
results of operations include the results of acquisitions described under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Acquisitions" and have been included in the Company's
consolidated financial statements from the date of the related acquisitions.
The unaudited consolidated pro forma condensed statements of income include the
historical results of the Company and give effect to the MCC Acquisition and to
the Initial Offering and the application of the net proceeds therefrom as if
they had occurred as of October 1, 1996. The information contained in this
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and accompanying notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, (1)
---------------------------------------
PRO FORMA
1995 1996 1997 1997
-------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $247,480 $283,105 $402,150 $406,476
Costs, Expenses and Other Income:
Cost of products sold (excluding
depreciation and amortization)........ 208,091 236,741 341,406 345,034
Depreciation and amortization.......... 5,940 7,425 13,024 13,164
Selling and administrative expense..... 10,335 14,589 19,651 19,787
Provision for restructuring (2)........ 12,860
Gain on curtailment of postretirement
benefits.............................. (5,828) (5,828)
AB Leasing fees, expenses and
termination (3)....................... 3,384
Interest expense, net.................. 5,211 4,872 10,649 13,300
Other, net............................. (275) (340) 998 1,014
-------- -------- -------- --------
232,686 276,147 379,900 386,471
Income before income taxes and
extraordinary item..................... 14,794 6,958 22,250 20,005
Provision for income taxes............. 6,021 3,239 9,146 8,223
Extraordinary loss resulting from the
extinguishment of debt, net of related
tax benefit (4)........................ (2,535)
-------- -------- -------- --------
Net income.............................. $ 8,773 $ 1,184 $ 13,104 $ 11,782
======== ======== ======== ========
OTHER FINANCIAL DATA:
Adjusted EBITDA (5).................... $ 25,945 $ 32,115 $ 40,095 $ 40,641
Net cash provided by operating
activities............................ 12,071 25,651 45,113 43,941
Net cash used in investing activities.. (13,593) (82,347) (64,278) (22,659)
Net cash provided by (used in)
financing activities.................. 20,442 35,010 18,687 18,687
Capital expenditures................... 13,593 12,671 22,961 22,961
Depreciation and amortization (6)...... 6,549 7,950 13,482 13,764
Cash Interest Expense, Net (6)......... 4,602 4,347 10,191 12,700
Ratio of Earnings to Fixed Charges (7). 3.3x 2.1x 2.8x 2.4x
Ratio of Adjusted EBITDA to Cash
Interest Expense, Net (5)............. 5.6x 7.4x 3.9x 3.2x
Ratio of total debt to Adjusted EBITDA
(5)................................... 1.9x 3.0x 2.9x 2.8x
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 23,538 $ 1,852 $ 1,374
Working capital......................... 38,811 22,280 6,890
Property, plant and equipment, net...... 67,668 94,800 123,617
Total assets............................ 167,958 245,133 316,377
Total debt.............................. 50,218 95,198 115,532
Redeemable common stock.................
Stockholders' equity.................... 65,837 72,629 85,466
</TABLE>
- -------
(1) The Company operates on a 52/53-week fiscal year ending on the Sunday
closest to September 30 of the applicable year. For simplicity of
presentation, the Company has presented year ends as September 30 and all
other periods as the nearest month end.
(2) During the fourth quarter of fiscal 1996, the Company recorded a non-
recurring, non-cash restructuring charge comprised of a write-down of
certain assets. The restructuring charge was due to increased volumes
resulting from the BSNJ Acquisition and the BSO Acquisition providing the
opportunity for the Company to consolidate certain
11
<PAGE>
of its manufacturing processes to meet customer demand and improve
efficiencies, which will result in the disposal of surplus equipment and
currently productive manufacturing equipment for an estimated nominal value
beginning in early fiscal 1997 and ending in fiscal 1998. See Note 13 of
the Notes to Consolidated Financial Statements included elsewhere in this
Prospectus.
(3) The Company was party to a management agreement (the "Management
Agreement") with AB Leasing and Management, Inc. ("AB Leasing") whereby
the Company paid to AB Leasing an annual fee (the "AB Leasing Fee") based
upon a formula, plus reimbursement for expenses. See Note 12 of the Notes
to Consolidated Financial Statements included elsewhere in this
Prospectus. The Company and AB Leasing terminated the Management Agreement
upon the consummation of the Initial Public Offering (as defined).
Pursuant to the termination agreement the Company issued 133,000 shares of
Common Stock to AB Leasing prior to the effectiveness of the Initial
Public Offering (as defined). The Company recorded a non-recurring, non-
cash, pre-tax charge to operations of $2.0 million ($1.2 million net of
tax effect) in connection therewith in the period in which such shares
were issued.
(4) The Company recorded an extraordinary loss related to the prepayment of
the $50 million principal amount of 8.35% Senior Secured Notes during the
third quarter of fiscal 1996.
(5) Adjusted EBITDA represents income before income taxes, extraordinary item,
cumulative effect of change in accounting, and before interest expense,
provision for restructuring, provision for income taxes, and depreciation
and amortization. Adjusted EBITDA does not include non-recurring charges
related to the provision for restructuring, the extraordinary loss
resulting from the extinguishment of debt, and cumulative effect of change
in accounting, which are primarily non-cash items. Adjusted EBITDA is not
a measure of financial performance under generally accepted accounting
principles, should not be construed as an alternative to operating income
(as determined in accordance with generally accepted accounting
principles) or to cash flows from operating activities (as determined in
accordance with GAAP) and does not necessarily indicate that cash flow
will be sufficient to fund cash requirements. The Company understands that
certain investors believe Adjusted EBITDA represents a company's ability
to service debt and to utilize cash for other purposes. Adjusted EBITDA
should not be considered in isolation or as a substitute for net income,
cash flows from operations, or other income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure
of a company's operating performance, profitability or liquidity. In
addition, Adjusted EBITDA may not be comparable to other similarly titled
measures of other companies.
(6) For presentation in Other Financial Data, amortization of deferred
financing costs is included in depreciation and amortization and excluded
from Cash Interest Expense, Net.
(7) For purposes of this computation, Earnings are defined as income before
income taxes plus Fixed Charges. Fixed Charges consist of interest
(including amortization of deferred financing costs) and that portion of
rental expense that is representative of interest (deemed to be one-third
of operating lease rental expense).
12
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in this Prospectus before
tendering Old Notes in exchange for Exchange Notes. The risk factors set forth
below are generally applicable to the Old Notes as well as the Exchange Notes.
LEVERAGED FINANCIAL POSITION; RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Company has incurred significant indebtedness. As of September 30, 1997,
the Company had approximately $115.5 million of indebtedness outstanding and
its stockholders' equity was $85.5 million. See "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Credit Agreement."
The level of the Company's indebtedness could have important consequences to
holders of the Exchange Notes, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to debt service and will
not be available for other purposes, (ii) the Company's ability to obtain
additional debt financing in the future for working capital, capital
expenditures or acquisitions may be limited and (iii) the Company's level of
indebtedness could limit its flexibility in reacting to changes in the
industry and economic conditions generally. Certain of the Company's
competitors may currently operate on a less leveraged basis and therefore
could have significantly greater operating and financing flexibility than the
Company.
The Company's ability to pay interest on the Exchange Notes, to repay
portions of its long-term indebtedness (including the Exchange Notes and the
Credit Agreement) and to satisfy its other debt obligations will depend upon
the future operating performance and the availability of refinancing
indebtedness, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its
control. Based on the current level of operations and anticipated future
growth, the Company anticipates that its operating cash flow, together with
borrowings under the Credit Agreement, will be sufficient to meet its
anticipated requirements for working capital, capital expenditures, interest
payments and scheduled principal payments. There can be no assurance, however,
that the Company's business will generate cash flow at or above projected
levels or that anticipated future growth can be achieved. If the Company is
unable to service its indebtedness it will be forced to adopt an alternative
strategy that may include actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing its indebtedness,
or seeking additional equity capital. There can be no assurance that any of
these strategies could be effected on satisfactory terms, if at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Description of Credit
Agreement" and "Description of Exchange Notes."
The Indenture and the Credit Agreement contain certain covenants that
restrict, among other things, the Company's ability to incur additional
indebtedness, incur liens, pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into certain transactions with
affiliates, impose restrictions on the ability of a subsidiary to pay
dividends or make certain payments to the Company, merge or consolidate with
any other person or sell, assign, transfer, lease, convey, or otherwise
dispose of all or substantially all of the assets of the Company. In addition,
the Credit Agreement contains certain other and more restrictive covenants and
also requires the Company to maintain specified financial ratios and to
satisfy certain financial condition tests. The Company's ability to meet these
financial ratio and financial condition tests can be affected by events beyond
its control and there can be no assurance that the Company will meet those
tests. A breach of any of these covenants could result in a default under the
Credit Agreement or the Indenture. In the event of an event of default under
the Credit Agreement or the Indenture the lenders thereunder could elect to
declare all amounts outstanding thereunder, together with accrued and unpaid
interest, to be immediately due and payable. If the indebtedness under the
Credit Agreement were to be accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay in full that indebtedness
and the other indebtedness of the Company, including the Exchange Notes. See
"Description of Credit Agreement," "Description of Exchange Notes--
Subordination" and "--Certain Covenants."
13
<PAGE>
SUBORDINATION; HOLDING COMPANY STRUCTURE
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Exchange Notes will be subordinated to the
prior payment in full of all existing and future Senior Indebtedness of the
Company (including, without limitation, indebtedness incurred under the Credit
Agreement). In the event of the bankruptcy, liquidation, dissolution,
reorganization or other winding-up of the Company, the assets of the Company
will be available to pay obligations on the Exchange Notes only after all
Senior Indebtedness (including amounts incurred under the Credit Agreement)
has been so paid in full; accordingly, there may not be sufficient assets
remaining to pay amounts due on any or all of the Exchange Notes then
outstanding. In addition, under certain circumstances, the Company may not pay
principal of, premium, if any, or interest on, or any other amounts owing in
respect of the Exchange Notes, or purchase, redeem or otherwise retire the
Exchange Notes, in the event of certain defaults with respect to certain
classes of Senior Indebtedness, including Senior Indebtedness incurred under
the Credit Agreement. As of September 30, 1997, the Company had approximately
$15.5 million of Senior Indebtedness outstanding (represented primarily by
borrowings under the Credit Agreement). Additional Senior Indebtedness may be
incurred by the Company from time to time, subject to certain restrictions.
The Company's debt arrangements (including the Credit Agreement and the
Indenture) also limit the amount of indebtedness (whether or not senior) that
the Company can incur. Such limitations do not restrict the Company to a
specific dollar limit of indebtedness, but instead depend on the application
of certain coverage ratios to the Company's earnings. As of November 30, 1997,
the maximum amount of Senior Indebtedness the Company and the Subsidiary
Guarantors could incur, in the aggregate, under their debt arrangements
(including the Credit Agreement and the Indenture) was approximately $191
million. See "Description of Credit Agreement" and "Description of Exchange
Notes--Certain Covenants--Limitation on Incurrence of Additional
Indebtedness."
BWAY Corporation is a holding company which has no significant assets other
than its direct and indirect investments in its operating subsidiaries, which
have guaranteed the Company's obligations under the Exchange Notes.
Accordingly, the Company must rely on its subsidiaries to generate the funds
necessary to meet its obligations, including the payment of principal and
interest on the Exchange Notes. The ability of the subsidiaries of the Company
to pay dividends or make other payments or advances to the Company will depend
upon their operating results and will be subject to applicable laws and
contractual restrictions contained in the instruments governing any
indebtedness of such subsidiaries (including the Credit Agreement). Although
the Indenture limits the ability of such subsidiaries to enter into consensual
restrictions on their ability to pay dividends and make other payments, such
limitations are subject to a number of significant qualifications. See
"Description of Exchange Notes--Certain Covenants--Limitation on Dividend and
Other Payment Restrictions Affecting Restricted Subsidiaries."
ACQUISITIONS AND INTEGRATION OF ADDITIONAL BUSINESSES
The Company has acquired and seeks to acquire other companies that can
benefit from the Company's manufacturing operations, management and
distribution infrastructure. The Company's ability to grow by acquisition is
dependent upon, and may be limited by, the availability of suitable
acquisition candidates and capital, and the restrictions contained in the
Indenture and the Credit Agreement. In addition, growth by acquisition
involves risks that could adversely affect the Company's operating results,
including difficulties in integrating the operations and personnel of acquired
companies and the potential loss of key employees and customers of acquired
companies. While management has experience in identifying and integrating
acquisitions, there can be no assurance that the Company will be able to
obtain the capital necessary to pursue its growth strategy, consummate
acquisitions on satisfactory terms or, if any such acquisitions are
consummated, satisfactorily integrate such acquired businesses into the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
COMPETITION
The markets for the Company's products are competitive, and the Company
faces competition from a number of sources in most of its product lines.
Competition is based primarily on price, quality, service, and, to
14
<PAGE>
a lesser extent, product innovation. Competition may require the Company to
match competitors' prices to retain business or market share. Competition in
the Company's product markets is aggressive and may have a negative impact on
the prices the Company may charge for its products. Certain of the Company's
competitors are larger and may have greater financial and other resources than
the Company and there can be no assurance that the Company will continue to be
able to compete successfully with them. The Company also faces competition in
certain of its product lines from producers of plastic, glass and aluminum
containers. See "Business--Competition."
DEPENDENCE ON MAJOR CUSTOMERS
For each of fiscal 1997, fiscal 1996 and fiscal 1995, approximately 38%, 39%
and 43%, respectively, of the Company's net sales were to the Company's ten
largest customers. Sales to The Sherwin-Williams Company were approximately
10% of the Company's net sales for fiscal 1997. Sales to The Procter & Gamble
Company (including its wholly owned subsidiary, The Folger Coffee Company),
were approximately 13% of the Company's net sales for both fiscal 1996 and
fiscal 1995. The Company supplies The Folger Coffee Company's requirements for
coffee cans at its New Orleans, Louisiana facility. Although in most
instances, the Company is not the sole supplier to its customers, the loss of,
or major reduction in business from, one or more of the Company's major
customers could have a material adverse effect on the Company's sales volumes
and profitability. See "Business--Customers."
IMPACT OF STEEL COST INCREASES
Steel products (including tinplate, cold-rolled and blackplate steel)
represent the largest component of the Company's raw material costs. Tinplate
consumers typically negotiate with steel suppliers late in the calendar year
for the next calendar year with respect to volume and price terms. Negotiated
terms have historically held through the following year, but there can be no
assurance that this practice will remain unchanged in the future. Steel prices
have historically been adjusted as of January 1 of a calendar year. Most
domestic tinplate and blackplate steel producers have announced a 3.0% price
increase to become effective January 1, 1998. There can be no assurance that
the Company will be successful in passing through any steel price increases to
its customers. Any limitation on the Company's ability to pass through any
such increases could have a material adverse effect on the Company's operating
results.
LABOR RELATIONS
As of December 1, 1997, approximately 35% of the Company's employees worked
under various collective bargaining agreements. MCC's contract with
International Union of Electronic, Electrical, Salaried Machine and Furniture
Workers, AFL-CIO Local No. 729 with respect to approximately 200 employees
expired on April 30, 1997 and such employees went on strike on May 1, 1997.
MCC and such employees settled the strike on June 2, 1997 by entering into a
new collective bargaining agreement expiring in August 2000. In addition,
while the Company believes that its relations with its employees are good,
there can be no assurance that other collective bargaining agreements will be
renewed in the future. A prolonged labor dispute (which could include a work
stoppage) could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Employees."
ENVIRONMENTAL MATTERS
The Company is subject to a broad range of federal, state and local
environmental and workplace health and safety requirements, including those
governing discharges to air and water, the handling and disposal of solid and
hazardous wastes, and the remediation of contamination associated with the
releases of hazardous substances. In the course of its operations, the Company
handles hazardous substances. As is the case with any industrial operation, if
a release of hazardous substances occurs on or from the Company's facilities
or at offsite waste disposal sites, the Company may be required to remedy such
release. From time to time, the Company is involved in certain environmental
matters as described in "Business--Environmental, Health and Safety Matters."
There can be no assurance that no material environmental liability exists or
will arise in the future.
15
<PAGE>
Sales of aerosol cans currently comprise approximately 12% of the Company's
annual general line sales. Federal and certain state environmental agencies
have issued, and may in the future issue, environmental regulations which have
the effect of requiring reformulation by consumer product manufacturers (the
Company's customers) of aerosol propellants or aerosol-delivered consumer
products to mitigate air quality impacts (principally related to lower
atmosphere ozone formulation). Industry sources believe that aerosol product
manufacturers can successfully achieve any required reformulation. There can
be no assurance, however, that reformulation can be accomplished in all cases
with satisfactory results. Failure by the Company's customers to successfully
achieve such reformulation could affect the viability of aerosol cans as
product delivery containers and thereby have a material adverse effect on the
Company's sales of aerosol cans. See "Business--Environmental, Health and
Safety Matters."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management
team. Although the Company believes it could replace key employees in an
orderly fashion should the need arise, the loss of such key personnel could
have a material adverse effect on the Company. The Company does not maintain
key-person insurance for any of its officers, employees or directors. See
"Management--Directors and Executive Officers."
CONTROL BY MANAGEMENT
As of December 31, 1997, the directors and Named Executive Officers and
certain related parties of the Company owned or controlled approximately 34.5%
of the outstanding Common Stock (as defined). Such stockholders, if acting
together, would have significant influence on the election of the Company's
Board of Directors (the "Board of Directors" or the "Board") and, therefore,
significant influence on the affairs and management of the Company.
Circumstances may occur in which the interests of management, as stockholders
of the Company, could be in conflict with the interests of the holders of the
Exchange Notes. In addition, management, as stockholders of the Company, may
have an interest in pursuing acquisitions, divestitures or other transactions
that, in their judgment, could enhance their equity investment, even though
such transactions might involve risks to the holders of the Exchange Notes.
LIMITATIONS ON CHANGE OF CONTROL; OTHER TRANSACTIONS
Upon the occurrence of a Change of Control, the Company will be required to
make an offer for cash to repurchase the Exchange Notes at a price equal to
101% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. If a Change of Control were to
occur, there can be no assurance that the Company would have sufficient funds
to pay the purchase price for all of the Exchange Notes that the Company might
be required to purchase. Certain events involving a Change of Control may
result in an event of default under the Credit Agreement or other indebtedness
of the Company that may be incurred in the future. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing the
Exchange Notes, the Company could seek the consent of its lenders to purchase
the Exchange Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company would remain prohibited from purchasing the Exchange
Notes. In such case, the Company's failure to purchase tendered Exchange Notes
would constitute an Event of Default under the Indenture. If, as a result
thereof, a default occurs with respect to any Senior Indebtedness, the
subordination provisions of the Exchange Notes would require payment in full
of the Credit Agreement and any other such Senior Indebtedness before
repurchase of the Exchange Notes. In addition, the Company could, in the
future, enter into certain transactions that would not constitute a Change of
Control under the Indenture, but that could increase the amount of
indebtedness outstanding at such time or otherwise affect the Company's
capital structure or credit ratings or otherwise adversely affect holders of
the Exchange Notes. See "Description of Credit Agreement," "Description of
Exchange Notes--Subordination" and "--Change of Control."
16
<PAGE>
FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the Subsidiary Guarantors' issuance of the Guarantees. To the
extent that a court were to find that (x) a Guarantee was incurred by a
Subsidiary Guarantor with actual intent to hinder, delay or defraud any
present or future creditor or (y) such Subsidiary Guarantor did not receive
fair consideration or reasonably equivalent value for issuing its Guarantee
and such Subsidiary Guarantor (i) was insolvent, (ii) was rendered insolvent
by reason of the issuance of such Guarantee, (iii) was engaged or about to
engage in a business or transaction for which the remaining assets of such
Subsidiary Guarantor constituted unreasonably small capital to carry on its
business or (iv) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they matured, the court could avoid or
subordinate such Guarantee in favor of the Subsidiary Guarantor's creditors.
Among other things, a legal challenge of a Guarantee on fraudulent conveyance
grounds may focus on the benefits, if any, realized by the Subsidiary
Guarantor as a result of the issuance by the Company of the Exchange Notes. To
the extent any Guarantees were avoided as a fraudulent conveyance or held
unenforceable for any other reason, the claims of holders of the Exchange
Notes in respect of such Subsidiary Guarantor would be adversely affected and
such holders would, to such extent, be creditors solely of the Company and any
Subsidiary Guarantor whose Guarantee was not avoided or held unenforceable. To
the extent the claims of the holders of the Exchange Notes against the issuer
of an invalid Guarantee were subordinated, they would be subject to the prior
payment of all liabilities of such Subsidiary Guarantor. There can be no
assurance that, after providing for all prior claims, there would be
sufficient assets to satisfy the claims of the holders of the Exchange Notes
relating to any voided portions of any of the Guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Under one measure,
a Subsidiary Guarantor may be considered insolvent if the sum of its debts,
including contingent liabilities, is greater than the fair marketable value of
all of its assets at a fair valuation or if the present fair marketable value
of its assets is less than the amount that would be required to pay its
probable liability on its existing debts, including contingent liabilities, as
they become absolute and mature.
Based upon financial and other information, the Company believes that the
Exchange Notes and the Guarantees are being incurred for proper purposes and
in good faith and that the Company and each Subsidiary Guarantor is solvent
and will continue to be solvent after issuing the Exchange Notes or its
Guarantee, as the case may be, will have sufficient capital for carrying on
its business after such issuance and will be able to pay its debts as they
mature. There can be no assurance, however, that a court passing on such
standards would agree with the Company.
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange
Offer, there has not been any public market for the Old Notes. The Old Notes
have not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged for
Exchange Notes by holders who are entitled to participate in this Exchange
Offer. After consummation of the Exchange Offer, the market for Old Notes not
tendered or exchanged (or tendered but not accepted for exchange) in the
Exchange Offer will be even more limited than their existing market. The
holders of Old Notes (other than any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) who are not
eligible to participate in the Exchange Offer are entitled to certain
registration rights, and the Company is required to file a Shelf Registration
Statement with respect to such Old Notes. The Exchange Notes will constitute a
new issue of securities with no established trading market. The Company does
not intend to list the Exchange Notes on any national securities exchange or
seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. The Initial Purchasers have
advised the Company that they currently intend to make a market in the
Exchange Notes, but they are not obligated to do so and may discontinue such
market making at any time. In addition, such market making activity will be
subject to the limits imposed by the Securities Act and the
17
<PAGE>
Exchange Act and may be limited during the Exchange Offer and the pendency of
the Shelf Registration Statement. Accordingly, no assurance can be given that
an active public or other market will develop for the Exchange Notes or as to
the liquidity of the trading market for the Exchange Notes. If a trading
market does not develop or is not maintained, holders of the Exchange Notes
may experience difficulty in reselling the Exchange Notes or may be unable to
sell them at all. If a market for the Exchange Notes develops, any such market
may be discontinued at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors, including, among other
things, prevailing interest rates, the Company's results of operations and
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from
their principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal (or,
in the case of a book-entry transfer, an Agent's Message in lieu thereof) and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to
be subject to the existing restrictions upon transfer thereof, and, upon
consummation of the Exchange Offer certain registration rights under the
Registration Rights Agreement will terminate. In addition, any holder of Old
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities, and if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Notes could be
adversely affected. See "The Exchange Offer."
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this
Prospectus, including those regarding the Company's financial position,
business strategy, projected costs, and plans and objectives of management for
future operations, are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements
are reasonable, there can be no assurance that such expectations will prove to
have been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
disclosed under "Risk Factors" and elsewhere in this Prospectus including,
without limitation, in conjunction with the forward-looking statements
included in this Prospectus. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on behalf of the
Company are expressly qualified in their entirety by the Cautionary
Statements.
18
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights
Agreement. The Company will not receive any cash proceeds from the issuance of
the Exchange Notes offered hereby. In consideration for issuing the Exchange
Notes contemplated in this Prospectus, the Company will receive Old Notes in
like principal amount, the form and terms of which are the same as the forms
and terms of the Exchange Notes (which replace the Old Notes), except as
otherwise described herein. The Old Notes surrendered in exchange for Exchange
Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any increase or decrease in
the indebtedness of the Company. As such, no effect has been given to the
Exchange Offer in the pro forma statements or capitalization tables.
The net proceeds from the Initial Offering of $96 million (after deduction
of fees and expenses) were used to pay Indebtedness outstanding under the
Credit Agreement, and with respect to which the interest rate then being paid
by the Company was approximately 6.75% per annum. A portion of the borrowings
under the Credit Agreement that were repaid were used to effect the Recent
Acquisitions.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1997, on an actual basis. The information in this
table should be read in conjunction with "Selected Historical Consolidated
Financial Data," "Unaudited Consolidated Pro Forma Condensed Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and accompanying notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
(IN THOUSANDS
EXCEPT FOR SHARE DATA)
<S> <C>
Total debt:
Credit Agreement................................ $ 13,500
10 1/4% Senior Subordinated Notes due 2007...... 100,000
Other........................................... 2,032
--------
Total debt.................................... 115,532
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000
authorized and
0 issued and outstanding....................... --
Common Stock, $.01 par value; 24,000,000
authorized and 9,851,002 issued and
outstanding.................................... 99
Additional paid-in capital...................... 37,629
Retained earnings............................... 48,673
Treasury stock.................................. (935)
--------
Total stockholders' equity.................... 85,466
--------
Total capitalization.......................... $200,998
========
</TABLE>
19
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data have been
derived from the consolidated financial statements of the Company. The data as
of and for the years ended September 30, 1993, 1994, 1995, 1996 and 1997 are
derived from the consolidated financial statements of the Company audited by
Deloitte & Touche LLP. The results of operations include the results of
acquisitions described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Acquisitions" and have
been included in the Company's consolidated financial statements from the date
of the related acquisitions. The information contained in this table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and accompanying notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, (1)
------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $180,963 $224,701 $247,480 $283,105 $402,150
Costs, Expenses and Other Income:
Cost of products sold (excluding
depreciation and amortization)........ 157,415 193,497 208,091 236,741 341,406
Depreciation and amortization.......... 3,150 5,057 5,940 7,425 13,024
Selling and administrative expense..... 7,424 9,998 10,335 14,589 19,651
Provision for restructuring (2)........ 12,860
Gain on curtailment of postretirement
benefits.............................. (5,828)
AB Leasing fees, expenses and
termination (3)....................... 1,284 1,318 3,384
Interest expense, net.................. 2,795 5,730 5,211 4,872 10,649
Other, net............................. 8 100 (275) (340) 998
-------- -------- -------- -------- --------
172,076 215,700 232,686 276,147 379,900
Income before income taxes,
extraordinary item and cumulative
effect of change in accounting......... 8,887 9,001 14,794 6,958 22,250
Provision for income taxes............. 3,731 3,756 6,021 3,239 9,146
Extraordinary loss resulting from the
extinguishment of debt, net of related
tax benefit (4)........................ (2,535)
Cumulative effect of change in
accounting for postemployment benefits
net of related tax benefit of $137 (5). (213)
-------- -------- -------- -------- --------
Net income.............................. $ 5,156 $ 5,032 $ 8,773 $ 1,184 $ 13,104
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Adjusted EBITDA (6).................... $ 14,833 $ 19,788 $ 25,945 $ 32,115 $ 40,095
Net cash provided by operating
activities............................ 11,665 13,267 12,071 25,651 45,113
Net cash used in investing activities.. (54,400) (8,753) (13,593) (82,347) (64,278)
Net cash provided by (used in)
financing activities.................. 45,064 (3,130) 20,442 35,010 18,687
Capital expenditures................... 5,779 8,698 13,593 12,671 22,961
Depreciation and amortization (7)...... 3,498 5,680 6,549 7,950 13,482
Cash Interest Expense, Net (7)......... 2,448 5,107 4,602 4,347 10,191
Ratio of Earnings to Fixed Charges (8). 3.7x 2.4x 3.3x 2.1x 2.8x
Ratio of Adjusted EBITDA to Cash
Interest Expense, Net (6)............. 6.1x 3.9x 5.6x 7.4x 3.9x
Ratio of total debt to Adjusted EBITDA
(6)................................... 3.8x 2.8x 1.9x 3.0x 2.9x
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 3,234 $ 4,618 $ 23,538 $ 1,852 $ 1,374
Working capital......................... 8,938 14,371 38,811 22,280 6,890
Property, plant and equipment, net...... 54,816 58,996 67,668 94,800 123,617
Total assets............................ 136,507 137,220 167,958 245,133 316,377
Total debt.............................. 55,797 55,476 50,218 95,198 115,532
Redeemable common stock................. 2,682
Stockholders' equity.................... 23,917 27,015 65,837 72,629 85,466
</TABLE>
- -------
(1) The Company operates on a 52/53-week fiscal year ending on the Sunday
closest to September 30 of the applicable year. For simplicity of
presentation, the Company has presented year ends as September 30 and all
other periods as the nearest month end.
(2) During the fourth quarter of fiscal 1996, the Company recorded a non-
recurring, non-cash restructuring charge comprised of a write-down of
certain assets. The restructuring charge was due to increased volumes
resulting from the BSNJ Acquisition and the BSO Acquisition providing the
opportunity for the Company to consolidate certain of its manufacturing
processes to meet customer demand and improve efficiencies, which will
result in the disposal of
20
<PAGE>
surplus equipment and currently productive manufacturing equipment for an
estimated nominal value beginning in early fiscal 1997 and ending in
fiscal 1998. See Note 13 of the Notes to Consolidated Financial Statements
included elsewhere in this Prospectus.
(3) The Company was party to a management agreement (the "Management
Agreement") with AB Leasing and Management, Inc. ("AB Leasing") whereby
the Company paid to AB Leasing an annual fee (the "AB Leasing Fee") based
upon a formula, plus reimbursement for expenses. See Note 12 of the Notes
to Consolidated Financial Statements included elsewhere in this
Prospectus. The Company and AB Leasing terminated the Management
Agreement upon the consummation of the Initial Public Offering (as
defined). Pursuant to the termination agreement the Company issued
199,500 shares of Common Stock to AB Leasing prior to the effectiveness
of the Initial Public Offering. The Company recorded a non-recurring,
non-cash, pre-tax charge to operations of $2.0 million ($1.2 million net
of tax effect) in connection therewith in the period in which such shares
were issued.
(4) The Company recorded an extraordinary loss related to the prepayment of
the $50.0 million principal amount of 8.35% Senior Secured Notes during
the third quarter of fiscal 1996.
(5) Effective October 1, 1993, the Company changed its method of accounting
for post employment benefits as a result of adopting Statement of
Financial Accounting Standards No. 112 which resulted in a onetime non-
cash charge of $213,000 and had no material subsequent impact on income
from operations.
(6) Adjusted EBITDA represents income before income taxes, extraordinary
item, cumulative effect of change in accounting, and before interest
expense, provision for restructuring, provision for income taxes, and
depreciation and amortization. Adjusted EBITDA does not include non-
recurring charges related to the provision for restructuring, the
extraordinary loss resulting from the extinguishment of debt, and
cumulative effect of change in accounting, which are primarily non-cash
items. Adjusted EBITDA is not a measure of financial performance under
generally accepted accounting principles, should not be construed as an
alternative to operating income (as determined in accordance with GAAP)
or to cash flows from operating activities (as determined in accordance
with GAAP) and does not necessarily indicate that cash flow will be
sufficient to fund cash requirements. The Company understands that
certain investors believe Adjusted EBITDA represents a company's ability
to service debt and to utilize cash for other purposes. Adjusted EBITDA
should not be considered in isolation or as a substitute for net income,
cash flows from operations, or other income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure
of a company's operating performance, profitability or liquidity.
Adjusted EBITDA may not be comparable to other similarly titled measures
of other companies.
(7) For presentation in Other Financial Data, amortization of deferred
financing costs is included in depreciation and amortization and excluded
from Cash Interest Expense, Net.
(8) For purposes of this computation, earnings are defined as income before
income taxes plus Fixed Charges. Fixed Charges consist of interest
(including amortization of deferred financing costs) and that portion of
rental expense that is representative of interest (deemed to be one-third
of operating lease rental expense).
21
<PAGE>
UNAUDITED CONSOLIDATED PRO FORMA CONDENSED FINANCIAL DATA
Set forth on the following page are the unaudited consolidated pro forma
condensed statements of income of the Company for the year ended September 30,
1997. The unaudited consolidated pro forma condensed statements of income
include the historical results of the Company and give effect to the MCC
Acquisition and to the Initial Offering and the application of the net
proceeds therefrom as if they had occurred as of October 1, 1996. The
unaudited consolidated pro forma financial data do not purport to be
indicative of the Company's financial position or results of operations that
would actually have been obtained had the MCC Acquisition and the Initial
Offering and the use of proceeds therefrom been completed for the period
presented, or to project the Company's financial position or results of
operations for any future period. The unaudited consolidated pro forma
adjustments are based upon available information and upon certain assumptions
that the Company believes are reasonable. The unaudited consolidated pro forma
condensed financial statements should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and the accompanying notes thereto included elsewhere in this
Prospectus.
22
<PAGE>
UNAUDITED CONSOLIDATED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
AND OTHER FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1997 (1)
------------------------------------------------------------
ADJUSTMENTS
TO RECORD
HISTORICAL MCC SUPPLEMENTAL PRO
HISTORICAL FOR MCC (2) ACQUISITION ADJUSTMENTS FORMA
---------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $402,150 $ 4,326 $ $ $406,476
Costs, Expenses and
Other Income:
Cost of products sold
(excluding
depreciation and
amortization)......... 341,406 3,628 345,034
Depreciation and
amortization.......... 13,024 227 (87)(3) 13,164
Selling and
administrative
expense............... 19,651 136 19,787
Gain on curtailment of
postretirement
benefits.............. (5,828) (5,828)
Interest expense, net.. 10,649 241 (4) 2,410 (5) 13,300
Other, net............. 998 16 1,014
-------- -------- ------ ------- --------
Total costs, expenses
and other income.... 379,900 4,007 154 2,410 386,471
-------- -------- ------ ------- --------
Income before income
taxes and extraordinary
item................... 22,250 319 (154) (2,410) 20,005
Provision for income
taxes (6).............. 9,146 67 (990) 8,223
-------- -------- ------ ------- --------
Net Income.............. $ 13,104 $ 319 $ (221) $(1,420) $ 11,782
======== ======== ====== ======= ========
OTHER FINANCIAL DATA:
Adjusted EBITDA (7)..... $ 40,095 $ 546 $ $ $ 40,641
Net cash provided by
operating activities... 45,113 546 (308) (1,420) 43,931
Net cash used in
investing activities... (64,278) 41,619 (22,659)
Net cash provided by
financing activities... 18,687 18,687
Capital expenditures.... 22,961 22,961
Depreciation and
amortization (8)....... 13,482 227 (87) 142 13,764
Cash Interest Expense,
Net (8)................ 10,191 241 2,268 12,700
Ratio of Earnings to
Fixed Charges (9)...... 2.8x 2.4x
Ratio of Adjusted EBITDA
to Cash Interest
Expense, Net (7)....... 3.9x 3.2x
Ratio of total debt to
Adjusted EBITDA (7).... 2.9x 2.8x
</TABLE>
See Notes to Unaudited Consolidated Pro Forma Condensed Statements of
Operations and Other Financial Data on the following page.
23
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
AND OTHER FINANCIAL DATA
(1) The Company operates on a 52/53-week fiscal year ending on the Sunday
closest to September 30 of the applicable year. For simplicity of
presentation, the Company has presented year ends as September 30 and all
other periods as the nearest month end.
(2) Represents the historical results of the MCC Acquisition from the
beginning of the period presented until its date of acquisition.
(3) Reflects purchase allocation adjustments of the MCC Acquisition as if it
had occurred on October 1, 1996. The adjustment primarily relates to
amortization of goodwill and additional interest expense. Also included
are adjustments for depreciation expense and amortization of other
intangible assets. Goodwill is amortized over 30 years on a straight-line
basis. The adjustment to depreciation and amortization expense relating to
the MCC Acquisition resulted in a decrease to historical depreciation and
amortization expense because (i) MCC's gross cost for the acquired assets
is lower than the historical cost of such assets and (ii) MCC is
depreciating fixed assets and amortizing goodwill over a longer time
period than the historical useful life of such assets. In its purchase
price allocations for the MCC Acquisition, MCC reduced the carrying value
of the acquired property, plant and equipment assets since MCC determined
that the fair value of the acquired assets was lower than the historical
cost of such assets.
(4) Reflects pro forma interest expense related to the MCC Acquisition as if
it had occurred on the beginning of the period presented.
(5) The supplemental adjustments to interest expense, net consist of the
following:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
--------------------------
YEAR ENDED SEPTEMBER
30, 1997
----------------------
(DOLLARS IN THOUSANDS)
----------------------
<S> <C> <C>
Historical interest expense, net............... $ 10,649
========
Elimination of interest expense related to:
Old credit facility and Senior Subordinated
Notes due 2007.............................. $ 10,229
Interest income.............................. (38)
Amortization of deferred financing costs on
retired debt................................ 458
--------
Decrease in interest expense............... (10,649)
--------
Interest expense on new indebtedness:
Senior Subordinated Notes due 2007........... 10,250
Acquisition debt (a)......................... 2,450
Amortization of costs on new debt (b)........ 600
--------
Increase in interest expense............... 13,300
--------
Net increase in interest expense............. 2,651
Less: Historical interest expense for
acquired companies..................... (241)
--------
Supplemental adjustment to interest expense.. $ 2,410
========
</TABLE>
--------
(a) Represents additional interest expense on indebtedness incurred to
fund the MCC Acquisition as if such acquisition occurred on October
1, 1996.
(b) Debt issuance costs related to the Notes will be amortized over
their 10-year life.
(6) For pro forma purposes, the income tax provision was calculated at 41% of
pre-tax income for the year ended September 30, 1997. The effective income
tax rates exceed statutory rates principally due to nondeductible
amortization of certain intangible assets related to recent and prior
acquisitions.
(7) Adjusted EBITDA represents income before income taxes, extraordinary item,
cumulative effect of change in accounting and before interest expense,
provision for restructuring, provision for income taxes, and depreciation
and amortization. Adjusted EBITDA does not include non-recurring charges
related to the provision for restructuring, the extraordinary loss
resulting from the extinguishment of debt, and cumulative effect of change
in accounting, which are primarily non-cash items. Adjusted EBITDA is not
a measure of financial performance under generally accepted accounting
principles and does not necessarily indicate that cash flow will be
sufficient to fund cash requirements. The Company understands that certain
investors believe Adjusted EBITDA represents a company's ability to
service debt and to utilize cash for other purposes. Adjusted EBITDA
should not be considered in isolation or as a substitute for net income,
cash flows from operations, or other income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity.
24
<PAGE>
(8) For presentation in Other Financial Data, amortization of deferred
financing costs is included in depreciation and amortization and excluded
from Cash Interest Expense, Net.
(9) For purposes of this computation, Earnings are defined as income before
income taxes plus Fixed Charges. Fixed Charges consist of interest
(including amortization of deferred financing costs) and that portion of
rental expense that is representative of interest (deemed to be one-third
of operating lease rental expense).
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's results of
operations, financial condition and liquidity should be read in conjunction
with "Unaudited Consolidated Pro Forma Condensed Financial Data," "Selected
Historical Consolidated Financial Data" and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere herein.
GENERAL
The Company currently derives substantially all of its revenues from the
sale of steel containers manufactured at the Company's plants. The packaging
market in which the Company competes is generally mature and stable. On
average, domestic industry growth rates have historically followed US GDP
growth rates. Management believes that companies that have managed sustained
growth in these markets above the GDP level have typically accomplished this
growth primarily through acquisitions. Industry consolidation has occurred
during recent years. The Company's net sales have grown at a compounded annual
rate of 24.5% over the past five years.
RECENT ACQUISITIONS
The Company completed two strategic acquisitions during fiscal 1996 and one
strategic acquisition during fiscal 1997.
On May 28, 1996, a newly created subsidiary of the Company named Milton
Acquisition Corp. acquired all of the outstanding stock of Milton Can Company,
Inc. ("Milton Can") (the "BSNJ Acquisition"). Immediately thereafter, Milton
Acquisition Corp. changed its name to Milton Can Company, Inc. and on October
22, 1996 changed its name again to Brockway Standard (New Jersey), Inc.
("BSNJ"). BSNJ sells metal containers in the general line category of the
North American container industry, producing products similar to those of the
Company. This acquisition provided geographic expansion for the Company into
the northeast United States, enabling the Company to provide expanded coverage
for many of its products and to many of its customers. The acquired business
had revenues of approximately $55 million for the year ended December 31,
1995, and operated three facilities, one in Peabody, Massachusetts, and two in
Elizabeth, New Jersey. The Company paid the shareholders of Milton Can
approximately $29 million in approximately equal portions of cash and the
Company's stock, and the Company assumed approximately $12.3 million of debt
of the acquired company, which was retired by the Company at the time of
acquisition. The transaction was accounted for using the purchase method of
accounting.
On June 17, 1996, a newly created subsidiary of Brockway Standard, Inc.
("BSI"), named Davies Acquisition Corp. acquired substantially all of the
assets of the Davies Can division of the Van Dorn Company, a wholly owned
subsidiary of Crown Cork & Seal Company, Inc. (the "BSO Acquisition"). On June
19, 1996, Davies Acquisition Corp. changed its name to Davies Can Company,
Inc. and on March 21, 1997 changed its name again to Brockway Standard (Ohio),
Inc ("BSO"). BSO sells metal containers in the general line category of the
North American container industry, producing products similar to those of the
Company. The acquired business had revenues of approximately $55 million for
the year ended December 31, 1995, and operated three facilities, in Covington,
Georgia, Solon, Ohio and York, Pennsylvania. The Company paid approximately
$42 million in cash for the assets. The transaction was accounted for using
the purchase method of accounting.
On October 28, 1996, a newly created subsidiary of the Company named Milton
Can Company, Inc. ("MCC"), which was incorporated on October 22, 1996,
acquired the assets of the aerosol can business of Ball Metal Food Container
Corporation ("BMFCC"), a wholly owned and indirect subsidiary of Ball
Corporation, in an asset purchase transaction (the "MCC Acquisition"). The
acquired business had revenues of approximately $45 million for the year ended
December 31, 1995 and operates a single manufacturing facility in Cincinnati,
Ohio. MCC produces a wide range of aerosol cans and operates a materials
center providing Materials Center
26
<PAGE>
Services. The Company paid approximately $42.4 million in cash for the
business. The transaction was accounted for using the purchase method of
accounting.
The operating results for BSNJ, BSO and MCC have been included in the
Company's consolidated financial statements since the date of acquisition. The
excess of the aggregate purchase price over the aggregate fair market value of
net identifiable assets acquired in the Recent Acquisitions was approximately
$79 million.
Management has committed to a plan to exit certain facilities of the
acquired companies and integrate acquired assets and businesses with the
Company's facilities. The Company anticipates that these closings will
initially have an adverse effect on the Company's operating margins as a
result of the costs associated with closing a plant and moving production to
another location, but that, thereafter, rationalization should improve
operating margins. In connection with recording the Recent Acquisitions, the
Company established a reorganization liability of approximately $5.7 million
which was classified in other current liabilities. The liability represents
the direct costs expected to be incurred which have no future economic benefit
to the Company. These costs include charges relating to the closing of
manufacturing facilities and severance costs. As of September 28, 1997, the
Company had charged approximately $4.3 million against the reorganization
liability.
The Recent Acquisitions represent a continuation of the Company's strategy
of growth in sales and profitability through acquisitions, and provide product
and geographic expansion. Management intends to employ the Company's 3R
strategic initiative to Rationalize, Reengineer and Recapitalize the Recent
Acquisitions. In fiscal 1996, the Company's facilities existing prior to the
Recent Acquisitions realized reductions in cost of products sold as a percent
of sales as a result of ongoing initiatives to reduce cost and increase
productivity through rationalization, reengineering and focused capital
expenditures and as a result of more effective steel purchasing. These
efficiency gains were more than offset by higher costs at the recently
acquired facilities where the Company has initiated an aggressive
rationalization program. Although employee termination costs in connection
with plant rationalizations, administrative workforce reductions, and other
plant exit costs associated with the Recent Acquisitions have been accrued for
through purchase accounting adjustments, the Company incurred in fiscal 1996
and fiscal 1997, and will incur in fiscal 1998, other costs (such as costs the
Company will incur in reallocating various product lines and production volume
among the Company's manufacturing facilities and excess fixed overhead costs
the Company will incur until it closes certain of its facilities) which, under
current accounting pronouncements, will be charged against operating income
and will increase reported cost of products sold as a percent of net sales.
The Company cannot reasonably estimate the amount of these costs because of
the varied nature of such costs (e.g. direct and indirect costs associated
with moving a production line from one facility to another, including
inefficiencies inherent in shifting production during the move and starting up
production at the new facility) and the limitations of the Company's current
accounting system. The direct costs that the Company cannot estimate consist
of, among other things, increased scrappage and direct labor costs (including
(i) the opportunity costs relating to on-the-job training programs, (ii)
learning curve inefficiencies relating to the re-engineered operations, (iii)
slower production line speeds that result in increased direct labor costs per
unit of production and (iv) less efficient utilization of manpower at plants
at which production is being phased out). The indirect costs that the Company
cannot estimate include, among other things, increased overhead costs (i.e.
rent, utilities and real estate taxes) per unit of production at plants at
which production is being phased out.
27
<PAGE>
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, information
expressed as a percentage of net sales for such period and has been derived
from the consolidated statements of income of the Company included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales.............................................. 100.0% 100.0% 100.0%
Cost of products sold (excluding depreciation and
amortization)......................................... 84.1 83.6 84.9
Depreciation and amortization.......................... 2.4 2.6 3.2
Provision for restructuring............................ 4.5
AB Leasing fees, expenses and termination.............. 1.4
Selling and administrative expenses.................... 4.2 5.1 4.9
Interest expense, net.................................. 2.1 1.7 2.6
Income before taxes.................................... 6.0 1.6 5.5
Net income............................................. 3.5 0.4 3.3
Adjusted EBITDA (as defined in Note 5 on page 12)...... 10.5 11.3 10.0
</TABLE>
YEAR ENDED SEPTEMBER 30, 1997 (FISCAL 1997) COMPARED TO YEAR ENDED SEPTEMBER
30, 1996 (FISCAL 1996).
Net Sales. Net sales for fiscal 1997 were $402.2 million, an increase of
$119.1 million or 42.0% from $283.1 million in fiscal 1996. The increase
resulted from the BSNJ Acquisition and the BSO Acquisition late in the third
quarter of fiscal 1996, and the MCC Acquisition early in the first quarter of
fiscal 1997.
Cost of Products Sold. Cost of products sold (excluding depreciation and
amortization) in fiscal 1997 was $341.4 million, an increase of $104.7
million, or 44.2%, from $236.7 million in fiscal 1996. The increase is
primarily attributable to increased sales from, and the higher cost of
products sold (excluding depreciation and amortization) of, the Recent
Acquisitions. Cost of products sold as a percent of sales increased to 84.9%
in fiscal 1997 from 83.6% in fiscal 1996. The increase is primarily
attributable to the Recent Acquisitions where cost of products sold as a
percent of sales was historically higher than that of the Company's previously
owned facilities, and to costs associated with the Company's 3R strategic
initiative to Rationalize, Reengineer and Recapitalize the Recent
Acquisitions. Although certain employee termination costs in connection with
plant rationalizations, administrative workforce reductions, and other plant
exit costs associated with the Recent Acquisitions have been accrued for
through purchase accounting adjustments, the Company incurred during the
fourth quarter of fiscal 1996, and during fiscal 1997, other costs arising
from the Company's 3R strategic initiative which, in accordance with current
accounting pronouncements, were charged against operating income. Cost of
products sold (excluding depreciation and amortization) for fiscal 1997 was
also adversely affected by an approximately thirty day strike at MCC's
Cincinnati, Ohio facility.
Income before Income Taxes and Extraordinary Item. Income before income
taxes and extraordinary items for fiscal 1997 was $22.3 million, an increase
of $15.3 million, or 219.8%, from $7.0 million in fiscal 1996, when the
Company recorded a non-cash restructuring charge of $12.9 million (before
taxes). Fiscal 1997 income before income taxes and extraordinary items
increased by $2.4 million over fiscal 1996, excluding the effect of the
restructuring charge. This increase resulted primarily from contributions from
the Recent Acquisitions, cost savings realized to date from rationalization
initiatives, and productivity and cost reductions resulting from capital
spending initiatives, and the gain recorded by the Company from curtailment of
the post retirement benefits which resulted from the elimination of post
retirement health care costs for certain employees at the Cincinnati facility.
Partially offsetting these improvements were period costs associated with
rationalization initiatives, higher selling and administration expenses, and
higher interest expense. Depreciation and amortization increased from $7.4
million in fiscal 1996 to $13.0 million in fiscal 1997 due to the Recent
Acquisitions and as a result of capital spending related to the Company's cost
reduction, productivity improvement, and growth initiatives. Selling and
administrative expense of $19.7 million for fiscal 1997 increased from $14.6
million in
28
<PAGE>
fiscal 1996, primarily due to the Recent Acquisitions and building corporate
infrastructure to support the Recent Acquisitions and continue its growth
plans. Interest expense, net, increased to $10.6 million in fiscal 1997 from
$4.9 million in fiscal 1996 due to interest on borrowings to finance the
Recent Acquisitions, and due to a higher interest rate associated with the
Company's issuance in the third quarter of fiscal 1997 of $100 million of the
Old Notes. See "--Liquidity and Capital Resources."
Net Income. Net Income for fiscal 1997 was $13.1 million, an increase of
$11.9 million from fiscal 1996. The improvement results from the factors
mentioned above.
YEAR ENDED SEPTEMBER 30, 1996 (FISCAL 1996) COMPARED TO YEAR ENDED SEPTEMBER
30, 1995 (FISCAL 1995).
Net Sales. Net sales for fiscal 1996 were $283.1 million, an increase of
$35.6 million or 14.4% from $247.5 million in fiscal 1995. The increase
resulted primarily from the BSNJ Acquisition and the BSO Acquisition late in
the third quarter of fiscal 1996. Fiscal 1996 net sales excluding the
acquisitions were up slightly over fiscal 1995.
Cost of Products Sold. Cost of products sold (excluding depreciation and
amortization) in fiscal 1996 was $236.7 million, an increase of $28.6 million
or 13.8% from $208.1 million in fiscal 1995. The increase is primarily
attributable to increased sales from the acquisitions. Cost of products sold
as a percent of sales decreased to 83.6% in fiscal 1996 from 84.1% in fiscal
1995. The Company's facilities existing prior to the BSNJ Acquisition and the
BSO Acquisition realized reductions in cost of products sold as a percent of
sales as a result of ongoing initiatives to reduce cost and increase
productivity through rationalization and capital initiatives, and as a result
of more effective steel purchasing. Gains were more than offset by higher
costs at the recently acquired facilities where the Company has initiated an
aggressive rationalization program. Although certain employee termination
costs in connection with plant rationalizations, administrative workforce
reductions, and other plant exit costs associated with the recent acquisitions
have been accrued for through purchase accounting adjustments, the Company
incurred in fiscal 1996 other costs arising from the Company's 3R strategic
initiative which, under current accounting pronouncements, were charged
against operating income.
Income before Income Taxes and Extraordinary Item. Income before income
taxes and extraordinary items for fiscal 1996 was $7.0 million, a decrease of
$7.8 million or 53.0% from $14.8 million in fiscal 1995. The achieved gains
described above were more than offset by a non-cash restructuring charge of
$12.9 million (before taxes) recorded during fiscal 1996. The restructuring
charge was due to increased volumes resulting from the acquisitions providing
the opportunity for the Company to consolidate certain of its manufacturing
processes to improve efficiencies, which will result in the disposal of
surplus equipment and currently productive manufacturing equipment beginning
in early fiscal 1997 and ending in fiscal 1998. When fully implemented, the
rationalization is expected on an overall basis to result in reduced overhead
expense and enhanced operational efficiencies. Depreciation and amortization
increased from $5.9 million in fiscal 1995 to $7.4 million in fiscal 1996 due
to the BSNJ Acquisition and the BSO Acquisition and as a result of capital
spending related to the Company's cost reduction and productivity improvement
initiatives. Selling and administrative expenses of $14.6 million for fiscal
1996 increased from $10.3 million in fiscal 1995, primarily due to the BSNJ
Acquisition and the BSO Acquisition and building corporate infrastructure to
support the Recent Acquisitions, continued growth plans and the increased
costs associated with being a public company. Interest expense, net decreased
to $4.9 million in fiscal 1996 from $5.2 million in fiscal 1995, as the
benefits accrued from the cash received from the initial public offering (the
"Initial Public Offering") of the Company's common stock, par value $0.01 per
share (the "Common Stock"), were partially offset by interest on borrowings to
finance the acquisitions late in the year.
Net Income. Net Income for fiscal 1996 was $1.2 million, a decrease of $7.6
million from fiscal 1995. In addition to the factors mentioned above, the
Company recorded an extraordinary charge of $2.5 million (after tax)
associated with the early repayment of the Company's debt.
29
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter of fiscal 1996, the Company repaid its existing
debt and established its new five year Credit Agreement, which the Company
amended subsequent to fiscal 1997 year end. The Credit Agreement provides that
the Company and its subsidiaries can borrow up to $100 million, and gives the
Company an option to increase its borrowing limit by an additional $50
million, provided certain conditions are met. The expiration of the Credit
Agreement was extended to June 17, 2002 in the recent amendment. Interest
rates under the Credit Agreement are based on rate margins ("Rate Margin") for
either the prime rate as announced by NationsBank, N.A. from time to time or
LIBOR, at the option of the Company. These Rate Margins were lowered in
connection with the recent amendment. The applicable rate margin is determined
on a quarterly basis by a review of the Company's leverage ratio. Loans under
the Credit Agreement are unsecured and can be prepaid at the option of the
Company without premium or penalty. The Credit Agreement is subject to certain
restrictive covenants, including covenants which require the Company to
maintain a certain minimum level of net worth and certain leverage ratios. In
addition, the Company is restricted in its ability to pay dividends and make
other restricted payments. See "Description of Credit Agreement." As of
September 30, 1997, the Company is in compliance with each of these covenants.
The recent amendment to the Credit Agreement improved certain of these
covenants to provide the Company with greater flexibility with regard to
growth investments in joint ventures and other subsidiaries. Funds provided
under the Credit Agreement were used to repay the Company's $50 million of
8.35% senior notes due 2001, repay the Company's existing revolving credit
facility, finance acquisitions and meet operating needs. The Company incurred
a $2.5 million, after tax, one-time charge associated with this debt
restructuring in fiscal 1996.
During the third quarter of fiscal 1997, the Company issued $100 million of
the Old Notes. The Old Notes have an interest rate of 10 1/4%, payable semi-
annually on April 15 and October 15. Net proceeds of approximately $96 million
from the issuance of the Old Notes were used to reduce borrowings on the
Company's Credit Agreement. Pursuant to the terms of a registration rights
agreement the Company executed in connection with the offering of the Old
Notes, the Company paid additional interest on the Old Notes from August 9,
1997 until the date the registration statement of which this Prospectus is a
part was declared effective by the Commission. Such additional interest
accrued at a rate of 0.25% per annum for the 90-day period beginning August 9,
1997 and continued to accrue at a rate increasing by an additional 0.25% per
annum at the beginning of each subsequent 90-day period until the registration
statement of which this Prospectus is a part was declared effective by the
Commission. The Company paid additional interest in an amount equal to $45,833
for the period beginning August 9, 1997 and ending October 14, 1997. The
Company has accrued additional interest in an amount equal to $131,250 for the
period beginning October 15, 1997 and ending January 31, 1998.
During fiscal 1997, net cash provided by operating activities was $45.1
million which was comprised primarily of income from operations ($13.1
million), depreciation and amortization ($13.5 million), deferred income taxes
($3.0 million) and working capital excluding working capital acquired from the
MCC Acquisition ($19.8 million). The decrease in working capital was primarily
attributable to the increase in accounts payable ($13.5 million), income taxes
($2.9 million) and the reduction in accounts receivable ($3.0 million). Net
cash provided from operating activities was reduced by a non-cash gain on
curtailment of retirement benefits of $5.8 million.
During fiscal 1996, net cash provided by operating activities was $25.7
million which was comprised primarily of depreciation and amortization ($8.0
million), the non cash restructuring charge ($12.9 million) and working
capital excluding working capital acquired by the BSNJ Acquisition and the BSO
Acquisition ($5.9 million). The decrease in working capital was primarily
attributable to the increase in accounts payable ($3.8 million) and the
reduction in accounts receivable ($3.3 million). Working capital was reduced
by an increase in inventory ($3.0 million).
During fiscal 1997, the Company used $64.3 million for investing activities
for the MCC Acquisition ($41.6 million) and capital expenditures ($23.0
million). Capital expenditures were primarily for equipment to improve
manufacturing processes and hardware and software to address the Year 2000
issue and improve administrative and manufacturing systems. Management expects
to maintain this level of capital expenditures over the next five years.
30
<PAGE>
During fiscal 1996, the Company used $82.3 million for investing activities
for the BSNJ Acquisition and the BSO Acquisition ($69.7 million) and capital
expenditures ($12.7 million). Capital expenditures were primarily for
equipment to improve manufacturing processes and hardware and software to
address the Year 2000 issue and improve administrative and manufacturing
systems.
During fiscal 1997, net cash provided by financing activities was $18.7
million. As described above, the Company refinanced its outstanding debt by
issuing $100 million of unsecured senior subordinated notes. Financing costs
incurred to obtain the notes was $4.0 million. Net repayments under the bank
revolving credit agreement, including the proceeds from the notes, were $80.3
million. Additionally, unpresented bank drafts increased $4.2 million.
During fiscal 1996, the Company generated $35.0 million from financing
activities. The Company had net borrowings under the Credit Agreement of $93.8
million that were used to repay the $50 million private placement debt and
finance the investing activities of the business. The Company used $9.5
million to purchase treasury stock prior to the BSNJ Acquisition. The treasury
stock was reissued along with additional new shares as part of the
consideration for the BSNJ Acquisition. Additionally, the Company repaid long
term debt of $2.1 million and increased unpresented bank drafts of $4.3
million.
Cash and cash equivalents were $23.5 million at the beginning of fiscal
1996, and were $1.9 million at the end of fiscal 1996.
At September 30, 1997, the Company was restricted in its ability to pay
dividends and make other restricted payments in an amount greater than
approximately $16.4 million. The Company's subsidiaries are restricted in
their ability to transfer funds to the Company, except for funds to be used to
effect approved acquisitions, pay dividends in specified amounts, reimburse
the Company for operating and other expenditures made on behalf of the
subsidiaries and repay permitted intercompany indebtedness. Restricted net
assets of the Company's subsidiaries collectively amounted to approximately
$71 million at September 30, 1997.
Management believes that cash provided from operations, borrowings available
under the Credit Agreement, and borrowings under the Indenture will provide it
with sufficient liquidity to meet its operating needs and continue the
Company's capital expenditure initiatives for the next twelve months. The
Company continues to pursue acquisition opportunities in the North American
container industry and in connection therewith may incur additional
indebtedness to finance such acquisitions.
ENVIRONMENTAL MATTERS
For information regarding environmental matters, see "Business--
Environmental, Health and Safety Matters."
EFFECT OF INFLATION
Historically, the Company has generally been able to recover increased costs
of raw materials through price increases for the Company's products, although
there can be no assurances that this practice will continue. This ability,
together with cost reductions achieved through line rationalization and
productivity improvements, have mitigated the impact of inflation on the
Company's results of operations. Management currently believes that inflation
will not have a material adverse impact on the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share." The Company has considered the impact
of this new standard and does not believe earnings per share determined under
this statement are materially different than earnings per share determined in
accordance with current accounting standards. The statement is effective for
financial statements for periods ending after December 15, 1997.
31
<PAGE>
BUSINESS
GENERAL
BWAY Corporation is a holding company whose principal subsidiaries, Brockway
Standard, Inc., Brockway Standard (New Jersey), Inc., Milton Can Company, Inc.
and Brockway Standard (Ohio), Inc., are leading developers, manufacturers and
marketers of steel containers for the general line category of the North
American container industry. The four other Subsidiary Guarantors complement
the Company's four principal subsidiaries by facilitating the Company's
Canadian sales (Brockway Standard (Canada), Inc.), manufacturing press plates
for the Company's principal subsidiaries (Plate Masters, Inc.), managing the
Company's Materials Center Services strategic alliances (Materials Management,
Inc.) and maintaining the Company's rights to certain state tax deferrals on
various intercompany accounts (Armstrong Containers, Inc.). The Company has
six major product lines: (i) paint cans, (ii) aerosol cans, (iii) oblong cans,
(iv) steel pails, (v) food cans and (vi) specialty cans. The Company's
principal products include a wide variety of steel cans and pails used for
packaging paint and related products, lubricants, cleaners, roof and driveway
sealants, food (principally coffee and vegetable oil) and household and
personal care aerosol products. The Company also manufactures steel ammunition
boxes and provides metal decorating services. The Company's business is
focused on product lines and geographic areas where the Company has, or
management believes it can develop, a leading market presence and achieve a
low cost manufacturing position. The Company's sales to customers located
outside of the United States were less than 5 percent for fiscal 1996 and
fiscal 1997. See "Summary Consolidated Historical and Pro Forma Financial
Data."
The Company believes it is an industry leader in each of its major product
lines (other than aerosol cans, a product line the Company entered as part of
the Recent Acquisitions) due to a number of competitive advantages, including
highly efficient and technologically advanced manufacturing facilities,
strategically located operations and a reputation for quality and service. The
Company's products are sold to over 750 customers, including diverse groups of
manufacturers of nationally branded products for the hardware, automotive,
personal care, consumer and food industries. The Company's major customers
include Benjamin Moore & Company, CL Smith Company, Colgate-Palmolive Company,
PPG Industries, Inc., The Procter & Gamble Company and The Sherwin-Williams
Company.
The Company is the successor to a business founded in 1875. In January 1989,
the Company was purchased from Owens-Illinois Corporation in a leveraged
transaction led by management and other industry investors. Over the past
eight years, the Company's net sales have grown from $131.9 million in fiscal
1990 to $402.2 million in fiscal 1997. The successful application of
management's 3R strategic initiative to Rationalize, Reengineer and
Recapitalize its existing and acquired operations has resulted in meaningful
growth in Adjusted EBITDA (as defined in Note 5 on page 12). In fiscal 1993,
the Company acquired and successfully integrated Armstrong Containers, Inc.,
DK Container, Inc., and the Monotop(R) business of Ellisco, Inc., which was
the primary reason for the net sales increase from fiscal 1992 to fiscal 1994
by approximately 67%. In fiscal 1996, the Company completed the strategic
acquisitions of Milton Can Company, Inc. and the Davies Can division of the
Van Dorn Company, a wholly owned subsidiary of Crown Cork & Seal Company,
Inc., and, in fiscal 1997, the Company completed the strategic acquisition of
the aerosol can business of Ball Metal Food Container Corporation, a wholly
owned subsidiary of Ball Corporation. Since 1989 the Company has purchased 21
facilities, opened two new facilities and sold or closed nine facilities.
Management currently plans to close three facilities during fiscal 1998.
The Company believes that metal cans are the preferred container for
significant portions of the solvent, paint and coatings industry due to the
attractive strength and non-permeable characteristics of steel versus other
materials, such as plastic. Steel containers offer a number of significant
advantages over alternative materials, including fire safety, efficiencies in
packaging and transport, the capacity for vacuum or pressure packaging and the
ability to hold highly volatile or oil-based liquids. In addition, management
believes that steel containers are easier and less costly to recycle and have
a higher rate of recycling than alternative materials. The Company believes
that the metal can's position in the market will be enhanced by increasing
environmental awareness and recycling efforts.
32
<PAGE>
COMPETITIVE STRENGTHS
Strong Market Positions. The Company has established a leading position in
each of its major product lines (other than aerosol cans, a product line the
Company entered as part of the Recent Acquisitions). The Company estimates
that it holds the number one share in round paint cans, oblong cans, and steel
pails, with unit shares in 1996 of approximately 60%, 50% and 31%,
respectively. The Company attributes its leadership position primarily to its
broad product offering, low cost manufacturing position, reputation for
quality and high levels of customer service. These qualities have enabled the
Company to establish long-standing relationships with existing customers and
to attract new customers.
Proven Management Team. The Company has assembled a strong management team
at both the corporate and operating levels with extensive experience in the
packaging industry. Since 1989, the Company's management team has successfully
implemented a focused strategy to complete strategic acquisitions,
successfully integrate and rationalize acquisitions, maintain a strong
financial position, broaden its product offerings and strengthen its key
customer relationships.
State-of-the-Art Manufacturing Technologies. The Company employs leading
edge manufacturing methods to consistently improve its process efficiency,
product quality and product performance. The Company has converted
substantially all of its production lines from soldered to welded technology.
Welding lines operate at higher speeds, greater efficiency and lower costs. In
addition to the benefits inherent to the welded technology conversion, the
Company has internally developed equipment technology and modifications that
allow the majority of the Company's assembly lines to operate significantly
faster than original design specifications. The Company has also invested in
design and process technology that enable it to improve product quality. For
the five fiscal years ended September 30, 1997, the Company has invested
approximately $64 million in capital expenditures which has meaningfully
enhanced manufacturing efficiency, increased line speeds and lowered scrap
levels. Examples include conversion to the "powder striping" process of
coating the inside of cans at the weld to improve can performance and the
development of high performance light weight pails meeting the stricter United
Nations performance test criteria for pails containing volatile materials. The
Company will continue to make targeted capital investments to improve product
quality, manufacturing throughput and efficiency and increase sales.
Low-Cost Production. The Company believes that its manufacturing costs are
among the lowest in its industry primarily due to: (i) the economies of scale
provided by the Company's high production volumes, (ii) high plant utilization
attained by the rationalization of less efficient facilities, (iii) an
industry leading safety record which dramatically lowers workers' compensation
costs and related expenses, (iv) manufacturing techniques that minimize raw
materials requirements, reduce scrap and enhance productivity, (v)
ability to attain favorable steel prices based on its significant raw material
purchases, (vi) the low transportation costs resulting from the proximity of
manufacturing facilities to its major customers and (vii) continued capital
investment directed at achieving the highest levels of operating efficiency
and productivity.
STRATEGY
Rationalize, Reengineer, and Recapitalize. The Company implements a 3R
business strategy designed to Rationalize, Reengineer and Recapitalize its
existing and acquired operations to facilitate sales and Adjusted EBITDA (as
defined in Note 5 on page 12) growth. Consistent with its business strategy,
the Company rationalizes operations by closing less efficient facilities,
relocating production lines and optimizing production levels within
efficiently loaded facilities. Through continued reengineering of process and
equipment, the Company has increased line speeds, enhanced product quality,
improved plant safety and reduced scrap. Investments in state-of-the-art
technology and equipment allow the Company to recapitalize operations and
develop world class production facilities providing the highest quality
products to its customers at competitive pricing.
33
<PAGE>
The Company has a successful track record of achieving cost reductions and
productivity enhancements through consolidation of manufacturing operations
and selected capital investments in state-of-the-art manufacturing equipment.
Since 1989 the Company has purchased 21 facilities, opened two new facilities
and sold or closed nine facilities. Management currently plans to close three
facilities during fiscal 1998. Consequently, at the end of calendar 1997 the
Company anticipates it will be operating 11 manufacturing facilities. For the
five fiscal years ended September 30, 1997, the Company has invested
approximately $64 million in capital expenditures which have meaningfully
enhanced manufacturing efficiency, increased line speeds and lowered scrap
levels.
New Products and Markets. The Company continues to enhance current product
lines and expand into new product lines in an effort to provide its existing
customers with a comprehensive offering of general line products. In late
1994, new Department of Transportation regulations became effective in the
United States requiring stricter performance criteria for steel pails. The
Company responded to this regulatory change by developing a unique pail design
and manufacturing process. The Company has increased unit sales by
approximately 29% over its fiscal 1994 unit sales and the Company estimates it
is now the leading provider of steel pails in the United States. The Company
also provides steel shearing, coating and lithography services for its can
assembly facilities and third party customers. To enhance its offering of
Materials Center Services, the Company has initiated a major capital
investment program in state-of-the-art lithography and coating equipment. The
Company believes this investment will significantly enhance its ability to
expand third party sales of Materials Center Services. In November 1997, the
Company announced the formation of a new strategic business unit, BMAT, to
manage its Materials Center Services.
Strategic Acquisitions. The Company has a successful history of making
strategic acquisitions in core or complementary product lines. The Company
will continue to evaluate and selectively pursue acquisitions which it
believes are strategically important in meeting its customers' needs,
attracting new customers, adding new products, complementing its existing
business, expanding its geographic reach in North America and enhancing the
Company's profitability.
Leverage Strong Customer Relationships. The Company enjoys long-standing
relationships with the majority of its customers. The Company intends to
enhance these relationships by delivering a broader range of products and
services. With the BSNJ Acquisition and the MCC Acquisition, the Company now
has the ability to offer aerosol cans to its customers. The Company estimates
that this product line will increase the volume of cans that it sells to many
of its major general line customers. The Company also believes its recent
commitment to increasing its Materials Center Services capabilities will
enhance existing relationships with these customers through the offering of
high quality lithographed containers.
INDUSTRY OVERVIEW
Metal containers are currently utilized for three product categories:
beverage, food and general line (which includes containers for such products
as aerosol, paint and varnish, and automotive products). Management estimates,
based on industry data published by the Can Manufacturers Institute and the
United States Bureau of Statistics, that 1996 industry shipments totaled
approximately 99 billion units to the beverage segment, 32 billion units to
the food segment and 4 billion units to the general line category. Although
the general line category constitutes approximately 3% of the unit volume of
metal containers, management estimates that it represents approximately 10% of
the metal can industry revenues. Few companies compete in all three product
categories, and most of the companies which produce beverage and food cans do
not compete in the general line product categories.
The metal container industry has experienced continuing consolidation over
the past few years, resulting in improved line utilization and lower unit
costs. Management expects this trend to continue, resulting in a more
favorable operating environment. Portions of the metal container industry are
configured on a regional basis due to the high cost of freight as a percentage
of the total cost of sales. Management believes that customers prefer nearby
suppliers to ensure timely delivery, flexible inventory and attentive service.
34
<PAGE>
PRODUCTS AND MARKETS
The Company participates in the container market and currently holds leading
positions in the sale of its general line products, other than aerosol cans,
and holds a strong position in the sale of coffee and vegetable oil cans. The
Company does not sell beverage containers. The Company also manufactures steel
ammunition boxes and provides metal decorating and container component
manufacturing services.
The following table sets forth the percentage of net sales of the Company
contributed by the product lines indicated for fiscal 1995, 1996 and 1997. The
Company's sales distribution by product line has been affected to some extent
by the Recent Acquisitions. Materials Center Services have historically
accounted for less than two percent of net sales.
<TABLE>
<CAPTION>
PERCENTAGE OF
NET SALES YEAR
ENDED
SEPTEMBER 30,
----------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
General line containers................................... 73% 78% 84%
Food cans................................................. 23 17 13
Ammunition Boxes.......................................... 4 5 3
--- --- ---
Total................................................. 100% 100% 100%
=== === ===
</TABLE>
General Line Containers
The primary uses for the Company's containers are for paint and related
products, lubricants, cleaners, roof and driveway sealants, charcoal lighter
fluid, household and personal care products. Specific products include round
cans with rings and plugs (typical paint cans), oblong or "F" style cans
(typical paint thinner cans), specialty cans (typical PVC or rubber cement
cans, brake fluid and other automotive after-market product cans and an
assortment of other specialty containers) and pails. The Company produces a
full line of these products to serve the specific requirements of a wide range
of customers. The Company's products are typically coated on the inside to
customer specifications based on intended use and are either decorated on the
outside to customer specifications or sold undecorated. Prior to May 1996, the
only significant general line product which the Company did not sell was
aerosol containers. The BSNJ Acquisition gave the Company a niche position in
the container market for the sale of aerosol products. The Company increased
its position for the sale of aerosol can products with the acquisition of the
aerosol can business of BMFCC. Most of the Company's products are manufactured
in facilities that are strategically located to allow the Company to deliver
product to a majority of customer filling locations for such products within a
one day transit time.
Paint Cans. The Company produces round paint cans in sizes ranging from one-
quarter pint to one gallon, with one gallon paint cans representing the
majority of all paint can sales.
Oblong or "F" Style Cans. Oblong or "F" style cans are typically used for
packaging paint thinners, lacquer thinners, turpentine, deglossers and similar
paint related products, charcoal lighter fluid, waterproofing sealers and
vegetable oil. The Company produces oblong cans in sizes ranging from three
ounces to one imperial gallon.
Specialty Cans. Utility cans include small screw top cans which typically
have an applicator or brush attached to a screw cap and are used for PVC pipe
cleaner, PVC cement and rubber cement. Cone top cans are typically used for
packaging specialty oils and automotive after-market products including brake
fluid, gasoline additives and radiator flushes. The Company also produces
various other specialty containers.
Aerosol Cans. Aerosol cans are typically used for packaging various
household and industrial products, including paint and related products,
personal care products, lubricants and insecticides. The Company produces a
variety of sizes, which are generally decorated to customer specifications.
35
<PAGE>
Pails. Pails are typically used for packaging paint and related products,
roof and driveway sealants, marine coatings, vegetable oil, and water
repellent. Pails may be either "closed head" for easy pouring products, or
"open head" for more viscous products, with a lid which is crimped on after
filling. The Company manufactures steel pails in sizes ranging from 2.5 to 7
gallons.
Food Products/Coffee Cans
The Company produces cans for coffee and vegetable oil, with coffee
accounting for the majority of sales. The Company produces coffee cans in
sizes commonly referred to as 1 pound, 2 pound and 3 pound, and various
smaller specialty coffee can sizes and shapes. Coffee cans are generally sold
to nationally known coffee processing and marketing companies and are
typically printed to customer specifications. The Company does not sell
sanitary food cans in which soups, stews, vegetables, pie fillings and other
foods are actually cooked in the can.
Ammunition Boxes
The Company manufactures a variety of ammunition boxes. These containers
provide a hermetic seal, are coated with a corrosion-resistant finish and are
used to package small arms ammunitions and other ordnance products. The
Company sells ammunition boxes to the U.S. Department of Defense as well as to
major domestic and foreign producers of ordnance.
Materials Center Services
The Company also provides Materials Center Services for its can assembly
facilities and third party customers. To enhance its offering of Materials
Center Services, the Company has initiated a major capital investment program
in state-of-the-art lithography and coating equipment. The Company believes
this investment will significantly enhance its ability to expand third party
sales of Materials Center Services. In November 1997, the Company announced
the formation of a new strategic business unit, BMAT, to manage its Materials
Center Services.
SALES AND MARKETING
The Company markets its products primarily in North America. Sales are made
either by the Company's direct sales force or through an agent and distributor
network. The Company's direct sales force consists of 27 salespersons, each
assigned to a territory or to national accounts. The sales force is supported
by order entry and scheduling personnel at each plant and by a centralized
credit and billing organization. Most of the Company's sales are made by the
Company's direct sales force and to distributors for resale. Distributors
determine their own prices and assume credit risks. No single distributor
represented more than 2% of sales in fiscal 1997. The Company's sales to
customers located outside of the United States were less than 5% for fiscal
1996 and fiscal 1997.
CUSTOMERS
The Company sells its products to a large number of customers in numerous
industry sectors. Sales to the Company's ten largest customers accounted for
approximately 38% of sales in fiscal 1997. During fiscal 1997, sales to The
Sherwin-Williams Company accounted for approximately 10% of sales during the
period. See "Risk Factors--Dependence on Major Customers."
36
<PAGE>
A list of the Company's ten largest customers (in alphabetical order) for
fiscal 1997 and the products they purchase is shown below.
<TABLE>
<CAPTION>
CUSTOMER PRODUCTS
-------- --------
<S> <C>
Ball Corporation........ materials center services
Benjamin Moore &
Company................ paint cans and pails
CL Smith Company........ paint cans, pails, oblong cans and specialty cans
Colgate-Palmolive
Company................ aerosol cans
Oatey Company........... specialty cans and oblong cans
RPM, Inc. .............. paint cans, oblong cans, pails, aerosol cans and specialty cans
PPG Industries, Inc. ... paint cans, oblong cans and pails
The Glidden Company..... paint cans and pails
The Procter & Gamble
Company................ coffee cans
The Sherwin-Williams
Company................ paint cans, oblong cans, pails and specialty cans
</TABLE>
Consistent with industry practice, the Company enters into multi-year supply
agreements with many of its larger customers, which agreements typically
provide that the customer shall purchase all of its requirements for, or
certain minimum quantities of, certain containers for specific facilities of
the customer during the term of the agreement. Most of such agreements are
non-exclusive, and many allow the customer to purchase containers from other
suppliers if such other suppliers offer lower prices and identical terms for
products of the same quality and the Company does not match such lower prices.
Typically, such agreements do not permit the customer to terminate the
agreement without cause. The Company has strong relationships with most of its
major customers as a result of its dedication to meeting its customers'
specific quality and service goals.
MANUFACTURING PROCESS
The Company generally employs the industry's typical manufacturing process
in production of its products, although certain technologies differ from
competitors. Following is a sequential list of the specific steps in the can
making process. Not all products require coating and printing.
<TABLE>
<CAPTION>
PROCESS DESCRIPTION
------- -----------
<C> <S>
Shearing............. A large coil of tin-coated, blackplate or cold rolled steel
is cut into sheets of a specified size depending on the end
use of the product.
Coating.............. A coating is sometimes applied to the side of the sheets
which becomes the outside of the containers as a base coat
for printing and to the side that becomes the inside of the
containers to protect the contents from contact with the
steel or tinplate.
Printing............. Sheets are decorated with the customer's design. (Also known
as lithography).
Slitting............. Sheets are cut into individual body blanks, which will be
formed into cans.
Body-Forming......... Body blanks are fed into a body-making machine where they are
formed into cylinders or oblong cans and joined at their side
seams, by welding or soldering. Handles or nozzles may be
attached.
End-Forming.......... Ends are stamped out of sheets or strips.
Flanging and Seaming. The metal on both ends of the can is rolled to form a flange
and the end is attached to the body by folding or seaming.
Testing.............. The cans are tested for potential leakage.
Packaging............ Cans are stacked onto pallets and shrink-wrapped or packaged
in cartons or bags for delivery to customers.
</TABLE>
37
<PAGE>
RAW MATERIALS
The Company's principal raw materials consist of tinplate, blackplate and
cold rolled steel, various coatings, inks and compounds. Steel products
represent the largest component of raw material costs. Essentially all of the
Company's products are manufactured from tinplate steel, except for pails and
ammunition boxes, which are manufactured from blackplate and cold rolled
steel.
Various domestic steel producers supply the Company with tinplate steel.
Procurement from suppliers depends on the suppliers' product offering, product
quality, service and price. Because a significant number of reliable suppliers
produce the steel used in the Company's process, management believes that it
would be able to obtain adequate replacement supplies in the market should one
of the current suppliers discontinue supplying the Company. The Company is
working with other companies to lower the overall cost of its steel
requirements. Tinplate consumers typically negotiate late in the year for the
next calendar year on terms of volumes and price. Terms agreed to have
historically held through the following year, but there is no assurance that
this practice will remain unchanged in the future.
Steel prices have historically been adjusted as of January 1 of a calendar
year. Most domestic tinplate and blackplate steel producers have announced a
3.0% price increase to become effective January 1, 1998. The Company has
historically arranged for raw material prices which are lower than those
publicly announced by its suppliers, although there can be no assurances that
this practice will continue.
In addition to steel products, the Company purchases various coatings, inks,
and compounds used in the manufacturing process. Based on ready availability
of these materials in the past and the number of current manufacturers,
management does not anticipate any shortages or supply problems in the future.
EMPLOYEES
As of December 1, 1997, the Company employed approximately 1,654 hourly
workers and 443 salaried employees. Certain of the Company's employees are
represented by various unions. As of December 1, 1997, BSI and its subsidiary
BSO together had approximately 240 union-represented employees at two
facilities covered by three separate collective bargaining agreements. As of
December 1, 1997, BSNJ and its subsidiary NTC had approximately 180 union-
represented employees at two facilities covered by three separate collective
bargaining agreements. As of December 1, 1997, MCC had approximately 310 union
employees at one facility covered by three separate collective bargaining
agreements.
During fiscal 1997, BSO and the International Association of Machinist and
Aerospace Workers, Local No. 233 ("IAM") representing substantially all the
hourly workers at BSO's Solon, Ohio plant agreed to renegotiate their
collective bargaining agreement which was scheduled to expire on March 7,
1998. On March 3, 1997, BSO and the members of the IAM reached agreement on a
new collective bargaining agreement that has made BSO more competitive within
the industry and provides BSO greater operating flexibility. The expiration
date of the new agreement was extended to March 7, 2001. On May 1, 1997, the
labor agreement between MCC and members of the International Union of
Electronic, Electrical, Salaried Machine and Furniture Workers, AFL-CIO Local
No. 729 ("IUE") covering approximately 50% of the hourly workers at MCC's
Cincinnati, Ohio facility expired and the union membership went on strike. On
June 2, 1997, MCC and the members of the IUE reached agreement on a new
collective bargaining agreement, expiring August 31, 2000, that has made MCC
more competitive within the industry and provides MCC greater operating
flexibility. On October 15, 1997, the collective bargaining agreement between
BSNJ and the International Brotherhood of Teamsters, Chauffeurs, Warehousemen,
and Helpers of America, Local No. 1034 (the "Teamsters") expired. This
collective bargaining agreement covered a total of approximately 170
employees. On January 30, 1998, BSNJ reached agreement with the Teamsters on a
new three year collective bargaining agreement that has made BSNJ more
competitive within the industry and provides BSNJ greater operating
flexibility. In addition, on January 21, 1998, MCC reached agreement with the
United Steelworkers of America on an amendment to their collective bargaining
agreement, expiring in April 2000, which has made MCC more competitive within
the industry and provides MCC with greater operating flexibility. See "Risk
Factors--Labor Relations."
38
<PAGE>
Management believes that safety performance, which is often considered as an
indicator of worker involvement, training and attitude, has been excellent at
the Company's facilities. In addition to worker attentiveness to safety,
employees are also actively involved in various quality and productivity
initiatives. The Company believes that safety is a strong indicator of
management competence and knowledge of daily operations. Over the last five
years, the Company's injury frequency rate, measured as total recordable
injuries per 100 employees, has been less than one-half the industry average,
according to the Can Manufacturers Institute (CMI). The Company's injury
record has continued to improve in that over the last two years, the Company's
injury frequency rate has been less than one-third the industry average.
COMPETITION
The markets for the Company's products are competitive and the Company faces
competition from a number of sources in most of its product lines. Competition
is based primarily on price, quality, service and, to a lesser extent, product
innovation. The Company believes that its low cost of production and high
quality products, the geographic location of the Company facilities which
provide national coverage for most products to most customers, and its
commitment to strong customer relationships enable it to compete effectively.
Manufacturers of steel containers have historically faced competition from
other materials, primarily plastic, glass and aluminum. Steel containers offer
a number of significant advantages over alternative materials, including fire
safety (critical in many products packaged in paint, oblong and specialty
cans), the capacity for vacuum packaging (important to coffee producers) and
ability to contain aggressive products (primarily certain solvent-based
products).
SEASONALITY
Sales of certain of the Company's products are to some extent seasonal, with
sales levels generally higher in the second half of the Company's fiscal year.
On an aggregate basis, however, the Company's sales have not been
significantly affected by seasonality.
PROPERTIES
The following table sets forth certain information with respect to the
Company's headquarters and manufacturing plants, as of November 30, 1997.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE TYPE OF INTEREST
-------- -------------- ----------------
<S> <C> <C>
Atlanta, Georgia (Headquarters)........... 24,000 Leased
Chicago, Illinois......................... 141,000 Owned
Cincinnati, Ohio.......................... 469,000 Owned
Dallas, Texas (Thompson).................. 110,000 Owned
Dallas, Texas (Southwestern).............. 73,000 Owned
Elizabeth, New Jersey..................... 209,000 Leased
Elizabeth, New Jersey..................... 41,000 Leased
Fontana, California....................... 72,000 Leased
Franklin Park, Illinois................... 92,000 Leased
Garland, Texas............................ 78,000 Leased
Homerville, Georgia....................... 427,000 Owned
Memphis, Tennessee........................ 75,000 Leased
Picayune, Mississippi..................... 60,000 Leased
Solon, Ohio............................... 220,000 Owned
York, Pennsylvania........................ 97,000 Owned
</TABLE>
During the fourth quarter of fiscal 1996, management announced plans to
close six facilities and open one new plant as part of the Company's
rationalization initiative associated with the Recent Acquisitions. As part of
this rationalization strategy, an acquired plant in Covington, Georgia was
closed in September 1996 and an acquired plant in Peabody, Massachusetts was
closed in fiscal year 1997. The majority of the equipment and business has
been assigned to other Company locations. The Company also has moved its
Memphis, Tennessee
39
<PAGE>
operation to a larger facility during the first quarter of fiscal 1997 to
accommodate production changes and the strategic expansion of the Company's
business. Following completion of the facility closings described above, the
Company continues to have excess manufacturing capacity and cost reduction
opportunities resulting from the Recent Acquisitions. Management currently
plans to close three more facilities during fiscal 1998, and believes that
following these closings, the Company's remaining facilities will be adequate
for its needs. Management continues to review opportunities to consolidate
operations and to maximize production efficiencies by rationalizing
overlapping facilities.
The Company believes that its facilities are adequate for its present needs
and that its properties are generally in good condition, well maintained and
suitable for their intended use.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company is subject to a broad range of federal, state and local
environmental and workplace health and safety requirements, including those
governing discharges to air and water, the handling and disposal of solid and
hazardous wastes, and the remediation of contamination associated with the
releases of hazardous substances. The Company believes that it is in
substantial compliance with all material environmental, health and safety
requirements. In the course of its operations, the Company handles hazardous
substances. As is the case with any industrial operation, if a release of
hazardous substances occurs on or from the Company's facilities or at offsite
waste disposal sites, the Company may be required to remedy such release.
There were no material capital expenditures relating to environmental
compliance in fiscal 1997, and none are expected for fiscal 1998.
Pursuant to the terms of the Company's 1989 acquisition of certain
facilities from Owens-Illinois, its fiscal 1996 acquisition of facilities from
Van Dorn Company ("Van Dorn"), the BSNJ Acquisition and the MCC Acquisition,
the sellers in each transaction are obligated, subject to certain limitations,
to indemnify the Company for certain environmental matters related to the
facilities or businesses they conveyed. Notwithstanding such indemnifications,
the Company could bear liability in the first instance for indemnified
environmental matters, subject to obtaining reimbursement. There can be no
assurance that the Company will receive reimbursement with respect to the
indemnified environmental matters.
Environmental investigations voluntarily conducted by the Company at its
Homerville, Georgia facility in 1993 and 1994 detected certain conditions of
soil and groundwater contamination, that predated the Company's 1989
acquisition of the facility from Owens-Illinois. Such contamination is subject
to indemnification by Owens-Illinois. The Company and Owens-Illinois have
entered into a supplemental agreement affirming Owens-Illinois' responsibility
for this matter and establishing procedures for Owens-Illinois' investigation
and remediation of the contamination. In 1994, the Georgia Department of
Natural Resources ("DNR") determined that further investigation must be
completed before DNR decides whether corrective action is needed. Owens-
Illinois' investigation of the contamination is continuing. Management does
not believe that the final resolution of this matter will have a material
adverse effect on the results of operations or financial condition of the
Company.
The Cincinnati facility, which was acquired in the MCC Acquisition, is
listed on environmental agency lists as a site that may require investigation
for potential contamination. The listings could result in a requirement for
the Company to investigate and remediate the facility. To date, no agency has
required such action and the cost of any investigation or remediation can not
be reasonably estimated. BMFCC has agreed to indemnify the Company for
liabilities associated with any such required investigation or remediation as
follows: (i) BMFCC will bear the first $0.1 million of such liabilities and
(ii) any liabilities in excess of such amount will be subject to the general
environmental liability indemnification provisions of the agreement with
BMFCC, which provide that BMFCC will bear 100% of the first $0.3 million of
environmental liabilities, 80% of the next $3.0 million of environmental
liabilities and 65% of all environmental liabilities exceeding $3.3 million.
At the Peabody, Massachusetts facility, which was previously leased by BSNJ,
groundwater remediation is underway. The owner of the facility has asserted
that BSNJ bears liability for costs associated with completing the
remediation. The Company believes that this claim is without merit and that
the facility owner is liable for remedial costs pursuant
40
<PAGE>
to the former lease. In addition, the former shareholders of Milton Can,
subject to certain limitations, indemnified the Company for liabilities
associated with the contamination. Management believes that none of these
matters will have a material adverse effect on the results of operations or
financial condition of the Company in light of both the potential
indemnification obligations of others to the Company and the Company's
understanding of the underlying potential liability.
The Company (and in some cases, predecessors to the Company) have from time
to time received requests for information or notices of potential
responsibility pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") with respect to certain waste
disposal sites utilized by former or current facilities of the Company or its
various predecessors. To the Company's knowledge, all such matters which have
not been resolved are, subject to certain limitations, indemnified by the
sellers of the relevant Company affiliates, and all such unresolved matters
have been accepted for indemnification by such sellers. Management believes
that none of these matters will have a material adverse effect on the results
of operations or financial condition of the Company. Because liability under
CERCLA is retroactive, it is possible that in the future the Company may incur
liability with respect to other sites.
Sales of aerosol cans currently comprise approximately 12% of the Company's
annual general line sales. Federal and certain state environmental agencies
have issued, and may in the future issue, environmental regulations which have
the effect of requiring reformulation by consumer product manufacturers (the
Company's customers) of aerosol propellants or aerosol-delivered consumer
products to mitigate air quality impacts (principally related to lower
atmosphere ozone formulation). Industry sources believe that aerosol product
manufacturers can successfully achieve any required reformulation. There can
be no assurance, however, that reformulation can be accomplished in all cases
with satisfactory results. Failure by the Company's customers to successfully
achieve such reformulation could affect the viability of aerosol cans as
product delivery containers and thereby have a material adverse effect on the
Company's sales of aerosol cans.
LEGAL PROCEEDINGS
The Company is involved in certain proceedings relating to environmental
matters as described under""--Environmental, Health and Safety Matters." The
Company is also involved in legal proceedings from time to time in the
ordinary course of its business. There are no such currently pending
proceedings which are expected to have a material adverse effect on the
Company.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of January 1, 1998,
with respect to the directors and officers of the Company (including all
executive officers of the Company). Officers of the Company serve at the
discretion of the board of directors of the Company (the "Board of Directors"
or the "Board").
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Warren J. Hayford........ 68 Chairman of the Board and Chief Executive
Officer
John T. Stirrup.......... 62 President, Chief Operating Officer and
Director
James W. Milton.......... 58 Executive Vice President and Director
John M. Casey............ 49 Executive Vice President and Chief
Financial Officer
David P. Hayford......... 41 Senior Vice President
David P. Hull............ 56 Executive Vice President
Marguerite E. Ferrazzano. 49 Vice President--Planning and Development
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kevin C. Kern................. 38 Vice President and Corporate Controller
Jeffrey M. O'Connell.......... 44 Vice President and Treasurer
Harry F. Payton............... 61 Executive Vice President
Blair G. Schlossberg.......... 31 General Counsel and Secretary
Thomas A. Donahoe............. 62 Director
Alexander P. Dyer............. 65 Director
Jean-Pierre M. Ergas.......... 58 Director
John E. Jones................. 63 Director
John W. Puth.................. 68 Director
</TABLE>
The following table sets forth certain information as of January 1, 1998
with respect to the directors and officers of the Subsidiary Guarantors.
Officers of the Subsidiary Guarantors serve at the discretion of the
respective board of directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Warren J. Hayford.... 68 Chairman of the Board and Chief Executive
Officer of BSI; Director of MCC, BSNJ, BSO,
Armstrong Containers, Inc. ("ACI") and Plate
Masters, Inc. ("PMI")
John T. Stirrup...... 62 President of PMI; Director of BSI, MCC, BSNJ,
BSO, ACI and PMI
James W. Milton...... 58 President and Director of MCC
John M. Casey........ 49 Vice President of ACI, Brockway Standard
(Canada), Inc. ("BSC"), BSI, BSNJ, BSO and MCC
Robert C. Coleman.... 52 Vice President--Marketing of BSI; President of
BSC
David P. Hayford..... 41 Vice President of PMI
Larry N. Hopkins..... 55 Vice President--Manufacturing of BSI
David P. Hull........ 56 President of ACI, BSI, BSNJ and BSO
Richard E. Jakubecy.. 51 Vice President--Sales and Marketing of BSI
Harry F. Payton...... 61 Executive Vice President and Group President--
Government Business of BSI
Patrick J. Rourke.... 39 Vice President--Purchasing and Logistics of BSI
Blair G. Schlossberg. 31 Secretary of each Subsidiary Guarantor; Director
of Materials Management, Inc. ("MMI")
Daniel A. Sitler..... 59 President and Director of MMI
Michael J. Tobin..... 45 Director of BSC
Barry L. Treadwell... 55 Executive Vice President of MCC
Clarence W. Wellman.. 53 Vice President--Sales of BSI
</TABLE>
42
<PAGE>
The Company's by-laws provide that the size of the Board shall be fixed from
time to time by resolution of the Board and that vacancies on the Board may be
filled by the remaining directors. The Board currently consists of eight
directors, who are divided into three classes, each class consisting of up to
three directors, with staggered three-year terms. Class I consists of James W.
Milton, John E. Jones and John W. Puth, whose terms expire at the 1999 Annual
Meeting. Class II consists of John T. Stirrup and Jean-Pierre M. Ergas, whose
terms expire at the 2000 Annual Meeting, and one vacant directorship. The
Board has not yet identified and nominated any person to fill the vacant Class
II directorship. Class III consists of Warren J. Hayford, Alexander P. Dyer
and Thomas A. Donahoe, whose terms expire at the 1998 Annual Meeting. Each
director is elected to serve for the remaining term of any vacancy filled by
the director or for a three-year term (if elected at an annual meeting of
stockholders) or until a successor is duly elected. Officers of the Company
serve at the discretion of the Board of Directors. There are two standing
Committees of the Board of Directors: the Compensation Committee (the
"Compensation Committee") and the Audit Committee (the "Audit Committee").
Warren J. Hayford has been Chairman of the Board and Chief Executive Officer
of the Company since 1989. Mr. Hayford is also Chairman of the Board and Chief
Executive Officer of BSI and a director of MCC, BSNJ, BSO, ACI and PMI. Mr.
Hayford has held a number of senior positions within the packaging industry
over the past thirty-five years including President and Chief Operating
Officer of Gaylord Container Corporation ("Gaylord"), a manufacturer of paper
packaging products, 1986 to 1988, and Vice Chairman of Gaylord, 1988 through
1992. Prior to Gaylord, Mr. Hayford served as President and a director of
Gencorp, Inc., President and a director of Navistar International Corporation
and Executive Vice President and a director of the Continental Group, Inc. Mr.
Hayford has also been a director of Gaylord since 1986.
John T. Stirrup has served as President and Chief Operating Officer of the
Company since 1995 and has served as a director of the Company since 1989. Mr.
Stirrup is also President of PMI as well as a director of BSI, MCC, BSNJ, BSO,
ACI and PMI. Mr. Stirrup joined Brockway, Inc. (later acquired by Owens-
Illinois Corporation) in 1980 and has held a variety of positions including:
President and Chief Operating Officer of BSI, 1989 to 1997; Executive Vice
President of the Company, 1989 to 1995; Group Vice President of Metal &
Plastic Packaging, Corporate Purchasing and Regional Airlines of Brockway,
Inc., 1985 to 1988; Vice President of Sales and Marketing Brockway Glass
Containers of Brockway, Inc., 1983 to 1985; Vice President of Operations
Brockway Glass Containers of Brockway, Inc., 1981 to 1983; and Vice President
of Manufacturing Brockway Glass Containers of Brockway, Inc., 1980 to 1981.
Prior to joining Brockway, Inc., Mr. Stirrup held several positions at Kerr
Glass Manufacturing Corp., including Vice President of Manufacturing.
James W. Milton has served as Executive Vice President and a director of the
Company since May 1996 and as President and a director of MCC since October
1996. From May 1996 to October 1996, Mr. Milton also served as President of
BSNJ. Prior thereto, Mr. Milton held several positions, including President,
at Milton Can from 1963 until it merged with and into BSNJ in May 1996. Mr.
Milton also served as Vice President of Van Dorn Company from 1983 to 1988 and
as a director of Van Dorn Company from 1984 to 1988. Mr. Milton is a trustee
of New Jersey Business and Industry Association and is a director of New
Jersey Manufacturers Re-Insurance Company, New Jersey Manufacturers Insurance
Company and Can Manufacturers Institute.
John M. Casey has been Chief Financial Officer of the Company since December
1997 and has been Executive Vice President of the Company and Vice President
of ACI, BSI, BSC, BSNJ, BSO and MCC since November 1997. From October 1994 to
August 1997, Mr. Casey served as Executive Vice President and Chief Financial
Officer of Birmingham Steel Corporation. From April 1993 to August 1994, Mr.
Casey served as Executive Vice President and Chief Financial Officer of
Safeskin Corporation, a manufacturer of latex examination gloves. Prior
thereto, Mr. Casey held various positions at Spiegel, Inc., including
Treasurer of Spiegel, Inc. and Vice President and Chief Financial Officer of
Spiegel Acceptance Corporation.
Robert C. Coleman has been Vice President of Marketing for BSI since 1987.
Mr. Coleman is also President of BSC. Mr. Coleman joined BSI in January 1987
after a 15 year career in sales, marketing, and manufacturing with American
Can Company.
43
<PAGE>
Marguerite E. Ferrazzano has been Vice President--Planning and Development
for the Company since November 1997. From April 1994 to November 1997, she
served as Vice President of Operations Analysis and Business Development for
BSI. From 1990 to May 1994, she served as Manager of Business Analysis and
Development for BSI. Ms. Ferrazzano served in a number of other managerial
financial positions with Brockway, Inc. (later acquired by Owens-Illinois
Corporation) from 1981 to 1990, including Manager of Cost Accounting and
Budgeting and Corporate Manager of Planning and Divisional Accounting. From
1974 to 1981, Ms. Ferrazzano held various financial positions at Borden, Inc.
David P. Hayford has been Senior Vice President of the Company since May
1996. Mr. Hayford was appointed by the Board in November 1997 to serve as
President of BMAT, which will manage the Company's materials center services,
and is also Vice President of PMI. From May 1996 to December 1997, Mr. Hayford
served as Chief Financial Officer of the Company. From June 1995 to May 1996,
Mr. Hayford served as Vice President, Treasurer and Secretary of the Company.
From June 1994 to June 1995, Mr. Hayford served as an independent consultant
to the Company. From August 1992 to June 1994, Mr. Hayford attended the
Kellogg Graduate School of Management at Northwestern University and graduated
with a Master of Management degree. From January 1992 until August 1992, Mr.
Hayford provided independent corporate and financial consulting services.
Larry N. Hopkins has been Vice President--Manufacturing of BSI since
September 1997. From 1993 to September 1997, Mr. Hopkins held various
management positions at BSI, including General Plants Manager for BSI's
Homerville, Georgia and Memphis, Tennessee facilities. Prior thereto, Mr.
Hopkins had over 30 years of experience in manufacturing previously working
for Continental Can Company, Armstrong Containers, Inc. and Davies Can
Company, Inc.
David P. Hull has been Executive Vice President of the Company and President
of ACI, BSI, BSNJ and BSO since October 1997. From July 1994 to September
1997, Mr. Hull served as Vice President of Operations of Imperial
Wallcoverings Inc. Prior thereto, Mr. Hull served as Senior Vice President of
Operations and a director of Heekin Can Inc. from January 1990 to March 1993.
Richard E. Jakubecy has served as Vice President--Sales and Marketing for
BSI since 1991 and has been with the Company since 1991. From 1987 to 1991,
Mr. Jakubecy was general manager of the Total Quality Performance process for
Continental Beverage Packaging. Prior thereto, he spent 18 years in direct
sales and marketing positions with Continental Beverage Packaging, most
recently as Area Manager for the Southeastern and Midwestern regions.
Kevin C. Kern has been Vice President and Corporate Controller of the
Company since May 1995. From 1991 to May 1995, Mr. Kern was Controller of
McKechnie Plastics Components, Inc. From 1981 to 1991, Mr. Kern was employed
by Ernst & Young, most recently as a Senior Audit Manager from 1988 to 1991.
Jeffrey M. O'Connell has been Vice President and Treasurer of the Company
since May 1997. From June 1996 to May 1997, Mr. O'Connell served as Assistant
Treasurer of the Company. From June 1995 to June 1996, Mr. O'Connell served as
Vice President of Finance of Macmillan Bloedel Packaging Inc. From October
1994 to June 1995, Mr. O'Connell served as Director of Financial Planning of
the Company. Prior thereto, Mr. O'Connell served as Vice President of
Administration of Mead Coated Board Division of The Mead Corporation.
Harry F. Payton has served as Executive Vice President of the Company and
Executive Vice President of BSI since 1989 and as Group President--Government
Business of BSI since May 1994. From 1994 to 1995, Mr. Payton served as
Treasurer of BSI and has worked for the BSI organization for over thirty years
in various managerial positions. Prior thereto, Mr. Payton was employed by a
major public accounting firm.
Patrick J. Rourke joined BSI in November 1994 as Vice President--Purchasing
and Logistics. From March 1993 to November 1994, Mr. Rourke was Director of
Purchasing for Ball Corporation's metal container division. From 1987 to March
1993, Mr. Rourke was employed by Heekin Can Inc., serving as General Manager
of
44
<PAGE>
Purchasing from 1992 to March 1993, as Director of Purchasing from 1989 to
1992 and as Purchasing Manager from 1987 to 1989. From 1980 to 1987 Mr. Rourke
held positions of increasing responsibility within the purchasing organization
of Marathon Oil Company.
Blair G. Schlossberg has served as General Counsel of the Company since
December 1995 and has served as Secretary of the Company since May 1996. Mr.
Schlossberg is also Secretary of each Subsidiary Guarantor and a director of
MMI. From 1991 to December 1995, Mr. Schlossberg was a transactional attorney
at the law firm of Alston & Bird in its Atlanta, Georgia offices.
Barry L. Treadwell has served as Executive Vice President of MCC since
October 1996. From May 1996 to October 1996, Mr. Treadwell served as Executive
Vice President of BSNJ. Prior thereto, Mr. Treadwell served as Executive Vice
President and a director of Milton Can from 1988 until it was merged with and
into BSNJ in May 1996. Prior thereto, Mr. Treadwell was employed for 23 years
by Bethlehem Steel Company in a variety of senior marketing and sales
positions.
Clarence W. Wellman has served as Vice President--Sales for BSI since June
1995. He joined BSI in May 1985 and served as National Sales Manager of BSI
from May 1985 to June 1995.
Thomas A. Donahoe has served as a director of the Company since August 1996.
Mr. Donahoe was a partner in the accounting firm Price Waterhouse LLP (the
"Firm") from 1970 until he retired in June 1996. As a partner in the Firm, Mr.
Donahoe held a variety of positions including: Managing Partner--Operations of
the Firm's Audit Business Advisory Practice, July 1995 to June 1996; Vice
Chairman of the Firm, 1988 to June 1995; member of the Price Waterhouse World
Firm General Council, 1985 to June 1995; Managing Partner of the Great Lakes
Region, 1978 to June 1995; member of the Firm's Management Committee, 1978 to
June 1995; member of the Firm's Policy Board, 1976 to June 1985; and Managing
Partner of the Chicago Office, 1976 to June 1994. Mr. Donahoe also serves as a
Director or Trustee of a number of not-for-profit entities, including: Chicago
Botanic Garden, Chicago Central Area Committee, Executive Service Corp. of
Chicago, Kohl's Children's Museum and Rush-Presbyterian-St. Luke's Medical
Center.
Alexander P. Dyer has served as a director of the Company since August 1995.
Mr. Dyer served as Chairman of Bunzl plc. from May 1993 to July 1996 and
currently serves as its Deputy Chairman and as Chairman of its Remuneration
Committee. Mr. Dyer also currently serves as consultant to The BOC Group plc.,
having retired in January 1996 as its Chief Executive Officer and Deputy
Chairman, in which capacities he served from November 1993 to January 1996.
Prior thereto, Mr. Dyer served as Managing Director--Gases of The BOC Group
plc. from 1989 to 1993 and worked for Air Products and Chemicals Inc. for 26
years, serving most recently as Executive Vice President responsible for
worldwide gases and equipment businesses from 1987 to 1989.
Jean-Pierre M. Ergas has served as a director of the Company since August
1995. Mr. Ergas has also served as Executive Vice President, Europe of Alcan
Aluminium Limited, President of Alcan Europe Limited, Executive Chairman of
British Alcan Aluminium plc. and Chief Executive Officer of Alcan Deutschland
GmbH since June 1996. Mr. Ergas served as Senior Advisor to the Chief
Executive Officer of Alcan Aluminium Limited from January 1995 to June 1996
and served as a Trustee of DePaul University from February 1994 to December
1994. Prior thereto, Mr. Ergas served as Senior Executive Vice President of
Pechiney S.A. and as a member of the Pechiney Group Executive Committee from
1987 to January 1994 and also held several management positions with various
subsidiaries of Pechiney S.A., serving as: Chief Executive Officer of American
National Can Company from 1989 to January 1994 and Chairman of the Board from
1991 to January 1994; Chief Executive Officer of Cegedur Pechiney from 1982 to
1988 and Chairman of the Board from 1987 to 1988; Chief Executive Officer of
Cebal S.A. from 1974 to 1982 and Chairman of the Board during 1982; and
Marketing Manager for Pechiney Aluminum from 1967 to 1974. Mr. Ergas is a
director of ABC Rail Products Corporation and Dover Corporation.
John E. Jones has served as a director of the Company since August 1996.
From 1989 until his retirement in 1996, Mr. Jones served as Chairman,
President and CEO of CBI Industries, Inc. Mr. Jones is a director of
45
<PAGE>
Amsted Industries, Inc., Allied Products Corporation, Interlake Corp., NICOR
Inc. and Valmont Industries, Inc. Mr. Jones also serves as Trustee or Director
on a number of not-for-profit entities, including: The Robert Crown Center,
Glenwood School for Boys, IMSA, Rush-Presbyterian-St. Luke's Medical Center
and Brookfield Zoo.
John W. Puth has served as a director of the Company since August 1995.
Since December 1987 Mr. Puth has served as President of J.W. Puth Associates,
an industrial consulting firm. From 1983 to 1987, Mr. Puth was Chairman and
President of Clevite Industries, Inc., a manufacturer of industrial products.
From 1975 to 1983, Mr. Puth was President and Chief Executive Officer of Vapor
Corporation. Mr Puth is a director of Allied Products Corporation, A.M. Castle
& Co., L.B. Foster Company, Lindberg Corporation, System Software Associates,
Inc. and USFreightways Corporation as well as several privately-held
corporations.
David P. Hayford, Senior Vice President of the Company and President of
BMAT, is the son of Warren J. Hayford, Chairman and Chief Executive Officer of
the Company. There are no other family relationships between any of the
foregoing persons.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company or its subsidiaries are not
entitled to receive any fees for serving as directors. Non-employee directors
of the Company do not receive cash fees for serving as directors. Non-employee
directors were entitled to participate in the Brockway Standard Holdings
Corporation Formula Plan for Non-Employee Directors (the "Formula Plan") until
the Board acted to freeze the Formula Plan at its August 20, 1996 meeting with
respect to any future option grants thereunder. All directors are reimbursed
for out-of-pocket expenses related to their service as directors.
Amended Plan. The Board adopted the Current Plan (as defined) in August 1996
and the stockholders of the Company approved the Current Plan in February
1997. In November 1997, the Board approved the second amendment and
restatement of the Current Plan (as so amended and restated, the "Amended
Plan") to, among other things, increase the number of shares of Common Stock
available for issuance thereunder, which amendment and restatement has been
submitted for the approval of stockholders at the 1998 annual meeting of
stockholders. Under the Amended Plan, the Compensation Committee may grant to
directors (including non-employee directors) of the Company and its
subsidiaries nonqualified stock options, stock appreciation rights in tandem
with options, restricted stock awards, performance awards, or any combination
thereof as the Compensation Committee shall determine. Options may be
exercised in whole or in part upon the payment of the exercise price of the
shares to be acquired and the Compensation Committee shall determine the term
of the exercise period.
Formula Plan. Under the Formula Plan, each non-employee director was to be
granted an option to purchase 15,000 shares of Common Stock when he or she was
elected or appointed to the Board (the "Initial Grant") and was to be granted
an option to purchase an additional 15,000 shares at the fifth annual meeting
of the Board following the Initial Grant (the "Subsequent Grant"), so long as
such person was still serving as a director of the Company. A director's right
to exercise 1,500 shares of the Initial Grant vested immediately upon grant.
Thereafter, the right to exercise an additional 2,700 shares of the Initial
Grant vested at each of the five next succeeding annual meetings of the Board.
Options granted pursuant to a Subsequent Grant vested in equal installments of
3,000 shares at the five next succeeding annual meetings of the Board
following such grant. The option price per share of Common Stock under the
Formula Plan was 100% of the fair market value of the Common Stock at the date
of grant. Each option granted under the Formula Plan was exercisable for ten
years after the date of grant. The Board acted to freeze the Formula Plan in
August 1996 with respect to any future option grants thereunder.
Currently, all the unvested options owned by each non-employee director will
vest at an equal rate of 7,500 options at each of the 1998, 1999, 2000 and
2001 annual meetings of the Board.
46
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers of the Company will be determined by
the Board of Directors of the Company. The following table sets forth
information regarding the compensation paid or accrued by the Company to the
Chief Executive Officer and each of the Company's other executive officers
whose total annual salary and bonus for fiscal 1997 exceeded $100,000 (the
"Named Executive Officers") for services rendered to the Company in all
capacities during fiscal years 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- -------
ALL
RESTRICTED SECURITIES OTHER
OTHER ANNUAL STOCK UNDERLYING LTIP COMPEN-
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS PAYOUTS SATION
POSITION YEAR ($) ($)(1) ($) ($) (#)(2) ($) ($)
------------------ ------ ------- ------- ------------ ---------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Warren J. Hayford (3)... 1997 416,667 416,667 -- -- 75,000(4) -- 260,749(5)
Chairman of the Board 1996 400,000 400,000 -- -- 33,750(6) -- 256,329(7)
and Chief Executive 1995 133,000 200,000 -- -- 180,000(8) -- 75,508(9)
Officer of the Company
John T. Stirrup......... 1997 275,000 206,250 -- -- -- -- 186,754(10)
President and Chief 1996 226,875 170,153 -- -- 33,750(6) -- 196,141(11)
Operating Officer of 1995 218,180 175,000 -- -- 54,000(8) -- 62,543(12)
the Company
David P. Hayford (13)... 1997 153,125 91,875 -- -- -- -- 4,671(14)
Senior Vice President 1996 139,619 59,625 -- -- 27,000(6) -- 2,933(15)
of the Company 1995 45,239 13,125 -- -- 37,500(16) -- 61,527(17)
James W. Milton (18).... 1997 197,692 148,275 -- -- -- -- 136,251(19)
Executive Vice 1996 75,000 50,000 -- -- 27,000(6) -- 49,690(20)
President of the 1995 -- -- -- -- -- -- --
Company
</TABLE>
- --------
(1) Amounts shown for fiscal 1995, 1996 and 1997 were earned during fiscal
1995, 1996 and 1997, respectively, under the Company's Management
Incentive Plan and were paid during calendar 1995, 1996 and 1997,
respectively.
(2) The amounts shown have been adjusted to reflect the 3-for-2 split of
Common Stock on September 22, 1997.
(3) Warren J. Hayford became an employee of the Company effective June 1,
1995. Prior to such date, Mr. Hayford had not been paid a salary or bonus
by the Company but was a stockholder and director of AB Leasing and
Management, Inc., which has provided management services to the Company in
exchange for the payment of a fee. Mr. Hayford also participated in
certain benefit plans of the Company prior to June 1, 1995.
(4) Options to acquire 37,500 shares become exercisable in three equal annual
installments with the first installment exercisable on May 17, 1998, and
were granted pursuant to the Current Plan. Options to acquire 37,500
shares become exercisable in three equal annual installments with the
first installment exercisable on August 19, 1998, and were granted
pursuant to the Current Plan.
(5) The amount shown includes an accrual of $225,468 for supplemental
executive retirement payments pursuant to his employment agreement, $8,845
of premium for Group Term Life Insurance and $26,436 of premium for
additional optional life insurance for which Mr. W. Hayford was reimbursed
by the Company pursuant to his employment agreement.
(6) Options become exercisable in three equal annual installments with the
first installment exercisable on May 14, 1997, and were granted pursuant
to the Original Plan (as defined).
(7) The amount shown includes an accrual of $225,468 for supplemental
executive retirement payments pursuant to his employment agreement, a
$3,881 contribution under the Brockway Standard Inc. Profit Sharing and
Savings Plan (the "Profit Sharing Plan"), $1,248 of premium for life
insurance and $25,732
47
<PAGE>
of premium for additional optional life insurance for which Mr. W. Hayford
was reimbursed by the Company pursuant to his employment agreement.
(8) Options become exercisable in three equal annual installments with the
first installment exercisable on June 12, 1996, and were granted pursuant
to the Original Plan and the terms of the respective employment agreements
with Messrs. Hayford and Stirrup.
(9) The amount shown includes an accrual of $75,156 for supplemental executive
retirement payments pursuant to his employment agreement and $352 of
premium for life insurance.
(10) The amount shown includes an accrual of $174,000 for supplemental
executive retirement payments pursuant to his employment agreement,
$2,850 of Company matching 401(k) contributions under the Profit Sharing
Plan, $2,626 of premium for Group Term Life Insurance and $7,278 of
premium for additional optional life insurance for which Mr. Stirrup was
reimbursed by the Company pursuant to his employment agreement.
(11) The amount shown includes an accrual of $174,000 for supplemental
executive retirement payments pursuant to his employment agreement, a
$4,025 contribution under the Profit Sharing Plan, $4,500 of Company
matching 401(k) contributions under the Profit Sharing Plan, $748 of
premium for life insurance, $2,386 of premium for Group Term Life
Insurance and $10,482 of premium for additional optional life insurance
for which Mr. Stirrup was reimbursed by the Company pursuant to his
employment agreement.
(12) The amount shown includes an accrual of $58,001 for supplemental
executive retirement payments pursuant to his employment agreement, a
$2,970 contribution under the Profit Sharing Plan earned during fiscal
1995 but paid during fiscal 1996 in the form of 156.316 shares of Common
Stock, $991 of Company matching 401(k) contributions under the Profit
Sharing Plan and $581 of premium for life insurance.
(13) David P. Hayford became an employee of the Company effective June 15,
1995. Mr. Hayford served as Senior Vice President and Chief Financial
Officer of the Company until December 1997, at which time he ceased
serving as Chief Financial Officer of the Company and, accordingly,
ceased to be an executive officer of the Company. Mr. Hayford continues
to serve as Senior Vice President of the Company and, in addition, in
November 1997 the Board appointed Mr. Hayford to serve as President of
BMAT, a start-up unit that will manage the Company's materials center
services.
(14) The amount shown includes $4,500 of Company matching 401(k) contributions
under the Profit Sharing Plan and $171 of premium for Group Term Life
Insurance.
(15) The amount shown includes a $1,096 contribution under the Profit Sharing
Plan, $1,400 of Company matching 401(k) contributions under the Profit
Sharing Plan and $437 of premium for life insurance.
(16) Options become exercisable in three annual installments, with an
installment of options to acquire 22,500 shares of Common Stock
exercisable on June 12, 1996 and installments of options to acquire 7,500
shares of Common Stock exercisable on each of June 12, 1997 and June 12,
1998, and were granted pursuant to the Original Plan.
(17) The amount shown includes $61,387 in reimbursements for relocation and
moving expenses and $140 of premium for life insurance.
(18) James W. Milton became an employee of the Company effective May 28, 1996.
(19) The amount shown includes an accrual of $121,820 for supplemental
executive retirement payments pursuant to his employment agreement,
$4,431 of Company matching 401(k) contributions under the Profit Sharing
Plan and $10,000 of premium for Group Term Life Insurance.
(20) The amount shown includes an accrual of $49,572 for supplemental
executive retirement payments pursuant to his employment agreement and
$118 of premium for life insurance.
The Company originally adopted the Brockway Standard Holdings Corporation
1995 Long-Term Incentive Plan (the "Original Plan") for its directors,
officers and key employees of the Company and its subsidiaries in May 1995 and
the Company's stockholders approved the Original Plan in June 1995. The
Current Plan, which the Board adopted in August 1996 and the Company's
stockholders approved in February 1997, replaced the Original Plan. The
Current Plan provided for the award of stock options, restricted shares of
Common Stock, stock appreciation rights, units valued on the basis of the
long-term performance of the Company, or some
48
<PAGE>
combination of the foregoing to participants. The Current Plan covered an
aggregate of 1,125,000 shares of Common Stock. The Amended Plan, which the
Board approved in November 1997 and which has been submitted to the
stockholders for approval at the 1998 annual meeting of stockholders, among
other things increases this aggregate amount to 1,425,000 shares of Common
Stock.
In addition, Mr. Milton participates in the Milton Can Salaried Employees'
Retirement Plan, a defined benefit plan sponsored by the Company. The Company
froze this plan effective December 31, 1996, thereby preventing any future
benefit accruals under this plan. The estimated annual benefit payable at
retirement at age 65 for Mr. Milton is $77,065.
The following tables set forth, for the Named Executive Officers,
information regarding stock options granted or exercised during, or held at
the end of, fiscal 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
--------------------------------------------------- -------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED (#)(1) FISCAL YEAR PRICE ($/SH) DATE 5%($)(2) 10%($)(2)
---- -------------- ------------ ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Warren J. Hayford....... 37,500 36.1% $14.33 5/17/07 $337,952 $ 856,437
37,500 36.1 18.17 8/19/07 428,513 1,085,936
John T. Stirrup......... -- -- -- -- -- --
David P. Hayford........ -- -- -- -- -- --
James W. Milton......... -- -- -- -- -- --
</TABLE>
- --------
(1) Options to acquire 37,500 shares become exercisable in three equal annual
installments with the first installment exercisable on May 17, 1998, and
were granted pursuant to the Current Plan. Options to acquire 37,500
shares become exercisable in three equal annual installments with the
first installment exercisable on August 19, 1998, and were granted
pursuant to the Current Plan. In the event of a change of control all
options become fully vested and exercisable. In order to prevent dilution
or enlargement of rights under the options, in the event of a
reorganization, recapitalization, stock split, stock dividend, combination
of shares, merger, consolidation, distribution of assets or other change
in the corporate structure of shares of the Company, the type and number
of shares available upon exercise and the exercise price will be adjusted
accordingly. The Compensation Committee may, subject to specified
limitations, advance the date on which an option shall become exercisable.
(2) Amounts reflect assumed rates of appreciation from the fair market value
on the date of grant as set forth in the Commission's executive
compensation disclosure rules. Actual gains, if any, on stock option
exercises depend on future performance of the Common Stock and overall
stock market conditions. No assurance can be made that the amounts
reflected in these columns will be achieved.
49
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-THE-
UNEXERCISED MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES VALUE FISCAL YEAR END (#) FISCAL YEAR END ($)
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(1) ($)(1) UNEXERCISABLE UNEXERCISABLE
---- -------------- -------- ------------------- ------------------- ---
<S> <C> <C> <C> <C> <C>
Warren J. Hayford....... -- -- 131,250 $1,387,688
157,500 1,144,351
John T. Stirrup......... -- -- 47,250 477,968
40,500 371,115
David P. Hayford........ -- -- 39,000 476,595
25,500 222,165
James W. Milton......... -- -- 9,000 70,470
18,000 140,940
</TABLE>
- --------
(1) As of the end of the fiscal year, none of the options held by the Named
Executive Officers had been exercised.
MANAGEMENT EMPLOYMENT AGREEMENTS
Warren J. Hayford is party to an employment agreement with the Company dated
as of June 1, 1995. Under the agreement, Mr. Hayford will receive an annual
base salary of $400,000 (or such higher amount determined by the Board of
Directors), and will be eligible to receive an annual bonus of between 50% and
100% of his base salary, based on the achievement of goals and objectives
determined by the Board of Directors, and will be eligible to participate in
all of the Company's employee benefits plans for which senior executive
employees of the Company are generally eligible. Mr. Hayford will also be
entitled to life insurance providing a death benefit of not less than three
times the amount of his base salary. Under the agreement, Mr. Hayford received
options to purchase 180,000 shares of Common Stock. The term of the employment
agreement is six years, unless terminated earlier by the resignation, death,
or permanent disability or incapacity of Mr. Hayford or by the Company with or
without cause. In the event Mr. Hayford's employment is terminated by the
Company without cause prior to the sixth anniversary of the agreement, Mr.
Hayford will be entitled to receive his base salary, health benefits and an
annual bonus equal to 50% of his base salary until the later of the sixth
anniversary of the agreement or the first anniversary of the date of such
termination, subject to certain conditions. In the event Mr. Hayford's
employment terminates other than for cause or as a result of his death,
beginning on his 74th birthday, Mr. Hayford (and, following his death, his
surviving spouse) will be entitled to a monthly supplemental retirement
benefit until his death (and, following his death, until the death of his
surviving spouse). The monthly benefit will be equal to one-twelfth of 20 to
50 percent (depending upon Mr. Hayford's age at retirement or death and
subject to adjustment upon a change in control) of Mr. Hayford's base salary
in effect immediately preceding his retirement or death. Mr. Hayford has
agreed not to compete with the Company during the term of his employment and
so long as he is receiving salary and bonus under the agreement as a result of
his termination by the Company without cause (but in no event for less than
three years after the termination of his employment).
John T. Stirrup is party to an employment agreement with the Company dated
as of June 1, 1995. Mr. Stirrup will receive an annual base salary of $220,000
(or such higher amount determined by the Board of Directors), and will be
eligible to receive an annual bonus of between 50% and 75% of his base salary,
based on the achievement of goals and objectives determined by the Board of
Directors, and will be eligible to participate in all of the Company's
employee benefits plans for which senior executive employees of the Company
are generally eligible. Mr. Stirrup is also entitled to life insurance
providing a death benefit of not less than two times the amount of his base
salary. The Company will nominate, and use its best efforts to elect, Mr.
Stirrup to serve as a member of the Board of Directors. Under the agreement,
Mr. Stirrup received options to purchase
50
<PAGE>
54,000 shares of Common Stock. The term of the employment agreement is three
years, unless terminated earlier by the resignation, death, or permanent
disability or incapacity of Mr. Stirrup or by the Company with or without
cause. In the event Mr. Stirrup's employment is terminated by the Company
without cause prior to the third anniversary of the agreement, Mr. Stirrup
will be entitled to receive his base salary, health benefits and an annual
bonus equal to 50% of his base salary until the later of the third anniversary
of the agreement or the second anniversary of the date of such termination,
subject to certain conditions. In the event Mr. Stirrup's employment has not
been terminated for cause, and subject to certain conditions, Mr. Stirrup will
be entitled to deferred payments of $75,000 per year for a period of 10 years
beginning on Mr. Stirrup's 70th birthday or, in the event of Mr. Stirrup's
death, Mr. Stirrup's surviving spouse will be entitled to receive 50% of such
deferred payments during such period. Mr. Stirrup has agreed not to compete
with the Company during the term of his employment and so long as he is
receiving salary and bonus under the agreement as a result of his termination
by the Company without cause (but in no event for less than two years after
the consummation of the Initial Public Offering in June 1995 or one year after
the termination of his employment).
David P. Hayford is party to an employment agreement with the Company dated
as of June 15, 1995, which was amended effective as of November 18, 1997.
Under the agreement, as amended, Mr. Hayford will serve as President of BMAT,
Inc. to manage the Company's materials center services and will report
directly to the Chief Operating Officer of the Company. Under the agreement,
as amended, Mr. Hayford receives an annual base salary of $120,000 (or such
higher amount determined by the Board of Directors), and is eligible to
receive an annual bonus based on his performance, the amount of which will be
determined by the Board, and is eligible to participate in all of the
Company's employee benefits plans for which senior executive employees of the
Company are generally eligible. Mr. Hayford is also entitled to participate in
the Amended Plan. The term of the employment agreement is three years, unless
terminated earlier by the resignation, death, or permanent disability or
incapacity of Mr. Hayford or by the Company with or without cause. Mr. Hayford
has agreed not to compete with the Company during the term of his employment
and so long as he is receiving salary and bonus under the agreement as a
result of his termination by the Company without cause (but in no event for
less than twelve months after the termination of his employment).
James W. Milton entered into an employment agreement with the Company and
BSNJ (formerly known as Milton Acquisition Corp.), a wholly-owned subsidiary
of the Company, on May 28, 1996. Mr. Milton, the Company, BSNJ and MCC amended
this agreement, effective as of November 1, 1996, to reflect the fact that Mr.
Milton now serves as President of MCC, rather than President of BSNJ. Under
the agreement, Mr. Milton will receive an annual base salary of $200,000 (or
such higher amount determined by the Board of Directors), and will be eligible
to receive an annual bonus of between 50% and 75% of his base salary, based on
the achievement of goals and objectives determined by the Board of Directors,
and will be eligible to participate in all of MCC's employee benefits plans
for which senior executive employees of MCC are generally eligible. Such
employee benefit programs shall be substantially similar to those benefit
programs available to the senior executive employees of the Company. Under the
agreement, the Company will pay all premiums and expenses payable to maintain
the life insurance policy for Mr. Milton that was purchased by Milton Can
prior to its merger with and into BSNJ. The term of the employment agreement
is five years, unless terminated earlier by the resignation, death, or
permanent disability or incapacity of Mr. Milton or by MCC with or without
cause. In the event Mr. Milton's employment is terminated by MCC without cause
prior to the fifth anniversary of the agreement, Mr. Milton will be entitled
to receive his base salary, health benefits and an annual bonus equal to 50%
of his base salary until the later of the fifth anniversary of the agreement
or the first anniversary of the date of such termination, subject to certain
conditions. In the event Mr. Milton's employment terminates other than for
cause or as a result of his death, beginning on his 65th birthday, Mr. Milton
will be entitled to a monthly supplemental retirement benefit until his death.
The monthly benefit will be equal to one-twelfth of 5 to 50 percent (depending
upon Mr. Milton's age at retirement or death and subject to adjustment upon a
change in control) of Mr. Milton's base salary in effect immediately preceding
his retirement or death. In the event Mr. Milton's spouse survives Mr. Milton,
she will be entitled until her death to a monthly benefit equal to 50% of the
monthly benefit that Mr. Milton (i) would have been entitled to had Mr. Milton
retired on the date of his death or (ii) was receiving at the time of his
death. However, if Mr. Milton dies before his 60th birthday, she will be
entitled until her death to a monthly benefit equal to one-twelfth of 10
percent of Mr. Milton's base salary
51
<PAGE>
in effect immediately preceding his death. Mr. Milton has agreed not to
compete with the Company, MCC or their subsidiaries for a period of three
years after the termination of his employment. In addition, Mr. Milton is
party to a non-competition agreement with the Company and BSNJ dated as of May
28, 1996, pursuant to which Mr. Milton has (among other things) agreed not to
compete with the Company, BSNJ or their subsidiaries prior to the fifth
anniversary of the non-competition agreement in exchange for certain
compensation. See "Certain Relationships and Related Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Puth, Donahoe, Dyer, Ergas and Jones served as members of the
Compensation Committee during all of fiscal 1997. The Company has no
Compensation Committee interlocks or insider participation relationships of
such persons with the Company to report.
401(K) PLAN
The Company maintains a savings plan (the "Savings Plan") qualified under
Sections 401(a) and 401(k) of the Internal Revenue Code. Generally, all
salaried employees of the Company in the United States who have completed one
year of service are eligible to participate in the Savings Plan. For each
employee who elects to participate in the Savings Plan and makes a
contribution thereto, the Company makes a matching contribution of 100% of the
first 2% of annual compensation contributed and 50% of the next 2% of annual
compensation contributed. The maximum contribution for any participant for any
year is 10% of such participant's eligible compensation.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of December 31, 1997 by
(i) each stockholder known by the Company to own beneficially 5 percent or
more of the outstanding shares of such Common Stock, (ii) each director and
nominee for director of the Company, (iii) each Named Executive Officer of the
Company and (iv) all directors of the Company and executive officers of the
Company and BSI as a group. As of December 31, 1997, there were 9,485,905
shares of Common Stock outstanding. The Company effected a 3-for-2 split of
its Common Stock on September 22, 1997. To the knowledge of the Company, each
stockholder has sole voting and investment power with respect to the shares
indicated as beneficially owned, unless otherwise indicated in a footnote.
Unless otherwise indicated, the business address of each person is the
Company's corporate address.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON PERCENT OF
BENEFICIAL OWNER STOCK (1) CLASS (2)
---------------- --------- ----------
<S> <C> <C>
Warren J. Hayford (3)............................... 2,075,441 21.6%
Mary Lou Hayford (4)................................ 1,851,273 19.5
John T. Stirrup (5)................................. 315,000 3.3
David P. Hayford (6)................................ 42,242 *
James W. Milton (7)................................. 663,588 7.0
Thomas A. Donahoe (8)............................... 22,500 *
Alexander P. Dyer (9)............................... 98,970 1.0
Jean-Pierre M. Ergas (10)........................... 64,200 *
John E. Jones (11).................................. 25,500 *
John W. Puth (12)................................... 65,970 *
Dimensional Fund Advisors Inc. (13)................. 547,050 5.8
PNC Bank Corp. (14)................................. 535,785 5.6
T. Rowe Price Associates, Inc. (15)................. 776,250 8.2
Wellington Management Company, LLP (16)............. 549,000 5.8
All Directors and Executive Officers as a Group (9
persons)............................................ 3,373,411 34.5
</TABLE>
52
<PAGE>
(1) The number of shares includes shares of Common Stock subject to options
exercisable within 60 days of
December 31 1997.
(2) Shares subject to options exercisable within 60 days of December 31, 1997
are considered outstanding for the purpose of determining the percent of
the class held by the holder of such option, but not for the purpose of
computing the percentage held by others. Percentages less than one
percent are denoted by an asterisk.
(3) The shares of Common Stock beneficially owned by Mr. W. Hayford include
1,851,273 shares owned directly by his wife, Mary Lou Hayford, and 92,918
shares owned directly by Mr. W. Hayford. In addition, the shares of
Common Stock beneficially owned by Mr. W. Hayford include 131,250 shares
subject to options. Mr. W. Hayford disclaims beneficial ownership of the
shares owned directly by his wife.
(4) The shares of Common Stock beneficially owned by Mrs. Hayford do not
include 92,918 shares owned directly by her husband, Warren J. Hayford,
and do not include 131,250 shares subject to options owned directly by
her husband.
(5) The shares of Common Stock beneficially owned by Mr. Stirrup include
47,250 shares subject to options.
(6) The shares of Common Stock beneficially owned by Mr. D. Hayford include
37,700 shares subject to options.
(7) The shares of Common Stock beneficially owned by Mr. Milton include 9,000
shares subject to options. The shares of Common Stock shown as
beneficially owned by Mr. Milton do not include 106,220 shares owned
directly by his wife, 76,487 owned by his wife as trustee of a trust for
the benefit of Sean A. Milton and 75,137 owned by his wife as trustee of
a trust for the benefit of Daniel T. Milton. Mr. Milton disclaims
beneficial ownership of the shares owned directly by his wife and the
shares owned by his wife as trustee of these trusts.
(8) The shares of Common Stock beneficially owned by Mr. Donahoe include
15,000 shares subject to options.
(9) The shares of Common Stock beneficially owned by Mr. Dyer include 19,200
shares subject to options.
(10) The shares of Common Stock beneficially owned by Mr. Ergas include 19,200
shares subject to options.
(11) The shares of Common Stock beneficially owned by Mr. Jones include 15,000
shares subject to options.
(12) The shares of Common Stock beneficially owned by Mr. Puth include 19,200
shares subject to options.
(13) Based solely upon a Schedule 13G dated February 5, 1997 filed by
Dimensional Fund Advisors Inc. ("Dimensional"), Dimensional, a registered
investment advisor, is deemed to have beneficial ownership of 547,050
shares of Common Stock as of December 31, 1996, all of which shares are
held in portfolios of DFA Investment Dimensions Group Inc., a registered
open-end investment company, or in series of the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares. Such
person's address is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA
90401.
(14) Based solely upon a Schedule 13G dated February 14, 1997 filed jointly by
each of PNC Bank Corp. and its subsidiaries PNC Bancorp, Inc., PNC Bank,
National Association, PNC Asset Management Group, Inc. and Provident
Capital Management, Inc., each of such entities has sole voting power
with respect to 521,880 shares of Common Stock and sole dispositive power
with respect to 535,785 shares of Common Stock. Such person's address is
One PNC Plaza, 249 5th Avenue, Pittsburgh, PA 15222-2707.
(15) Based solely upon a Schedule 13G dated February 14, 1997 filed jointly by
each of T. Rowe Price Associates, Inc. ("Price Associates") and T. Rowe
Price Small Cap Value Fund, Inc. ("Small Cap"), the shares of Common
Stock shown as beneficially owned by Price Associates are owned by
various individual and institutional investors including Small Cap (which
owns 716,250 shares, representing 7.3% of the shares of Common Stock
outstanding), which Price Associates serves as an investment adviser with
power to direct investments and/or sole power to vote the securities. For
purposes of the reporting requirements of the Exchange Act, Price
Associates is deemed to be a beneficial owner of such securities;
however, Price Associates expressly disclaims that it is, in fact, the
beneficial owner of such securities. Such person's address is 100 E.
Pratt Street, Baltimore, MD 21202.
53
<PAGE>
(16) Based solely upon a Schedule 13G dated January 24, 1997, Wellington
Management Company, LLP has shared voting power with respect to 198,000
shares of Common Stock and shared dispositive power with respect to
549,000 shares of Common Stock. In its capacity as an investment advisor,
Wellington Management Company, LLP may be deemed beneficial owner of such
shares, which are owned by numerous investment counseling clients. Such
person's address is 75 State Street, Boston, MA 02109.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Warren J. Hayford was a stockholder, employee and director of AB Leasing and
Management, Inc. ("AB Leasing") until its dissolution in December 1995. From
1989 to the date of the Initial Public Offering, BSI and the Company had been
parties to a Management Agreement with AB Leasing pursuant to which BSI paid
AB Leasing an annual management fee in an amount equal to the greater of
$200,000 or 15% of the Company's net income, as defined, and AB Leasing
provided various management services, including management consulting,
advising and strategic and financial planning services. BSI was also obligated
under the Management Agreement to reimburse AB Leasing for all reasonable
expenses incurred by or on behalf of AB Leasing and its representatives in
providing services under such agreement. During fiscal 1995, BSI expensed
management fees to AB Leasing of $1,080,000 and reimbursed AB Leasing $309,000
for expenses incurred pursuant to the Management Agreement. Upon the
consummation of the Initial Public Offering, the Management Agreement was
canceled, and in connection therewith, the Company paid to AB Leasing
$1,995,000 through the issuance of 133,000 shares of Common Stock to AB
Leasing prior to the effectiveness of the Initial Public Offering. The Company
recorded a non-recurring non-cash pre-tax charge to operations of $1,995,000
in connection therewith in the period in which such shares were issued. At the
time the Management Agreement was terminated, the Company also paid AB Leasing
$1,080,000 in cash, which was equal to the accrued management fee for the
period from October 1, 1994 to and including the date of termination. AB
Leasing sold 71,155 shares of Common Stock in the Initial Public Offering and
distributed the remaining 61,845 to Mr. Hayford in December 1995 in connection
with the dissolution of AB Leasing.
In December 1995, pursuant to the Company's stock repurchase authorization
then in effect, the Company repurchased 20,000 shares of Common Stock owned by
Mr. Stirrup at a price per share equal to $15.50, which price was determined
based upon the closing price of the Company's Common Stock on the date
immediately preceding the date Mr. Stirrup notified the Company of his
willingness to sell. In January 1996, pursuant to the Company's stock
repurchase authorization then in effect, the Company again repurchased another
20,000 shares of Common Stock owned by Mr. Stirrup at a price per share equal
to $15.50, which price was determined based upon the closing price of the
Company's Common Stock on the date immediately preceding the date Mr. Stirrup
notified the Company of his willingness to sell.
Prior to becoming an employee of the Company in June 1995, David P. Hayford
provided financial consulting services to the Company from time to time on an
hourly basis as requested by the Company. As a consultant to the Company in
fiscal 1995, Mr. Hayford received approximately $137,560 in fees from the
Company for consulting services. David P. Hayford is the son of Warren J.
Hayford, Chairman and Chief Executive Officer of the Company.
Mr. Milton is party to a non-competition agreement with the Company and BSNJ
dated as of May 28, 1996. Pursuant to the terms of the agreement, Mr. Milton
may not compete with, induce any employee to leave their employ with, hire any
person who was an employee of, own, manage, control or render services to any
business in competition with or induce any supplier, licensor or other
business relation to cease doing business with the Company, BSNJ or any of
their respective subsidiaries. In consideration of the non-competition
covenants, Mr. Milton will be entitled to $2,000,000 paid by BSNJ in twenty
equal installments of $100,000 per quarter during the term of the agreement
payable on the first day of each June, October, January and April. The
agreement will continue for five years from the date of the agreement.
BSNJ is party to a lease agreement with Division Street Partners ("DSP"), a
limited partnership, pursuant to which BSNJ leases its headquarters and
manufacturing facility. Mr. Milton, George Milton, Patrick Milton
54
<PAGE>
and Michael Milton each hold (i) a 12.5% limited partnership interest in DSP
and (ii) a 12.5% interest in the general partner of DSP. BSNJ is obligated to
pay annual rent in the amount of $629,484 through the term of the lease, which
ends in September 1999. BSNJ has the option to extend the term of the lease
for two additional five-year periods. Each of George Milton, Patrick Milton
and Michael Milton is a brother of James W. Milton, the Executive Vice
President of the Company. George Milton is an employee of MCC and Patrick
Milton is an employee of BSI.
BSNJ is party to another lease agreement pursuant to which BSNJ leases a
warehouse. Mr. Milton, George Milton, Patrick Milton, Michael Milton, Bill
Milton and Carolyn Milton Walker are part of a group that has an option to
purchase this property from the lessor through September 1999. BSNJ is
obligated to pay annual rent in the amount of $137,038 through the term of the
lease, which ends in September 1999. Each of Patrick Milton, George Milton and
Michael Milton is a brother of, and each of Bill Milton and Carolyn Milton
Walker is a cousin of, James W. Milton, the Executive Vice President and a
director of the Company.
In connection with the Company's acquisition of Milton Can in May 1996, BSNJ
assumed a $125,000 mortgage on Mr. Treadwell's home. In fiscal 1997, the
Company canceled the total amount owed by Mr. Treadwell to BSNJ.
As employees of the Company in fiscal 1997, George Milton, Patrick Milton,
James J. Milton and Dennis Milton received $85,985, $79,317, $75,900 and
$66,550, respectively, in salary, bonuses and commissions from the Company.
George Milton, Patrick Milton, James J. Milton and Dennis Milton are the
brother, brother, son and son, respectively, of James W. Milton, the Executive
Vice President and a director of the Company.
As an employee of the Company in fiscal 1996, Susan Luciu received $64,000
in salary and bonuses from the Company. Susan Luciu is the daughter of Warren
J. Hayford, Chairman and Chief Executive Officer of the Company, and the
sister of David P. Hayford, Senior Vice President of the Company.
In the ordinary course of its business, the Company purchases from Gaylord
certain corrugated containers used to ship the Company's products to its
customers. Such purchases amounted to $0, $25,860 and $182,607 during fiscal
1997, fiscal 1996 and fiscal 1995, respectively. All such purchases are made
at the prevailing market price for such containers. Warren J. Hayford is a
stockholder and director of Gaylord.
DESCRIPTION OF CREDIT AGREEMENT
On June 17, 1996 (the "Borrowing Date"), the Company, BSI and BSNJ entered
into a credit agreement (the "Credit Agreement") with Bankers Trust Company,
as administrative agent and syndication agent, and NationsBank, N.A. (South),
as documentation agent and paying agent, and certain other financial
institutions (the "Banks"). BSO and MCC joined as additional borrowers under
the Revolving Credit Facility (as defined) on June 17, 1996 and October 6,
1996, respectively. The Credit Agreement was amended on August 15, 1996 and
October 10, 1997.
The Credit Agreement provides for a revolving credit facility (the
"Revolving Credit Facility") to BSI, BSNJ, MCC and BSO (collectively, the
"Borrowers") for up to $100.0 million of revolving loans (including letter of
credit and swingline subfacilities) and gives the Company the option to
increase its borrowing limit by an additional $50.0 million, provided certain
conditions are met. Subject to certain restrictions, the Revolving Credit
Facility may be used to finance acquisitions, investments and capital
expenditures and for ongoing working capital and general corporate purposes of
the Company.
Repayment. Outstanding loans under the Revolving Credit Facility must be
repaid on the sixth anniversary of the Borrowing Date. Loans made pursuant to
the Revolving Credit Facility may be borrowed, repaid and reborrowed, without
premium or penalty, from time to time until the sixth anniversary of the
Borrowing Date, subject to the satisfaction of certain conditions on the date
of any such borrowing. In addition, the Credit Agreement provides for
mandatory repayments (with a corresponding permanent reduction on revolving
loan commitments) of any outstanding borrowings out of any proceeds received
from a sale of assets (other than sales of inventory in the ordinary course of
business and sales of certain obsolete assets) having a value (when combined
with all assets disposed of by the Company subsequent to the Borrowing Date)
exceeding 15% of consolidated total assets of the Company.
55
<PAGE>
Security; Guaranty. The obligations of the Borrowers under the Credit
Agreement are unsecured, but are guaranteed by the Company, each of the
Borrowers and certain of the Company's other now-existing and future
subsidiaries.
Interest. At the Borrowers' option, the interest rates per annum applicable
to the loans under the Credit Agreement will be a fluctuating rate of interest
measured by reference to one or a combination (at the Company's election) of
the following: (i) the Prime Rate (as defined in the Credit Agreement), plus
the applicable borrowing margin, or (ii) the relevant Eurodollar Rate (as
defined in the Credit Agreement), plus the applicable borrowing margin. The
applicable borrowing margin under the Revolving Credit Facility will range
from 0.00% to 1.50% for Prime Rate-based borrowings and 0.40% to 2.50% for
Eurodollar Rate-based borrowings, in each case based on the Company's
consolidated Leverage Ratio (defined in the Credit Agreement as the ratio of
Consolidated Indebtedness (as defined in the Credit Agreement) to Consolidated
EBITDA (as defined in the Credit Agreement)); provided that if the Company
achieves an Investment Grade Rating (as defined in the Credit Agreement) of
BBB or Baa2 or better, the applicable borrowing margin will be 0.00% for Prime
Rate-based borrowings and 0.375% for Eurodollar Rate-based borrowings.
Fees. The Borrowers have agreed to pay certain fees in connection with the
Revolving Credit Facility, including (i) letter of credit fees, (ii) agency
fees and (iii) commitment fees. Commitment fees are payable at a rate per
annum ranging from 0.20% to 0.50% on the undrawn amounts of the Revolving
Credit Facility based on the Leverage Ratio (as defined in the Credit
Agreement) of the Company and its subsidiaries; provided that at such time as
the Company achieves an Investment Grade Rating of BBB/Baa2 or better the
commitment fee rate will be reduced to 0.15%.
Covenants. The Credit Agreement requires the Company and the Borrowers to
meet certain financial tests at the end of each fiscal quarter of the Company,
including maintaining (i) a Leverage Ratio (as defined in the Credit
Agreement), for the most recently completed four fiscal quarters, of less than
or equal to 4.50 to 1.00, (ii) an Interest Coverage Ratio (as defined in the
Credit Agreement) of not less than 2.75 to 1.00 for fiscal quarters ending on
or prior to June 30, 1997 and 3.00 to 1.00 for fiscal quarters ending after
June 30, 1998 and (iii) a Consolidated Net Worth (as defined in the Credit
Agreement) of not less than the sum of (A) $60,000,000 plus (B) 50% of the
Company's Consolidated Net Income (as defined in the Credit Agreement),
without reduction for any net loss or negative Consolidated Net Income, for
each fiscal quarter occurring after June 30, 1996. The Credit Agreement also
contains covenants which, among other things, restrict the ability of the
Company and the Borrowers (subject to certain exceptions) to incur liens,
transact with affiliates, incur indebtedness, declare dividends or redeem or
repurchase capital stock, make loans and investments, engage in mergers,
acquisitions and asset sales, acquire assets, stock or debt securities of any
person, have additional subsidiaries, amend its certificate of incorporation
and bylaws and make capital expenditures. The Credit Agreement also requires
the Company and the Borrowers to satisfy certain customary affirmative
covenants and to make certain customary indemnifications to the Banks and the
agents under the Credit Agreement.
Events of Default. The Credit Agreement contains customary events of
default, including payment defaults, breach representations or warranties,
covenant defaults, certain events of bankruptcy and insolvency, ERISA
violations, judgment defaults, cross-default to certain other indebtedness and
a change in control of the Company.
DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes offered hereby will be issued as a separate series under
the indenture (the "Indenture"), dated as of April 11, 1997 by and among the
Company, the Subsidiary Guarantors and Harris Trust and Savings Bank, as
Trustee (the "Trustee"). The form and terms of the Exchange Notes are the same
as the form and terms of the Old Notes (which they replace) except that (i)
the Exchange Notes bear a Series B designation, (ii) the Exchange Notes have
been registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (iii) the holders of Exchange Notes will
not be entitled to certain
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rights under the Registration Rights Agreement, including the provisions
providing for an increase in the interest rate on the Old Notes in certain
circumstances relating to the timing of the Exchange Offer, which rights will
terminate when the Exchange Offer is consummated. The following summary of
certain provisions of the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of
the Indenture, including the definitions of certain terms therein and those
terms made a part of the Indenture by reference to the TIA as in effect on the
date of the Indenture. A copy of the Indenture may be obtained from the
Company or the Initial Purchasers. The definitions of certain capitalized
terms used in the following summary are set forth below under "--Certain
Definitions." For purposes of this section, references to the "Company"
include only the Company and not its Subsidiaries.
The Notes will be unsecured obligations of the Company, ranking subordinate
in right of payment to all Senior Indebtedness of the Company.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be
presented for registration or transfer and exchange at the offices of the
Registrar, which initially will be the Trustee's corporate trust office. The
Company may change any Paying Agent and Registrar without notice to holders of
the Notes (the "Holders"). The Company will pay principal (and premium, if
any) on the Notes at the Trustee's corporate office in New York, New York. At
the Company's option, interest may be paid at the Trustee's corporate trust
office or by check mailed to the registered address of Holders. Any Old Notes
that remain outstanding after the completion of the Exchange Offer, together
with the Exchange Notes issued in connection with the Exchange Offer, will be
treated as a single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $100,000,000 and will
mature on April 15, 2007. Interest on the Notes will accrue at the rate of 10
1/4% per annum and will be payable semiannually in cash on each April 15 and
October 15 commencing on October 15, 1997 with respect to the Old Notes and
April 15, 1998 with respect to the Exchange Notes, to the persons who are
registered Holders at the close of business on the April 1 and October 1
immediately preceding the applicable interest payment date. Interest on the
Notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from and including the date of issuance.
The Notes will not be entitled to the benefit of any mandatory sinking fund.
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after April 15,
2002, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof)
if redeemed during the twelve-month period commencing on April 15 of the year
set forth below, plus, in each case, accrued and unpaid interest thereon, if
any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................... 105.125%
2003........................................................... 103.417%
2004........................................................... 101.708%
2005 and thereafter............................................ 100.000%
</TABLE>
Optional Redemption upon Equity Offerings. At any time, or from time to
time, on or prior to April 15, 2000, the Company may, at its option, use the
net cash proceeds of one or more Equity Offerings (as defined below) to redeem
up to 33 1/3% of the Notes at a redemption price equal to 110 1/4% of the
principal amount
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thereof plus accrued and unpaid interest thereon, if any, to the date of
redemption; provided, however, that at least 66 2/3% of the principal amount
of Notes originally issued remain outstanding immediately after any such
redemption (it being expressly agreed that for purposes of determining whether
this condition is satisfied, Notes owned by the Company or any of its
Affiliates shall be deemed not to be outstanding). In order to effect the
foregoing redemption with the proceeds of any Equity Offering, the Company
shall make such redemption not more than 120 days after the consummation of
any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means a public or
private offering of Qualified Capital Stock of the Company.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time,
selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed or, if such Notes are not
then listed on a national securities exchange, on a pro rata basis, by lot or
by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Notes of a principal amount of $1,000 or less shall be
redeemed in part; provided, further, that if a partial redemption is made with
the proceeds of an Equity Offering, selection of the Notes or portions thereof
for redemption shall be made by the Trustee only on a pro rata basis or on as
nearly a pro rata basis as is practicable (subject to DTC procedures), unless
such method is otherwise prohibited. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the
Company has deposited with the Paying Agent funds in satisfaction of the
applicable redemption price pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Indebtedness including, without limitation, the
Company's obligations under the Credit Agreement. Upon any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to creditors upon any liquidation, dissolution,
winding up, reorganization, assignment for the benefit of creditors or
marshaling of assets of the Company or in a bankruptcy, reorganization,
insolvency, receivership or other similar proceeding relating to the Company
or its property, whether voluntary or involuntary, all Obligations due or to
become due upon all Senior Indebtedness shall first be paid in full in cash or
Cash Equivalents, or such payment duly provided for to the satisfaction of the
holders of Senior Indebtedness, before any payment or distribution of any kind
or character is made on account of any Obligations on the Notes, or for the
acquisition of any of the Notes for cash or property or otherwise. If any
default occurs and is continuing in the payment when due, whether at maturity,
upon any redemption, by declaration or otherwise, of any principal of,
interest on, unpaid drawings for letters of credit issued in respect of, or
regularly accruing fees with respect to, any Senior Indebtedness, no payment
of any kind or character shall be made by or on behalf of the Company or any
other Person on its or their behalf with respect to any Obligations on the
Notes or to acquire any of the Notes for cash or property or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Indebtedness, as such event of default is
defined in the instrument creating or evidencing such Designated Senior
Indebtedness, permitting the holders of such Designated Senior Indebtedness
then outstanding to accelerate the maturity thereof and if the Representative
for the respective issue of Designated Senior Indebtedness gives written
notice of the event of default to the Trustee (a "Default Notice"), then,
unless and until all events of default have been cured or waived or have
ceased to exist or the Trustee receives notice from the Representative for the
respective issue of Designated Senior Indebtedness terminating the Blockage
Period (as defined below),
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during the 180 days after the delivery of such Default Notice (the "Blockage
Period"), neither the Company nor any other Person on its behalf shall (x)
make any payment of any kind or character with respect to any Obligations on
the Notes or (y) acquire any of the Notes for cash or property or otherwise.
Notwithstanding anything herein to the contrary, in no event will a Blockage
Period extend beyond 180 days from the date the payment on the Notes was due
and only one such Blockage Period may be commenced within any 360 consecutive
days. No event of default which existed or was continuing on the date of the
commencement of any Blockage Period with respect to the Designated Senior
Indebtedness shall be, or be made, the basis for commencement of a second
Blockage Period by the Representative of such Designated Senior Indebtedness
whether or not within a period of 360 consecutive days, unless such event of
default shall have been cured or waived for a period of not less than 90
consecutive days (it being acknowledged that any subsequent action, or any
breach of any financial covenants for a period commencing after the date of
commencement of such Blockage Period that, in either case, would give rise to
an event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default
for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Indebtedness,
including the Holders of the Notes, may recover less, ratably, than holders of
Senior Indebtedness.
At September 30, 1997, the aggregate amount of Senior Indebtedness
outstanding was approximately $15.5 million.
GUARANTEES
Each Subsidiary Guarantor will fully and unconditionally guarantee, on a
senior subordinated basis, jointly and severally, to each Holder and the
Trustee, the full and prompt performance of the Company's obligations under
the Indenture and the Notes, including the payment of principal of and
interest on the Notes. The Guarantees will be subordinated to Guarantor Senior
Indebtedness on the same basis as the Notes are subordinated to Senior
Indebtedness.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount which, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor
under its Guarantee or pursuant to its contribution obligations under the
Indenture, will result in the obligations of such Subsidiary Guarantor under
the Guarantee not constituting a fraudulent conveyance or fraudulent transfer
under federal or state law.
Each Subsidiary Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in an amount pro rata, based on the net assets of each Subsidiary
Guarantor, determined in accordance with GAAP.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor without limitation, or
with other Persons upon the terms and conditions set forth in the Indenture.
See "Certain Covenants--Merger, Consolidation and Sale of Assets." In the
event all or substantially all of the assets or the Capital Stock of a
Subsidiary Guarantor is sold by the Company and the sale complies with the
provisions set forth in "--Certain Covenants--Limitation on Asset Sales," the
Subsidiary Guarantor's Guarantee will be automatically discharged and
released.
Separate financial statements of the Subsidiary Guarantors are not included
herein because such Subsidiary Guarantors are jointly and severally liable
with respect to the Company's obligations pursuant to the Notes, and the
aggregate net assets, earnings and equity of the Subsidiary Guarantors and the
Company are substantially equivalent to the net assets, earnings and equity of
the Company on a consolidated basis.
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HOLDING COMPANY STRUCTURE
The Company is a holding company for its Subsidiaries, with no material
operations of its own. Accordingly, the Company is dependent upon the
distribution of the earnings of its Subsidiaries, whether in the form of
dividends, advances or payments on account of intercompany obligations, to
service its debt obligations. In addition, the claims of the Holders of the
Notes are subject to the prior payment of all Guarantor Senior Indebtedness of
the Subsidiary Guarantors. There can be no assurance that, after providing for
all prior claims, there would be sufficient assets available from the Company
and its Subsidiaries to satisfy the claims of the Holders of Notes. See "Risk
Factors--Subordination; Holding Company Structure."
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control, each
Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest to the date of purchase.
The Indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full and terminate all commitments under
Indebtedness under the Credit Agreement and all other Senior Indebtedness the
terms of which require repayment upon a Change of Control or offer to repay in
full and terminate all commitments under all Indebtedness under the Credit
Agreement and all other such Senior Indebtedness and to repay the Indebtedness
owed to each lender which has accepted such offer or (ii) obtain the requisite
consents under the Credit Agreement and all other Senior Indebtedness to
permit the repurchase of the Notes as provided below. The Company shall first
comply with the covenant in the immediately preceding sentence before it shall
be required to repurchase Notes pursuant to the provisions described below.
The Company's failure to comply with the immediately preceding sentence shall
be governed by clause (iii), and not clause (iv), of "Events of Default"
below.
Within 30 days following the date upon which a Change of Control occurs, the
Company must send, by first class mail, a notice to each Holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice shall state, among other things, the purchase date, which
must be no earlier than 30 days nor later than 45 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). Holders electing to have a Note purchased pursuant to a Change
of Control Offer will be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third business day prior to the Change of Control
Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would need to seek third party financing to the extent it does
not have available funds to meet its purchase obligations. However, there can
be no assurance that the Company would be able to obtain any such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company
and its Restricted Subsidiaries to incur additional Indebtedness, to grant
liens on its property, to make Restricted Payments and to make Asset Sales may
also make more difficult or discourage a takeover of the Company, whether
favored or opposed by the management of the Company. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of
the Notes, and there can be no assurance that the Company or the acquiring
party will have sufficient financial resources to effect such redemption or
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may, in certain
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circumstances, make more difficult or discourage any leveraged buyout of the
Company or any of its Subsidiaries by the management of the Company. While
such restrictions cover a wide variety of arrangements which have
traditionally been used to effect highly leveraged transactions, the Indenture
may not afford the Holders of Notes protection in all circumstances from the
adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not cause or permit any of its Restricted Subsidiaries to, directly
or indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible
for payment of (collectively, "incur") any Indebtedness (including, without
limitation, Acquired Indebtedness) other than Permitted Indebtedness.
Notwithstanding the foregoing, if no Default or Event of Default shall have
occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company and its Restricted
Subsidiaries may incur Indebtedness (including, without limitation, Acquired
Indebtedness) if on the date of the incurrence of such Indebtedness, after
giving effect to the incurrence thereof, the Consolidated Fixed Charge
Coverage Ratio of the Company is greater than 2.50 to 1.0. No Indebtedness
incurred pursuant to the next preceding sentence shall be included in
calculating any limitation set forth in the definition of Permitted
Indebtedness. Upon the repayment of Indebtedness which may have been incurred
pursuant to more than one provision of this Indenture, the Company may, in its
sole discretion, designate which provision such Indebtedness shall have been
incurred under.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable solely in Qualified Capital Stock of the Company) on or
in respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock (other than the exchange of
such Capital Stock or any warrants, rights or options to acquire shares of any
class of Capital Stock of the Company for Qualified Capital Stock of the
Company), (c) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund
payment, any Indebtedness of the Company that is subordinate or junior in
right of payment to the Notes or (d) make any Investment (other than Permitted
Investments) (each of the foregoing actions set forth in clauses (a), (b), (c)
and (d) being referred to as a "Restricted Payment"), if at the time of such
Restricted Payment or immediately after giving effect thereto, (i) a Default
or an Event of Default shall have occurred and be continuing, or (ii) the
Company is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the "Limitation on Incurrence
of Additional Indebtedness" covenant above, or (iii) the aggregate amount of
all Restricted Payments (including such proposed Restricted Payment) made
subsequent to the Issue Date (the amount expended for such purposes, if other
than in cash, being the fair market value of such property as determined
reasonably and in good faith by the Board of Directors of the Company or the
Company) shall exceed the sum of: (v) 50% of the cumulative Consolidated Net
Income (or if cumulative Consolidated Net Income shall be a loss, minus 100%
of such loss) of the Company earned during the period beginning on the first
day of the fiscal quarter including the Issue Date and ending on the last day
of the fiscal quarter ending at least 30 days prior to the date the Restricted
Payment occurs (the "Reference Date") (treating
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such period as a single accounting period); plus (w) 100% of the aggregate net
proceeds (including the fair market value of any business or property other
than cash) received by the Company from any Person (other than a Subsidiary of
the Company) from the issuance and sale subsequent to the Issue Date and on or
prior to the Reference Date of Qualified Capital Stock of the Company,
including treasury stock; plus (x) without duplication of any amounts included
in clause (iii)(w) above, 100% of the aggregate net cash proceeds of any
equity contribution received by the Company from a holder of the Company's
Capital Stock (excluding, in the case of clauses (iii)(w) and (x), any net
cash proceeds from an Equity Offering to the extent used to redeem the Notes);
plus (y) an amount equal to the net reduction in Investments in Unrestricted
Subsidiaries resulting from dividends, interest payments, repayments of loans
or advances, or other transfers of cash, in each case, to the Company or to
any Restricted Subsidiary of the Company from Unrestricted Subsidiaries (but
without duplication of any such amount included in cumulative Consolidated Net
Income of the Company), or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (in each case valued as provided in "--Limitation on
Restricted and Unrestricted Subsidiaries" below), not to exceed, in the case
of an Unrestricted Subsidiary, the amount of Investments previously made by
the Company or any Restricted Subsidiary of the Company in such Unrestricted
Subsidiary and which were treated as a Restricted Payment under the Indenture;
plus (z) $25.0 million.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph shall not prohibit: (1) the payment of any dividend or
consummation of irrevocable redemption within 60 days after the date of
declaration of such dividend or giving of irrevocable redemption notice if the
dividend or redemption would have been permitted on the date of declaration or
giving of irrevocable redemption notice; (2) if no Default or Event of Default
shall have occurred and be continuing, the acquisition of any shares of
Capital Stock of the Company, either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of shares of Qualified Capital Stock of the
Company; (3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Indebtedness of the Company that is
subordinate or junior in right of payment to the Notes either (i) solely in
exchange for shares of Qualified Capital Stock of the Company, or (ii) through
the application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of (A) shares of Qualified Capital
Stock of the Company or (B) Refinancing Indebtedness; (4) if no Default or
Event of Default shall have occurred and be continuing, repurchases of Capital
Stock deemed to occur upon the exercise of stock options if such Capital Stock
represents a portion of the exercise price thereof; (5) if no Default or Event
of Default shall have occurred and be continuing, payments by the Company to
repurchase Capital Stock or other securities of the Company from directors,
officers and other employees of the Company or any of its Restricted
Subsidiaries in an aggregate amount not to exceed in any one year the sum of
(A) $3.0 million and (B) any amounts permitted to have been paid in any
preceding years under subclause (A) above to the extent such amounts were not
so paid in any such prior years; (6) if no Default or Event of Default shall
have occurred and be continuing, payments by the Company to repurchase
Qualified Capital Stock or other securities of the Company for purposes of
making contributions of Qualified Capital Stock of the Company to employees of
the Company pursuant to the Profit Sharing and Savings Plan of the Company or
any of its subsidiaries; and (7) if no Default or Event of Default shall have
occurred and be continuing, payments by the Company to repurchase Qualified
Capital Stock of the Company in connection with a substantially concurrent
transaction in which the Company reissues such repurchased Qualified Capital
Stock as all or a part of the consideration for the acquisition of property or
assets; provided, however, that such acquisition is consummated within 180
days of such repurchase. In determining the aggregate amount of Restricted
Payments made subsequent to the Issue Date in accordance with clause (iii) of
the immediately preceding paragraph, amounts expended pursuant to clauses (1),
(2)(ii), (3)(ii)(A) and (7) (to the extent that the value of the Qualified
Capital Stock reissued shall have been included in clause (iii)(W) of the
preceding paragraph) shall be included in such calculation.
Limitation on Restricted and Unrestricted Subsidiaries. The Board of
Directors of the Company may, if no Default or Event of Default shall have
occurred and be continuing or would arise therefrom, designate an Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that (i) any such
redesignation shall be
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deemed to be an incurrence as of the date of such redesignation by the Company
and its Restricted Subsidiaries of the Indebtedness (if any) of such
redesignated Subsidiary for purposes of "--Limitation on Incurrence of
Additional Indebtedness" above, (ii) unless such redesignated Subsidiary shall
not have any Indebtedness outstanding (other than Permitted Indebtedness), no
such designation shall be permitted if immediately after giving effect to such
redesignation and the incurrence of any such additional Indebtedness, the
Company could not incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to "--Limitation on Incurrence of Additional
Indebtedness" above and (iii) such Subsidiary assumes by execution of a
supplemental indenture all of the obligations of a Subsidiary Guarantor under
a Guarantee.
The Board of Directors of the Company also may, if no Default or Event of
Default shall have occurred and be continuing or would arise therefrom,
designate any Restricted Subsidiary to be an Unrestricted Subsidiary if (i)
such designation is at that time permitted under "--Limitation on Restricted
Payments" above and (ii) immediately after giving effect to such designation,
the Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to "--Limitation of Incurrence of Additional
Indebtedness" above. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by the filing with the Trustee of a
certified copy of the resolution of the Board of Directors of the Company
giving effect to such designation or redesignation and an officers'
certificate certifying that such designation or redesignation complied with
the foregoing conditions and setting forth in reasonable detail the underlying
calculations. In the event that any Restricted Subsidiary is designated an
Unrestricted Subsidiary in accordance with this covenant, such Restricted
Subsidiary's Guarantee will be automatically discharged and released.
The Indenture provides that for purposes of the covenant described under "--
Limitation on Restricted Payments" above, (i) an "Investment" shall be deemed
to have been made at the time any Restricted Subsidiary of the Company is
designated as an Unrestricted Subsidiary in an amount (proportionate to the
Company's equity interest in such Subsidiary) equal to the net worth of such
Restricted Subsidiary at the time that such Restricted Subsidiary is
designated as an Unrestricted Subsidiary; (ii) at any date, the aggregate
amount of all Restricted Payments made as Investments since the Issue Date
shall exclude and be reduced by an amount (proportionate to the Company's
equity interest in such Subsidiary) equal to the net worth of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated as a
Restricted Subsidiary, not to exceed, in the case of any such redesignation of
an Unrestricted Subsidiary as a Restricted Subsidiary, the amount of
Investments previously made by the Company and its Restricted Subsidiaries in
such Unrestricted Subsidiary (in each case (i) and (ii), "net worth" to be
calculated based upon the fair market value of the assets of such Subsidiary
as of any such date of designation); and (iii) any property transferred to or
from an Unrestricted Subsidiary shall be valued at its fair market value at
the time of such transfer.
The Indenture provides that notwithstanding the foregoing, the Board of
Directors of the Company may not designate any Restricted Subsidiary of the
Company to be an Unrestricted Subsidiary if, after any such designation, (a)
the Company or any Restricted Subsidiary of the Company (i) provides credit
support for, or a guarantee of, any Indebtedness of such Subsidiary (including
any undertaking, agreement or instrument evidencing such Indebtedness) or (ii)
is directly or indirectly liable for any Indebtedness of such Subsidiary or
(b) such Subsidiary owns any Capital Stock of, or holds any Lien on any
property of, the Company or any Restricted Subsidiary of the Company which is
not a Subsidiary of the Subsidiary to be so designated.
The Indenture provides that Subsidiaries of the Company that are not
designated by the Board of Directors of the Company as Restricted or
Unrestricted Subsidiaries will be deemed to be Restricted Subsidiaries of the
Company. Notwithstanding the foregoing, all Subsidiaries of an Unrestricted
Subsidiary will be Unrestricted Subsidiaries.
Limitation on Asset Sales. The Company will not, and will not cause or
permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless
(i) the Company or the applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets sold or otherwise disposed of (as determined
in good faith by the Company's Board of Directors), (ii) at least 75% of the
consideration received by the Company or the Restricted Subsidiary, as the
case may be,
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from such Asset Sale shall be in the form of cash or Cash Equivalents and is
received at the time of such disposition; and (iii) upon the consummation of
an Asset Sale, the Company shall apply, or cause such Subsidiary to apply, the
Net Cash Proceeds relating to such Asset Sale within 270 days of receipt
thereof either (A) to prepay any Senior Indebtedness and, in the case of any
Senior Indebtedness under any revolving credit facility, effect a reduction in
the committed availability under such revolving credit facility, (B) to make
an investment in properties and assets that replace the properties and assets
that were the subject of such Asset Sale or in properties and assets that will
be used in the business of the Company and its Restricted Subsidiaries as
existing on the Issue Date or in businesses reasonably related or
complementary thereto (as determined in good faith by the Company's Board of
Directors) ("Replacement Assets"), or (C) a combination of prepayment and
investment permitted by the foregoing clauses (iii)(A) and (iii)(B). Pending
final application, the Company or the applicable Restricted Subsidiary may
temporarily reduce Indebtedness under any revolving credit facility or invest
in cash or Cash Equivalents. On the 271st day after an Asset Sale or such
earlier date, if any, as the Board of Directors of the Company or of such
Restricted Subsidiary determines not to apply the Net Cash Proceeds relating
to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of
the next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A),
(iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds
Offer Amount") shall be applied by the Company or such Restricted Subsidiary
to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net
Proceeds Offer Payment Date") not less than 30 nor more than 45 days following
the applicable Net Proceeds Offer Trigger Date, from all Holders on a pro rata
basis, that amount of Notes equal to the Net Proceeds Offer Amount at a price
equal to 100% of the principal amount of the Notes to be purchased, plus
accrued and unpaid interest thereon, if any, to the date of purchase;
provided, however, that if at any time any non-cash consideration received by
the Company or any Restricted Subsidiary of the Company, as the case may be,
in connection with any Asset Sale is converted into or sold or otherwise
disposed of for cash (other than interest received with respect to any such
non-cash consideration), then such conversion or disposition shall be deemed
to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall
be applied in accordance with this covenant. The Company or any such
Restricted Subsidiary of the Company, as the case may be, may defer the Net
Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer
Amount equal to or in excess of $10.0 million resulting from one or more Asset
Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not
just the amount in excess of $10.0 million, shall be applied as required
pursuant to this paragraph).
Notwithstanding the immediately preceding paragraph, the Company and its
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraph to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets and/or Cash
Equivalents and (ii) such Asset Sale is for fair market value; provided,
however, that any consideration not constituting Replacement Assets received
by the Company or any of its Restricted Subsidiaries in connection with any
Asset Sale permitted to be consummated under this paragraph shall constitute
Net Cash Proceeds subject to the provisions of the preceding paragraph.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly
tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of
tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 business
days or such longer period as may be required by law. To the extent the amount
of Notes tendered is less than the offer amount, the Company may use the
remaining Net Proceeds Offer Amount for general corporate purposes and such
Net Proceeds Offer Amount shall be reset to zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities
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laws or regulations conflict with the "Asset Sale" provisions of the
Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
"Asset Sale" provisions of the Indenture by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or
make any other distributions on or in respect of its Capital Stock; (b) make
loans or advances or to pay any Indebtedness or other obligation owed to the
Company or any other Restricted Subsidiary of the Company; or (c) transfer any
of its property or assets to the Company or any other Restricted Subsidiary of
the Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture; (3) the Credit Agreement;
(4) non-assignment provisions of any contract or any lease governing a
leasehold interest of any Restricted Subsidiary of the Company; (5) any
instrument governing Acquired Indebtedness, which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person or the properties or assets of the Person so acquired;
(6) agreements existing on the Issue Date to the extent and in the manner such
agreements are in effect on the Issue Date; (7) Indebtedness or any other
contractual requirements (including pursuant to any corporate governance
documents in the nature of a charter or by-laws) of a Securitization
Subsidiary arising in connection with a Qualified Securitization Transaction;
provided, however, that any such encumbrances and restrictions apply only to
such Securitization Subsidiary; or (8) an agreement governing Indebtedness
incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to
an agreement referred to in clause (2), (3), (5), (6) or (7) above; provided,
however, that the provisions relating to such encumbrance or restriction
contained in any such Indebtedness are no less favorable to the Company in any
material respect as determined by the Board of Directors of the Company in
their reasonable and good faith judgment than the provisions relating to such
encumbrance or restriction contained in agreements referred to in such clause
(2), (3), (5), (6) or (7), respectively.
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company.
Limitation on Liens. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of its Restricted Subsidiaries
whether owned on the Issue Date or acquired after the Issue Date, or any
proceeds therefrom, or assign or otherwise convey any right to receive income
or profits therefrom unless (i) in the case of Liens securing Indebtedness
that is expressly subordinate or junior in right of payment to the Notes, the
Notes are secured by a Lien on such property, assets or proceeds that is
senior in priority to such Liens and (ii) in all other cases, the Notes are
equally and ratably secured, except for (A) Liens existing as of the Issue
Date to the extent and in the manner such Liens are in effect on the Issue
Date; (B) Liens securing Senior Indebtedness and Liens securing Guarantor
Senior Indebtedness; (C) Liens securing the Notes and the Guarantees; (D)
Liens of the Company or a Wholly Owned Restricted Subsidiary of the Company on
assets of any Subsidiary of the Company; (E) Liens securing Refinancing
Indebtedness which is incurred to Refinance any Indebtedness which has been
secured by a Lien permitted under the Indenture and which has been incurred in
accordance with the provisions of the Indenture; provided, however, that such
Liens (1) are no less favorable to the Holders and are not more favorable to
the lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being Refinanced and (2) do not extend to or cover any property
or assets of the Company or any of its Subsidiaries not securing the
Indebtedness so Refinanced (other than property or assets subject to Liens
under clause (B) above); and (F) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt. The Company will not
and will not cause or permit any Subsidiary Guarantor to incur or suffer to
exist Indebtedness that by its terms is senior in right of payment to the
Notes or the Guarantees, as the case may be, and subordinate in right of
payment to any other Indebtedness of the Company or such Subsidiary Guarantor,
as the case may be.
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Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or
into any Person, or sell, assign, transfer, lease, convey or otherwise dispose
of (or cause or permit any Restricted Subsidiary of the Company to sell,
assign, transfer, lease, convey or otherwise dispose of) all or substantially
all of the Company's assets (determined on a consolidated basis for the
Company and its Restricted Subsidiaries) unless: (i) either (1) the Company
shall be the surviving or continuing corporation or (2) the Person (if other
than the Company) formed by such consolidation or into which the Company is
merged or the Person which acquires by sale, assignment, transfer, lease,
conveyance or other disposition the properties and assets of the Company and
of the Company's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District of
Columbia and (y) shall expressly assume, by supplemental indenture (in form
and substance satisfactory to the Trustee), executed and delivered to the
Trustee, the due and punctual payment of the principal of, and premium, if
any, and interest on all of the Notes and the performance of every covenant of
the Notes, the Indenture and the Registration Rights Agreement on the part of
the Company to be performed or observed, as the case may be; (ii) immediately
after giving effect to such transaction and the assumption contemplated by
clause (i)(2)(y) above (including giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred in connection
with or in respect of such transaction), the Company or such Surviving Entity,
as the case may be, (1) shall have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the Company immediately prior to
such transaction and (2) shall be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the "--Limitation
on Incurrence of Additional Indebtedness" covenant; (iii) immediately before
and immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including, without limitation, giving
effect to any Indebtedness and Acquired Indebtedness incurred or anticipated
to be incurred and any Lien granted in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred or be
continuing; and (iv) the Company or the Surviving Entity, as the case may be,
shall have delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture comply with the applicable provisions of the Indenture and that all
conditions precedent in the Indenture relating to such transaction have been
satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which
the Company is merged or to which such conveyance, lease or transfer is made
shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under the Indenture and the Notes with the same effect
as if such surviving entity had been named as such.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of the Guarantee and
the Indenture in connection with any transaction complying with the provisions
of "--Limitation on Asset Sales" or "--Limitation on Restricted and
Unrestricted Subsidiaries") will not, and the Company will not cause or permit
any Subsidiary Guarantor to, consolidate with or merge with or into any Person
other than the Company or any other Subsidiary Guarantor unless: (i) the
entity formed by or surviving any such consolidation or merger (if other than
the Subsidiary Guarantor) or to which such sale, lease, conveyance or other
disposition shall have been made is a corporation organized and existing under
the laws of the United States or any State thereof or the District of
Columbia; (ii) such entity assumes by supplemental indenture all of the
obligations of the Subsidiary Guarantor on its Guarantee; (iii) immediately
after giving effect
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to such transaction, no Default or Event of Default shall have occurred and be
continuing; and (iv) immediately after giving effect to such transaction and
the use of any net proceeds therefrom on a pro forma basis, the Company could
satisfy the provisions of clause (ii) of the first paragraph of this covenant.
Any merger or consolidation of a Subsidiary Guarantor with and into the
Company (with the Company being the surviving entity) or another Subsidiary
Guarantor that is a Wholly Owned Restricted Subsidiary of the Company need
only comply with clause (iv) of the first paragraph of this covenant.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into or permit to exist any transaction or series of related
transactions (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with, or for the
benefit of, any of its Affiliates (each an "Affiliate Transaction"), other
than (x) Affiliate Transactions permitted under paragraph (b) below and (y)
Affiliate Transactions on terms that are no less favorable than those that
might reasonably have been obtained or are obtainable in a comparable
transaction at such time on an arm's-length basis from a Person that is not an
Affiliate of the Company or such Restricted Subsidiary. All Affiliate
Transactions (and each series of related Affiliate Transactions which are
similar or part of a common plan) involving aggregate payments or other
property with a fair market value in excess of $2.0 million shall be approved
by the Board of Directors of the Company or such Restricted Subsidiary, as the
case may be, such approval to be evidenced by a Board Resolution stating that
such Board of Directors has determined that such transaction complies with the
foregoing provisions. If the Company or any Restricted Subsidiary of the
Company enters into an Affiliate Transaction (or a series of related Affiliate
Transactions related to a common plan) that involves an aggregate fair market
value of more than $7.5 million, the Company or such Restricted Subsidiary, as
the case may be, shall, prior to the consummation thereof, obtain a favorable
opinion as to the fairness of such transaction or series of related
transactions to the Company or the relevant Restricted Subsidiary, as the case
may be, from a financial point of view, from an Independent Financial Advisor.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees, consultants or agents of the Company or any
Restricted Subsidiary of the Company as determined in good faith by the
Company's Board of Directors or senior management; (ii) transactions between
or among the Company and any of its Wholly Owned Restricted Subsidiaries or
between or among such Wholly Owned Restricted Subsidiaries, provided such
transactions are not otherwise prohibited by the Indenture; (iii) any
agreement as in effect as of the Issue Date or any amendment thereto or any
transaction contemplated thereby (including pursuant to any amendment thereto)
or in any replacement agreement thereto so long as any such amendment or
replacement agreement is not more disadvantageous to the Holders in any
material respect than the original agreement as in effect on the Issue Date;
(iv) Restricted Payments and Permitted Investments permitted by the Indenture;
and (v) Qualified Securitization Transactions.
Additional Subsidiary Guarantees. If the Company or any of its Restricted
Subsidiaries transfers or causes to be transferred, in one transaction or a
series of related transactions, any property in excess of $1.0 million to any
Restricted Subsidiary that is not a Subsidiary Guarantor, or if the Company or
any of its Restricted Subsidiaries shall organize, acquire or otherwise invest
in another Subsidiary that is not a Subsidiary Guarantor (other than in any
such transaction in compliance with "--Limitation on Restricted Payments"
above), then such transferee or acquired or other Subsidiary shall (i) execute
and deliver to the Trustee a supplemental indenture in form reasonably
satisfactory to the Trustee pursuant to which such Subsidiary shall
unconditionally guarantee all of the Company's obligations under the Notes and
the Indenture on the terms set forth in the Indenture and (ii) deliver to the
Trustee an opinion of counsel that such supplemental indenture has been duly
authorized, executed and delivered by such Subsidiary and constitutes a legal,
valid, binding and enforceable obligation of such Subsidiary, subject to
normal exceptions. Thereafter, such Subsidiary shall be a Subsidiary Guarantor
for all purposes of the Indenture.
Conduct of Business. The Company will not and will not cause or permit any
of its Restricted Subsidiaries to engage in any businesses other than the
businesses in which the Company is engaged on the Issue Date and any
businesses reasonably related or complementary thereto (as determined in good
faith by the Company's Board of Directors).
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Reports to Holders. The Company will deliver to the Trustee within 15 days
after the filing of the same with the Commission, copies of the quarterly and
annual reports and of the information, documents and other reports, if any,
which the Company is required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the Trustee and the Holders with such annual reports and such
information, documents and other reports specified in Sections 13 and 15(d) of
the Exchange Act. The Company will also comply with the other provisions of
314(a) of the TIA.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest (including Additional Interest, if any)
on any Notes when the same becomes due and payable and the default
continues for a period of 30 days (whether or not such payment shall be
prohibited by the subordination provisions of the Indenture);
(ii) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon acceleration, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer)
(whether or not such payment shall be prohibited by the subordination
provisions of the Indenture);
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period
of 30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes
(except in the case of a default with respect to the "Merger, Consolidation
and Sale of Assets" covenant, which will constitute an Event of Default
with such notice requirement but without such passage of time requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted Subsidiary of the
Company (other than a Securitization Subsidiary), or the acceleration of
the final stated maturity of any such Indebtedness if the aggregate
principal amount of such Indebtedness, together with the principal amount
of any other such Indebtedness in default for failure to pay principal at
final maturity or which has been accelerated, aggregates $10.0 million or
more at any time;
(v) one or more judgments in an aggregate amount in excess of $10.0
million shall have been rendered against the Company or any of its
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and non-
appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any of the Guarantees ceases to be in full force and effect or any
of the Guarantees is declared to be null and void and unenforceable or any
of the Guarantees is found to be invalid or any of the Subsidiary
Guarantors denies its liability under its Guarantee (other than by reason
of release of a Subsidiary Guarantor in accordance with the terms of the
Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above) shall occur and be continuing, the Trustee or the Holders of at
least 25% in principal amount of outstanding Notes may declare the principal
of and accrued interest on all the Notes to be due and payable by notice in
writing to the Company and the Trustee specifying the respective Event of
Default and that it is a "notice of acceleration" (the "Acceleration Notice"),
and the same shall become immediately due and payable. If an Event of Default
specified in clause (vi) above with respect to the Company occurs and is
continuing, then all unpaid principal of, and premium, if any, and accrued and
unpaid interest on all of the outstanding Notes shall ipso facto become and be
immediately due and payable without any declaration or other act on the part
of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of acceleration
with respect to the Notes as described in the preceding paragraph, the Holders
of a majority in principal amount of the Notes may rescind
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and cancel such declaration and its consequences (i) if the rescission would
not conflict with any judgment or decree, (ii) if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of the acceleration, (iii) to the extent
the payment of such interest is lawful, interest on overdue installments of
interest and overdue principal, which has become due otherwise than by such
declaration of acceleration, has been paid, (iv) if the Company has paid the
Trustee its reasonable compensation and reimbursed the Trustee for its
expenses, disbursements and advances and (v) in the event of the cure or
waiver of an Event of Default of the type described in clause (vi) of the
description above of Events of Default, the Trustee shall have received an
officers' certificate and an opinion of counsel that such Event of Default has
been cured or waived. No such rescission shall affect any subsequent Default
or impair any right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest
on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default
or Event of Default) that has occurred and, if applicable, describe such
Default or Event of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes, except for (i) the rights
of Holders to receive payments in respect of the principal of, premium, if
any, and interest on the Notes when such payments are due, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (iii) the rights, powers,
trust, duties and immunities of the Trustee and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect
to have the obligations of the Company and its Restricted Subsidiaries
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, and interest on the Notes on the stated
date for payment thereof or on the applicable redemption date, as the case may
be; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that (A) the Company has received from, or there has
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been published by, the Internal Revenue Service a ruling or (B) since the date
of the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit (other than a Default or Event of Default resulting from the
incurrence of Indebtedness all or a portion of the proceeds of which will be
used to defease the Notes); (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under
the Indenture or any other material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound; (vi) the Company shall have delivered to the
Trustee an officers' certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other creditors of
the Company or with the intent of defeating, hindering, delaying or defrauding
any other creditors of the Company or others; (vii) the Company shall have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent provided for or relating to the
Legal Defeasance or the Covenant Defeasance have been complied with; (viii)
the Company shall have delivered to the Trustee an opinion of counsel to the
effect that after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; and (ix)
certain other customary conditions precedent are satisfied. Notwithstanding
the foregoing, the opinion of counsel required by clause (ii) above need not
be delivered if all Notes not theretofore delivered to the Trustee for
cancellation (A) have become due and payable, (B) will become due and payable
on maturity date within one year or (C) are to be called for redemption by the
Trustee in the name, and at the expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together
with irrevocable instructions from the Company directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case may
be; (ii) the Company has paid all other sums payable under the Indenture by
the Company; and (iii) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Subsidiary Guarantors and the Trustee,
without the consent of the Holders, may amend the Indenture for certain
specified purposes, including curing ambiguities, defects or inconsistencies,
so long as such change does not, in the opinion of the Trustee, adversely
affect the rights of any of the Holders in any material respect. In
formulating its opinion on such matters, the Trustee will be entitled to
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rely on such evidence as it deems appropriate, including, without limitation,
solely on an opinion of counsel. Other modifications, waivers and amendments
of the Indenture may be made with the consent of the Holders of a majority in
principal amount of the then outstanding Notes issued under the Indenture,
except that, without the consent of each Holder affected thereby, no amendment
or waiver may: (i) reduce the amount of Notes whose Holders must consent to an
amendment; (ii) reduce the rate of or change or have the effect of changing
the time for payment of interest, including defaulted interest, on any Notes;
(iii) reduce the principal of or change or have the effect of changing the
fixed maturity of any Notes, or change the date on which any Notes may be
subject to redemption or repurchase, or reduce the redemption or repurchase
price therefor; (iv) make any Notes payable in money other than that stated in
the Notes; (v) make any change in provisions of the Indenture protecting the
right of each Holder to receive payment of principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting Holders of a majority in principal amount of Notes to
waive Defaults or Events of Default; (vi) amend, change or modify in any
material respect the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control or make and consummate a
Net Proceeds Offer with respect to any Asset Sale that has been consummated or
modify any of the provisions or definitions with respect thereto; (vii) modify
or change any provision of the Indenture or the related definitions affecting
the subordination or ranking of the Notes or any Guarantee in a manner which
adversely affects the Holders; or (viii) release any Subsidiary Guarantor from
any of its obligations under its Guarantee or the Indenture otherwise than in
accordance with the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture,
and use the same degree of care and skill in its exercise as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to
obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
TIA, the Trustee will be permitted to engage in other transactions; provided,
however, that if the Trustee acquires any conflicting interest as described in
the TIA, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
of such Person or at the time it merges or consolidates with such Person or
any of its Restricted Subsidiaries or assumed in connection with the
acquisition of assets from such Person and in each case not incurred by such
Person in connection with, or in anticipation or contemplation of, such Person
becoming a Restricted Subsidiary of such Person or such acquisition, merger or
consolidation.
"Additional Interest" shall have the meaning set forth under "Exchange
Offer--Purpose and Effect of the Exchange Offer."
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"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other
than a Restricted Subsidiary of the Company) which constitute all or
substantially all of the assets of such Person or comprises any division or
line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by the Company or
any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company of (a) any Capital Stock of any Restricted
Subsidiary of the Company; or (b) any other property or assets of the Company
or any Restricted Subsidiary of the Company other than in the ordinary course
of business; provided, however, that Asset Sales shall not include (i) any
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $15.0
million in any consecutive 12-month period, (ii) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of the
Company as permitted under "Merger, Consolidation and Sale of Assets" or any
disposition that constitutes a Change of Control, (iii) the contribution or
other transfer of assets or property to a joint venture in which the Company
has an interest; provided, however, that such contribution or other transfer
constitutes an Investment that is either (a) a Permitted Investment or (b) an
Investment that is treated as a Restricted Payment under the Indenture, (iv)
the licensing of intellectual property, (v) disposals or replacements of
obsolete equipment in the ordinary course of business, (vi) the sale, lease,
conveyance, disposition or other transfer by the Company or any Restricted
Subsidiary of assets or property to one or more Wholly Owned Restricted
Subsidiaries in connection with Investments permitted under the "Limitations
on Restricted Payments" covenant, (vii) sales of accounts receivable,
equipment and related assets (including contract rights) of the type specified
in the definition of "Qualified Securitization Transaction" to a
Securitization Subsidiary for the fair market value thereof, including cash in
an amount at least equal to 75% of the fair market value thereof as determined
in accordance with GAAP, and (viii) transfers of accounts receivable,
equipment and related assets (including contract rights) of the type specified
in the definition of "Qualified Securitization Transaction" (or a fractional
undivided interest therein) by a Securitization Subsidiary in a Qualified
Securitization Transaction.
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have
been duly adopted by the Board of Directors of such Person and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to
any Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
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"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than
$250,000,000; (v) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause (iv)
above; and (vi) investments in money market funds which invest substantially
all their assets in securities of the types described in clauses (i) through
(v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets of
the Company to any Person or group of related Persons for purposes of Section
13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof
(whether or not otherwise in compliance with the provisions of the Indenture);
(ii) the approval by the holders of Capital Stock of the Company of any plan
or proposal for the liquidation or dissolution of the Company (whether or not
otherwise in compliance with the provisions of the Indenture); (iii) any
Person or Group shall become the owner, directly or indirectly, beneficially
or of record, of shares representing more than 50% of the aggregate ordinary
voting power (except that for purposes of calculating the ownership of any
Person or Group, shares owned by any Permitted Holder who is a part of such
Person or Group shall be excluded from the calculation of the ownership by
such Person or Group) represented by the issued and outstanding Capital Stock
of the Company; or (iv) the replacement of a majority of the Board of
Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by a vote of at
least a majority of the Board of Directors of the Company then still in office
who either were members of such Board of Directors at the beginning of such
period or whose election as a member of such Board of Directors was previously
so approved.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on
the Issue Date or issued after the Issue Date, and includes, without
limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes
of such Person and its Restricted Subsidiaries paid or accrued in accordance
with GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses or taxes attributable
to sales or dispositions outside the ordinary course of business), (B)
Consolidated Interest Expense and (C) Consolidated Non-cash Charges.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges
of such Person for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving
effect on a pro forma basis for the period of such calculation to (i) the
incurrence or repayment of any Indebtedness of such Person or any of its
Restricted
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Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of
the Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Four Quarter Period and
(ii) any Asset Sales or Asset Acquisitions (including, without limitation, any
Asset Acquisition giving rise to the need to make such calculation as a result
of such Person or one of its Restricted Subsidiaries (including any Person who
becomes a Restricted Subsidiary as a result of the Asset Acquisition)
incurring, assuming or otherwise being liable for Acquired Indebtedness and
also including any Consolidated EBITDA (including any pro forma expense and
cost reductions calculated on a basis consistent with Regulation S-X under the
Securities Act as in effect on the Issue Date) (provided that such
Consolidated EBITDA shall be included only to the extent includable pursuant
to the definition of "Consolidated Net Income") attributable to the assets
which are the subject of the Asset Acquisition or Asset Sale during the Four
Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness)
occurred on the first day of the Four Quarter Period. If such Person or any of
its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of
a third Person, the preceding sentence shall give effect to the incurrence of
such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of
such Person had directly incurred or otherwise assumed such guaranteed
Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate,
a eurocurrency interbank offered rate, or other rates, then the interest rate
in effect on the Transaction Date will be deemed to have been in effect during
the Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed
to accrue at the rate per annum resulting after giving effect to the operation
of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense,
plus (ii) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of such Person (other than dividends paid in Qualified
Capital Stock) paid, accrued or scheduled to be paid or accrued during such
period times (y) a fraction, the numerator of which is one and the denominator
of which is one minus the then current effective consolidated federal, state
and local tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries and Permitted Joint
Ventures for such period determined on a consolidated basis in accordance with
GAAP, including without limitation, (a) any amortization of debt discount, (b)
the net costs under Interest Swap Obligations, (c) all capitalized interest
and (d) the interest portion of any deferred payment obligation; and (ii) the
interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by such Person and its Restricted Subsidiaries
and Permitted Joint Ventures during such period as determined on a
consolidated basis in accordance with GAAP; provided, however, that amounts to
be included in clauses (i) and (ii) above with respect to Permitted Joint
Ventures not constituting Restricted Subsidiaries shall be the product of the
amounts computed in accordance with GAAP and the percentage of the total
outstanding shares of Capital Stock of such Permitted Joint Venture held by
the Company or any Restricted Subsidiary of the Company; and provided,
further, however, that Consolidated Interest Expense with respect to any
Person for any period shall not include any amortization or write-off of
deferred financing costs.
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"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided, however, that there shall be excluded therefrom (a) gains
(and losses) on an after tax effected basis from asset sales or abandonments
or reserves relating thereto, (b) items classified as extraordinary or
nonrecurring gains or losses (including, without limitation, restructuring
costs related to facilities and/or operating line closings) on an after tax
effected basis, (c) the net income or loss of any Person acquired in a
"pooling of interests" transaction accrued prior to the date it becomes a
Restricted Subsidiary of the referent Person or is merged or consolidated with
the referent Person or any Restricted Subsidiary of the referent Person, (d)
the net income (but not loss) of any Restricted Subsidiary of the referent
Person to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is restricted by a
contract, operation of law or otherwise (other than restrictions contained in
the Credit Agreement or any Acquired Indebtedness), (e) the net income or loss
of any other Person, other than a Subsidiary of the referent Person, except to
the extent (in the case of net income) of cash dividends or distributions paid
to the referent Person, or to a Wholly Owned Restricted Subsidiary of the
referent Person, by such other Person, (f) any restoration to income of any
contingency reserve of an extraordinary, non-recurring or unusual nature,
except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue Date, (g)
income or loss attributable to discontinued operations (including, without
limitation, operations disposed of during such period whether or not such
operations were classified as discontinued), (h) in the case of a successor to
the referent Person by consolidation or merger or as a transferee of the
referent Person's assets, any earnings of the successor corporation prior to
such consolidation, merger or transfer of assets and (i) any amortization or
write-off of deferred financing costs.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate (A) depreciation, (B) amortization and (C) other non-
cash expenses of such Person and its Restricted Subsidiaries reducing
Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP
(excluding for purposes of clause (C) any such charges which require an
accrual of or a reserve for cash charges for any future period).
"Credit Agreement" means the Credit Agreement dated as of June 17, 1996, as
amended, among the Company, Brockway Standard, Inc., Brockway Standard (New
Jersey), Inc., Milton Can Company, Inc., Davies Can Company, Inc., each of the
guarantors party thereto, the lenders party thereto in their capacities as
lenders thereunder and Bankers Trust Company and NationsBank, N.A. (South), as
agents, together with the related documents thereto (including, without
limitation, any guarantee agreements), in each case as such agreements may be
further amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing, replacing or otherwise restructuring
(including increasing the amount of available borrowings thereunder (provided,
however, that such increase in borrowings is permitted by the "Limitation on
Incurrence of Additional Indebtedness" covenant above) or adding Subsidiaries
of the Company as additional borrowers or guarantors thereunder) all or any
portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Indebtedness" means (i) Indebtedness under or in respect
of the Credit Agreement and (ii) any other Indebtedness constituting Senior
Indebtedness which, at the time of determination, has an aggregate
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principal amount of at least $25,000,000 and is specifically designated in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" by the Company.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or is redeemable at the sole option of the holder thereof on or prior to the
final maturity date of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary organized
under the laws of a country or jurisdiction other than the United States, any
state or territory thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantees" means the guarantees of the Notes of the Company by the
Subsidiary Guarantors.
"Guarantor Senior Indebtedness" means with respect to any Subsidiary
Guarantor, the principal of, premium, if any, and interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law) on any Indebtedness of
a Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Guarantee of such Subsidiary
Guarantor. Without limiting the generality of the foregoing, "Guarantor Senior
Indebtedness" shall also include the principal of, premium, if any, interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
to the extent such interest is an allowed claim under applicable law) on, and
all other amounts owing in respect of, (x) all monetary obligations of every
nature of a Subsidiary Guarantor under the Credit Agreement, including,
without limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities, (y) all
Interest Swap Obligations and (z) all obligations under Currency Agreements,
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall not
include (i) any Indebtedness of such Subsidiary Guarantor to a Subsidiary of
such Subsidiary Guarantor or any Affiliate of such Subsidiary Guarantor or any
of such Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on
behalf of, any shareholder, director, officer or employee of such Subsidiary
Guarantor or any Subsidiary of such Subsidiary Guarantor (including, without
limitation, amounts owed for compensation), (iii) Indebtedness to trade
creditors and other amounts incurred in connection with obtaining goods,
materials or services, (iv) Indebtedness represented by Disqualified Capital
Stock, (v) any liability for federal, state, local or other taxes owed or
owing by such Subsidiary Guarantor, (vi) Indebtedness incurred in violation of
the Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness," (vii) Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of Title 11, United States Code,
is without recourse to such Subsidiary Guarantor and (viii) any Indebtedness
which is, by its express terms, subordinated in right of payment to any other
Indebtedness of such Subsidiary Guarantor.
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"Holder" means any holder of Notes.
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all
Obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all Obligations under any title
retention agreement (but excluding trade accounts payable and other accrued
liabilities arising in the ordinary course of business that are not overdue by
90 days or more or are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted), (v) all Obligations
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction, (vi) guarantees and other contingent
obligations in respect of Indebtedness referred to in clauses (i) through (v)
above and clause (viii) below, (vii) all Obligations of any other Person of
the type referred to in clauses (i) through (vi) which are secured by any lien
on any property or asset of such Person, the amount of such Obligation being
deemed to be the lesser of the fair market value of such property or asset or
the amount of the Obligation so secured, (viii) all Obligations under currency
agreements and interest swap agreements of such Person and (ix) all
Disqualified Capital Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Capital Stock being equal to the
greater of its voluntary or involuntary liquidation preference and its maximum
fixed repurchase price, but excluding accrued dividends, if any. For purposes
hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock
which does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Disqualified Capital Stock as if such Disqualified
Capital Stock were purchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the fair market value of such Disqualified Capital
Stock, such fair market value shall be determined reasonably and in good faith
by the Board of Directors of the issuer of such Disqualified Capital Stock.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified
to perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated
by applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit
by the Company and its Restricted Subsidiaries on commercially reasonable
terms in accordance with normal trade practices of the Company or such
Restricted Subsidiary, as the case may be. For the purposes of the "Limitation
on Restricted Payments" covenant, the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments
by the Company or any of its Restricted Subsidiaries, without any adjustments
for increases or decreases in value, or write-ups, write-downs or write-offs
with respect to such Investment, reduced by the payment of dividends or
distributions in connection with such Investment or any other amounts received
in respect of such Investment; provided, however, that no such payment of
dividends or distributions or receipt of any such other amounts shall reduce
the amount of any Investment if such payment of dividends or distributions or
receipt of any such amounts would be included in Consolidated Net Income. If
the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Common Stock of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
the
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Company no longer owns, directly or indirectly, greater than 50% of the
outstanding Common Stock of such Restricted Subsidiary, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such former Restricted
Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement
to give any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by the Company or any of its Restricted Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (b) taxes paid or payable after taking
into account any reduction in consolidated tax liability due to available tax
credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
and (d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Permitted Holders" means Warren J. Hayford and his spouse, their lineal
descendants and adopted children and spouses of their lineal descendants and
adopted children, any foundation controlled by any of the foregoing persons,
and trusts for the benefit of any of the foregoing persons.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes, the Indenture and the Guarantees;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed $125.0
million in the aggregate; provided, however, that if at the time of any
repayments under the revolving credit facility under the Credit Agreement
that are required pursuant to the "Limitation on Asset Sales" covenant
(which are accompanied by a corresponding reduction in the aggregate
available commitment), the total consolidated assets of the Company as
reflected on the Company's most recent balance sheet prepared in accordance
with GAAP (and after giving pro forma effect to any Asset Sales and Asset
Acquisitions occurring subsequent to the date of such balance sheet) were
less than $275.0 million, the Indebtedness permitted to be incurred
pursuant to this clause (ii) shall be reduced in an amount equal to such
repayment until such time as both (A) the total consolidated assets of the
Company exceed $275.0 million and (B) the Company could incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the "Limitation on Incurrence of Additional Indebtedness"
covenant (at which time the aggregate Indebtedness permitted under this
clause (ii) shall be $125.0 million); provided, however, that, in the event
there is at any time more than $125 million available under the Credit
Agreement, the aggregate Indebtedness permitted under this clause (ii)
shall be allocated first to the revolving credit facility portion of the
Credit Agreement;
(iii) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Restricted Subsidiaries; provided, however, that
such Interest Swap Obligations are entered into to protect the Company and
its Restricted Subsidiaries from fluctuations in interest rates on
Indebtedness incurred in
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accordance with the Indenture to the extent the notional principal amount
of such Interest Swap Obligation does not exceed the principal amount of
the Indebtedness to which such Interest Swap Obligation relates;
(iv) Indebtedness under Currency Agreements; provided, however, that in
the case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(v) Indebtedness of a Restricted Subsidiary of the Company to the Company
or to a Wholly Owned Restricted Subsidiary of the Company for so long as
such Indebtedness is held by the Company or a Wholly Owned Restricted
Subsidiary of the Company, in each case subject to no Lien held by a Person
other than the Company or a Wholly Owned Restricted Subsidiary of the
Company; provided, however, that (a) any Indebtedness of a Wholly Owned
Restricted Subsidiary of the Company is unsecured and (b) if as of any date
any Person other than the Company or a Wholly Owned Restricted Subsidiary
of the Company owns or holds any such Indebtedness or holds a Lien in
respect of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(vi) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within two business days of incurrence;
(vii) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;
(viii) Indebtedness represented by Capitalized Lease Obligations and
Purchase Money Indebtedness of the Company or any of its Restricted
Subsidiaries or otherwise incurred to finance the lease or improvement of
real or personal property or equipment in an aggregate principal amount not
to exceed $10.0 million at any one time outstanding;
(ix) the consummation of any Qualified Securitization Transaction;
(x) Refinancing Indebtedness;
(xi) Indebtedness of a Securitization Subsidiary incurred in a Qualified
Securitization Transaction that is not recourse to the Company or any
Restricted Subsidiary of the Company (except for representations,
warranties, covenants and indemnities entered into by the Company or any
Restricted Subsidiary of the Company which are reasonably customary in an
accounts receivable or equipment transaction);
(xii) Indebtedness incurred by Foreign Restricted Subsidiaries of the
Company with respect to such Subsidiaries' working capital requirements in
an aggregate principal amount outstanding at any one time not to exceed
$5.0 million; and
(xiii) additional Indebtedness in an aggregate principal amount not to
exceed $20.0 million at any one time outstanding.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Restricted Subsidiary of the Company or
that will merge or consolidate into the Company or a Restricted Subsidiary of
the Company; (ii) Investments in the Company by any Restricted Subsidiary of
the Company; provided, however, that any Indebtedness evidencing such
Investment is unsecured; (iii) Investments in cash and Cash Equivalents; (iv)
loans and advances to employees and officers of the Company and its Restricted
Subsidiaries in the ordinary course of business for bona fide business
purposes not in excess of $3.0 million at any one time outstanding; (v)
Currency Agreements and Interest Swap Obligations entered into in the ordinary
course of the Company's or its Restricted Subsidiaries' businesses and
otherwise in compliance with the Indenture; (vi) Investments in securities of
trade creditors or customers received pursuant to any plan of reorganization
or similar arrangement upon the
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bankruptcy or insolvency of such trade creditors or customers; (vii)
Investments made by the Company or its Restricted Subsidiaries as a result of
consideration received in connection with an Asset Sale made in compliance
with the "Limitation on Asset Sales" covenant; (viii) Investments in Permitted
Joint Ventures; and (ix) additional Investments in (A) unconsolidated joint
ventures in businesses reasonably related or complementary to those of the
Company and its Restricted Subsidiaries (as determined in good faith by the
Company's Board of Directors) made in the ordinary course of business and (B)
Unrestricted Subsidiaries in an aggregate amount for all such Investments made
pursuant to this clause (ix) not to exceed $20.0 million at any one time
outstanding.
"Permitted Joint Venture" means any joint venture arrangement (which may be
structured as a corporation, partnership, trust, limited liability company or
any other Person) if (a) no Affiliate (other than a Restricted Subsidiary of
the Company) of the Company or a Restricted Subsidiary has an investment in
such Person, (b) such Person is engaged in the same or a similar line of
business as the Company and its Restricted Subsidiaries were engaged in on the
Issue Date or any business ancillary or reasonably related or complementary
thereto or supportive thereof (as determined in good faith by the Company's
Board of Directors), (c) the Company and/or any of its Restricted Subsidiaries
at all times (i) is the operator of such Person and (ii) owns at least 30% of
the total outstanding shares of Capital Stock of such Person entitled to
participate in distributions in respect of the earnings, sale or liquidation
of such Person, (d) immediately after giving effect to such Investment on a
pro forma basis (to give effect to the contribution of any property or assets
to such Person or Indebtedness incurred to fund such Investment or otherwise),
the Company could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "Limitation on Incurrence of
Additional Indebtedness" covenant, and (e) no default with respect to any
Indebtedness of such Person or any Subsidiary of such Person (including any
right which the holders thereof may have to take enforcement action against
such Person) would permit (upon notice, lapse of time or both) any holder of
any Indebtedness of the Company or its Restricted Subsidiaries to declare a
default on such Indebtedness or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity. If, at any time, a Permitted
Joint Venture fails to comply with clauses (b) and (c) above, such Permitted
Joint Venture shall constitute an Investment and must comply with the
"Limitation on Restricted Payments" covenant (but only with respect to the
Company's then net Investment in such joint venture).
"Permitted Liens" means the following types of Liens:
(i) Liens in favor of the Trustee in its capacity as trustee for the
Holders;
(ii) Liens securing Indebtedness outstanding under the Credit Agreement;
(iii) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(iv) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(v) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(vi) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(vii) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Subsidiaries;
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(viii) any interest or title of a lessor under any Capitalized Lease
Obligation; provided, however, that such Liens do not extend to any
property or assets which is not leased property subject to such Capitalized
Lease Obligation;
(ix) Liens to secure Purchase Money Indebtedness; provided, however, that
(A) the related purchase money Indebtedness shall not exceed the cost of
such property or assets and shall not be secured by any property or assets
of the Company or any Restricted Subsidiary of the Company other than the
property and assets so acquired and (B) the Lien securing such Indebtedness
shall be created within 90 days of such acquisition;
(x) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(xi) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(xii) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and set-
off;
(xiii) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xiv) Liens securing Indebtedness under Currency Agreements;
(xv) Liens securing Acquired Indebtedness incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; provided,
however, that (A) such Liens secured such Acquired Indebtedness at the time
of and prior to the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company and
(B) such Liens do not extend to or cover any property or assets of the
Company or of any of its Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary of the Company and are no more favorable to the lienholders than
those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary of the
Company; and
(xvi) Liens granted in connection with any Qualified Securitization
Transaction.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness the net proceeds of which
are used to finance the cost (including the cost of construction) of property
or assets acquired in the normal course of business by the Person incurring
such Indebtedness.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Securitization Transaction" means any transaction or series of
transactions that have been or may be entered into by the Company or any of
its Restricted Subsidiaries in connection with or reasonably related to a
transaction or series of transactions in which the Company or any of its
Restricted Subsidiaries may sell, convey or otherwise transfer to (i) a
Securitization Subsidiary or (ii) any other Person, or may grant a security
interest in, any Receivables or interests therein secured by the merchandise
or services financed thereby (whether such Receivables are then existing or
arising in the future) of the Company or any of its Restricted Subsidiaries,
and any assets related thereto including, without limitation, all security
interests in merchandise or
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services financed thereby, the proceeds of such Receivables, and other assets
which are customarily sold or in respect of which security interests are
customarily granted in connection with securitization transactions involving
such assets.
"Receivables" means any right of payment from or on behalf of any obligor,
whether constituting an account, chattel paper, instrument, general intangible
or otherwise, arising from the financing by the Company or any Restricted
Subsidiary of the Company of merchandise or services, and monies due
thereunder, security in the merchandise and services financed thereby, records
related thereto, and the right to payment of any interest or finance charges
and other obligations with respect thereto, proceeds from claims on insurance
policies related thereto, any other proceeds related thereto, and any other
related rights.
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance
with the "Limitation on Incurrence of Additional Indebtedness" covenant (other
than pursuant to clauses (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix),
(xi), (xii) or (xiii) of the definition of Permitted Indebtedness), in each
case that does not (1) result in an increase in the aggregate principal amount
of Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred by the Company or such Restricted Subsidiary, as the case
may be, in connection with such Refinancing), except to the extent that any
such increase in Indebtedness is otherwise permitted by the Indenture or (2)
create Indebtedness with (A) a Weighted Average Life to Maturity that is less
than the Weighted Average Life to Maturity of the Indebtedness being
Refinanced or (B) a final maturity earlier than the final maturity of the
Indebtedness being Refinanced; provided, however, that (x) if such
Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company, (y) if
such Indebtedness being Refinanced is subordinate or junior to the Notes, then
such Refinancing Indebtedness shall be subordinate to the Notes at least to
the same extent and in the same manner as the Indebtedness being Refinanced
and (z) if such Indebtedness being refinanced is subordinated or junior to the
Guarantee of such Subsidiary Guarantor, then such Refinancing Indebtedness
shall be subordinate to the Guarantee of such Subsidiary Guarantor at least to
the same extent and in the same manner as the Indebtedness being refinanced.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Indebtedness; provided,
however, that if, and for so long as, any Designated Senior Indebtedness lacks
such a representative, then the Representative for such Designated Senior
Indebtedness shall at all times constitute the holders of a majority in
outstanding principal amount of such Designated Senior Indebtedness in respect
of any Designated Senior Indebtedness.
"Restricted Subsidiary" of any Person, means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of the Company of any
property, whether owned by the Company or any Restricted Subsidiary of the
Company at the Issue Date or later acquired, which has been or is to be sold
or transferred by the Company or such Restricted Subsidiary to such Person or
to any other Person from whom funds have been or are to be advanced by such
Person on the security of such Property.
"Securitization Subsidiary" means a Wholly Owned Restricted Subsidiary of
the Company which engages in no activities other than those reasonably related
to or in connection with the entering into of securitization transactions and
which is designated by the Board of Directors of the Company (as provided
below) as a
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Securitization Subsidiary (a) no portion of the Indebtedness or any other
obligations (contingent or otherwise) of which (i) is guaranteed by the
Company or any other Restricted Subsidiary of the Company, (ii) is recourse to
or obligates the Company or any other Restricted Subsidiary of the Company in
any way other than pursuant to representations, warranties and covenants
(including those related to servicing) entered into in the ordinary course of
business in connection with a Qualified Securitization Transaction or (iii)
subjects any property or assets of the Company or any other Restricted
Subsidiary of the Company, directly or indirectly, contingently or otherwise,
to any Lien or to the satisfaction thereof, other than pursuant to
representations, warranties and covenants (including those related to
servicing) entered into in the ordinary course of business in connection with
a Qualified Securitization Transaction, (b) with which neither of the Company
nor any other Restricted Subsidiary of the Company (i) provides any credit
support or (ii) has any contract, agreement, arrangement or understanding
other than on terms that are fair and reasonable and that are no less
favorable to the Company or such Restricted Subsidiary than could be obtained
from an unrelated Person (other than, in the case of subclauses (i) and (ii)
of this clause (b), representations, warranties and covenants (including those
relating to servicing) entered into in the ordinary course of business in
connection with a Qualified Securitization Transaction and intercompany notes
relating to the sale of Receivables to such Securitization Subsidiary) and (c)
with which neither the Company nor any Restricted Subsidiary of the Company
has any obligation to maintain or preserve such Subsidiary's financial
condition or to cause such Subsidiary to achieve certain levels of operating
results. Any such designation by the Board of Directors of the Company shall
be evidenced to the Trustee by filing with the Trustee a certified copy of the
resolutions of the Board of Directors of the Company giving effect to such
designation.
"Senior Indebtedness" means, (i) the principal of, premium, if any, and
interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on any Indebtedness of the Company, whether outstanding on the
Issue Date or thereafter created, incurred or assumed, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes. Without
limiting the generality of the foregoing, "Senior Indebtedness" shall also
include the principal of, premium, if any, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, to the extent such
interest is an allowed claim under applicable law) on, and all other amounts
owing in respect of, (x) all monetary obligations of every nature of the
Company under the Credit Agreement, including, without limitation, obligations
to pay principal and interest, reimbursement obligations under letters of
credit, fees, expenses and indemnities, (y) all Interest Swap Obligations and
(z) all obligations under Currency Agreements, in each case whether
outstanding on the Issue Date or thereafter incurred. Notwithstanding the
foregoing, "Senior Indebtedness" shall not include (i) any Indebtedness of the
Company to a Subsidiary of the Company or any Affiliate of the Company or any
of such Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on
behalf of, any shareholder, director, officer or employee of the Company or
any Subsidiary of the Company (including, without limitation, amounts owed for
compensation), (iii) Indebtedness to trade creditors and other amounts
incurred in connection with obtaining goods, materials or services, (iv)
Indebtedness represented by Disqualified Capital Stock, (v) any liability for
federal, state, local or other taxes owed or owing by the Company, (vi)
Indebtedness incurred in violation of the Indenture provisions set forth under
"Limitation on Incurrence of Additional Indebtedness," (vii) Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is without recourse to the Company and (viii)
any Indebtedness which is, by its express terms, subordinated in right of
payment to any other Indebtedness of the Company.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(v) of
Regulation S-X under the Securities Act.
"Subsidiary", with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person or (ii) any other
Person of which at least a
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majority of the voting interest under ordinary circumstances is at the time,
directly or indirectly, owned by such Person.
"Subsidiary Guarantor" means (i) each of the Company's present Restricted
Subsidiaries (except for BWAY Foreign Sales Corporation, Northeast Tin Plate
Company, Milton Metal Graphics, Inc. and Tin Plate Alliance, L.L.C.) and (ii)
each of the Company's Restricted Subsidiaries that in the future executes a
supplemental indenture in which such Subsidiary agrees to be bound by the
terms of the Indenture as a Subsidiary Guarantor; provided, however, that any
Person constituting a Subsidiary Guarantor as described above shall cease to
constitute a Subsidiary Guarantor when its respective Guarantee is released in
accordance with the terms of the Indenture.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities
(other than in the case of a foreign Restricted Subsidiary, directors'
qualifying shares or an immaterial amount of shares required to be owned by
other Persons pursuant to applicable law) are owned by such Person or any
Wholly Owned Restricted Subsidiary of such Person.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Notes (and the related
guarantees) initially will be represented by one or more permanent global
certificates in definitive, fully registered form (the "Global Notes"). The
Global Notes will be deposited on the date of issuance with, or on behalf of,
The Depository Trust Company, New York, New York ("DTC") and registered in the
name of a nominee of DTC.
Notes (i) originally purchased by or transferred to "foreign purchasers" or
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act) ("Accredited Investors") who are not
"qualified institutional buyers" (as defined in Rule 144A promulgated under
the Securities Act) ("QIBs") or (ii) held by QIBs or institutional Accredited
Investors who are not QIBs who elect to take physical delivery of their
certificates instead of holding their interest through a Global Note (and
which are thus ineligible to trade through DTC) (collectively referred to
herein as the "Non-Global Purchasers") will be issued in registered form (the
"Certificated Security"). Upon the transfer to a QIB or another institutional
Accredited Investor who is not a QIB of any Certificated Security initially
issued to a Non-Global Purchaser, such Certificated Security will, unless the
transferee requests otherwise or the Global Certificates have previously been
exchanged in whole for Certificated Securities, be exchanged for an interest
in a Global Note.
The Global Notes. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Notes
of the individual beneficial interests represented by such Global Notes to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Notes will be shown on, and
the transfer of such ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of participants)
and the records of participants (with respect to interests of persons other
than participants). Such accounts initially will be designated by or on behalf
of the Initial Purchasers and ownership of beneficial interests in the Global
Notes will be limited to persons who have accounts with DTC ("participants")
or persons who hold interests through participants. QIBs and institutional
Accredited Investors who are not QIBs may hold their interests in the Global
Note directly through DTC if they are participants in such system, or
indirectly through organizations which are participants in such system.
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So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in any of the Global
Notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Notes.
Payments of the principal of, premium (if any) and interest (including
Additional Interest) on the Global Notes will be made to DTC or its nominee,
as the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest (including Additional Interest) in
respect of the Global Notes, will credit participants' accounts with payments
in amounts proportionate to their respective beneficial interests in the
principal amount of the Global Notes as shown on the records of DTC or its
nominee. The Company also expects that payments by participants to owners of
beneficial interests in the Global Notes held through such participants will
be governed by standing instructions and customary practice, as is now the
case with securities held for the accounts of customers registered in the
names of nominees for such customers. Such payments will be the responsibility
of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in a Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if
there is an Event of Default under the Indenture, DTC will exchange the Global
Notes for Certificated Securities, which it will distribute to its
participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Notes and a successor depositary is
not appointed by the Company within 90 days, Certificated Securities will be
issued in exchange for the Global Notes.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on April 11, 1997 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes to (i) qualified institutional buyers in
reliance on Rule 144A under the Securities Act, (ii) a limited number of
institutional accredited investors that agreed to comply with certain transfer
restrictions and other conditions and (iii) qualified buyers outside the
United States in reliance upon Regulation S under the Securities Act. As a
condition to the Purchase Agreement, the Company, the Subsidiary Guarantors
and the Initial Purchasers entered into the Registration Rights Agreement on
the date of the Initial Offering (the "Issue Date") pursuant to which each of
the Company and the Subsidiary Guarantors agreed, for the benefit of the
holders, that it will (i) within 60 days after the Issue Date (the "Filing
Date"), file a registration statement on an appropriate form (the "Exchange
Offer Registration Statement") with the Commission with respect to a
registered offer (the "Exchange Offer") to exchange the Old Notes for notes of
the Company, guaranteed by the Subsidiary Guarantors, which Exchange Notes
will have terms substantially identical in all material respects to the Old
Notes (except that the Exchange Notes will not contain terms with respect to
transfer restrictions) and (ii) use its reasonable best efforts to cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act within 120 days after the Issue Date. Upon the Exchange Offer
Registration Statement being declared effective, the Company and the
Subsidiary Guarantors will offer the Exchange Notes (and the related
guarantees) in exchange for surrender of the Old Notes (and the related
guarantees). The Company and the Subsidiary Guarantors will keep the Exchange
Offer open for not less than 30 days (or longer if required by applicable law)
after the date notice of the Exchange Offer is mailed to the holders of the
Old Notes. For each of the Old Notes surrendered pursuant to the Exchange
Offer, the holder who surrendered such Old Note will receive an Exchange Note
having a principal amount equal to that of the surrendered Old Note. Interest
on each Exchange Note will accrue (A) from the later of (i) the last interest
payment date on which interest was paid on the Old Note surrendered in
exchange therefor or (ii) if the Old Note is surrendered for exchange on a
date in a period which includes the record date for an interest payment date
to occur on or after the date of such exchange and as to which interest will
be paid, the date of such interest payment date or (B) if no interest has been
paid on such Old Note, from the Issue Date.
Under existing interpretations of the Commission contained in several no-
action letters to third parties, the Exchange Notes (and the related
guarantees) would be freely transferable by holders thereof other than
affiliates of the Company and the Subsidiary Guarantors after the Exchange
Offer without further registration under the Securities Act; provided,
however, that each holder that wishes to exchange its Old Notes for Exchange
Notes will be required to represent (i) that any Exchange Notes to be received
by it will be acquired in the ordinary course of its business, (ii) that at
the time of the commencement of the Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of Securities Act) of the Exchange Notes in violation of the
Securities Act, (iii) that it is not an "affiliate" (as defined in Rule 405
promulgated under the Securities Act) of the Company or the Subsidiary
Guarantors, (iv) if such holder is not a broker-dealer, that it is not engaged
in, and does not intend to engage in, the distribution of Exchange Notes and
(v) if such holder is a broker-dealer (a "Participating Broker-Dealer") that
will receive Exchange Notes for its own account in exchange for Notes that
were acquired as a result of market-making or other trading activities, that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Company and the Subsidiary Guarantors agreed for a period of up to
180 days after consummation of the Exchange Offer to make available a
prospectus meeting requirements of the Securities Act to Participating Broker-
Dealers and other persons, if any, with similar prospectus delivery
requirements for use in connection with any resale of such Exchange Notes.
If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Company and the Subsidiary
Guarantors are not permitted to effect an Exchange Offer, (ii) the Exchange
Offer is not consummated within 165 days of the Issue Date, (iii) in certain
circumstances, certain holders of unregistered Exchange Notes so request or
(iv) in the case of any holder that participates in the Exchange Offer, such
holder does not receive Exchange Notes on the date of the exchange that may be
sold without restriction
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under state and federal securities laws (other than due solely to the status
of such holder as an affiliate of the Company or the Subsidiary Guarantors
within the meaning of the Securities Act), then in each case, the Company and
the Subsidiary Guarantors will (x) promptly deliver to the holders and the
Trustee written notice thereof and (y) at the Company and the Subsidiary
Guarantors' sole expense, (a) as promptly as practicable, file a shelf
registration statement covering resales of the Old Notes (a "Shelf
Registration Statement"), (b) use its reasonable best efforts to cause such
Shelf Registration Statement to be declared effective under the Securities Act
and (c) use its reasonable best efforts to keep effective such Shelf
Registration Statement until the earlier of two years after the Issue Date and
such time as all of the applicable Old Notes have been sold thereunder. The
Company will, in the event of the filing of a Shelf Registration Statement,
provide to each holder of the Old Notes copies of the prospectus which is a
part of such Shelf Registration Statement, notify each such holder when such
Shelf Registration Statement has become effective and take certain other
actions as are required to permit unrestricted resales of the Old Notes. A
holder that sells its Old Notes pursuant to a Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject
to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such holder (including
certain indemnification obligations).
If the Company and the Subsidiary Guarantors fail to comply with the above
provisions or if such registration statement fails to become effective, then,
as liquidated damages, additional interest (the "Additional Interest") shall
become payable with respect to the Old Notes as follows:
(i) if (A) neither the Exchange Offer Registration Statement nor the
Shelf Registration Statement is filed with the Commission on or prior to
the applicable Filing Date or (B) notwithstanding that the Company and the
Subsidiary Guarantors have consummated or will consummate an Exchange
Offer, the Company and the Subsidiary Guarantors are required to file a
Shelf Registration Statement and such Shelf Registration Statement is not
filed on or prior to the date required by the Registration Rights
Agreement, then commencing on the day after either such required filing
date. Additional Interest shall accrue on the principal amount of the Old
Notes at a rate of 0.25% per annum for the first 90 days immediately
following each such filing date, such Additional Interest rate increasing
by an additional 0.25% per annum at the beginning of each subsequent 90-day
period; or
(ii) if (A) neither the Exchange Offer Registration Statement nor a Shelf
Registration Statement is declared effective by the Commission on or prior
to 120 days after the applicable filing date or (B) notwithstanding that
the Company and the Subsidiary Guarantors have consummated or will
consummate an Exchange Offer, the Company and the Subsidiary Guarantors are
required to file a Shelf Registration Statement and such Shelf Registration
Statement is not declared effective by the Commission on or prior to the
150th day following the date such Shelf Registration Statement was filed,
then, commencing on the day after the 150th day following the applicable
filing date. Additional Interest shall accrue on the principal amount of
the Old Notes at a rate of 0.25% per annum for the first 90 days
immediately following such date, such Additional Interest rate increasing
by an additional 0.25% per annum at the beginning of each subsequent 90-day
period; or
(iii) if (A) the Company and the Subsidiary Guarantors have not exchanged
Exchange Notes for all Old Notes validly tendered in accordance with the
terms of the Exchange Offer on or prior to the 45th day after the date on
which the Exchange Offer Registration Statement was declared effective or
(B) if applicable, the Shelf Registration Statement has been declared
effective and such Shelf Registration Statement ceases to be effective at
any time prior to the third anniversary of its effective date (other than
after such time as all Old Notes have been disposed of thereunder), then
Additional Interest shall accrue on the principal amount of the Old Notes
at a rate of 0.25% per annum for the first 90 days commencing on (x) the
46th day after such effective date, in the case of (A) above, or (y) the
day such Shelf Registration Statement ceases to be effective in the case of
(B) above, such Additional Interest rate increasing by an additional 0.25%
per annum at the beginning of each subsequent 90-day period;
provided, however, that the Additional Interest rate on the Old Notes may not
exceed in the aggregate 1.0% per annum; and provided further, that (1) upon
the filing of the Exchange Offer Registration Statement or Shelf
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Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Exchange Offer Registration Statement or Shelf
Registration Statement (in the case of (ii) above), or (3) upon the exchange
of Exchange Notes for all Old Notes tendered (in the case of clause (iii)(A)
above), or upon the effectiveness of the Exchange Offer Registration Statement
which had ceased to remain effective in the case of clause (iii)(B) above,
additional Interest on the Old Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash, on the same original interest payment
dates as the Old Notes. The amount of Additional Interest will be determined
by multiplying the applicable Additional Interest rate by the principal amount
of the Old Notes multiplied by a fraction, the numerator of which is the
number of days such Additional Interest rate was applicable during such period
(determined on the basis of a 360-day year comprised of twelve 30-day months),
and the denominator of which is 360.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which will be available upon request to the Company.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B
designation and a different CUSIP Number from the Old Notes, (ii) the Exchange
Notes have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (iii) the holders of the Exchange
Notes will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Old Notes in certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
terminated. The Exchange Notes will evidence the same debt as the Old Notes
and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Notes were outstanding. This Prospectus and the Letter of Transmittal
are being mailed to persons who were holders of Old Notes on the close of
business on the date of this Prospectus.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
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If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
March 11, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will notify the holders
by issuing a press release regarding such extension, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on April 15, 1998. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each April 15 and
October 15, commencing on April 15, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
For a holder to tender Old Notes validly pursuant to the Exchange Offer, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantee, or (in the case of a book-
entry transfer) an Agent's Message in lieu of the Letter of Transmittal, and
any other required documents must be received by the Exchange Agent at the
address set forth under "Exchange Agent" prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, prior to 5:00 p.m., New York City
time, on the Expiration Date, either (a) certificates for tendered Old Notes
must be received by the Exchange Agent at such address or (b) such Old Notes
must be transferred pursuant to the procedures for book-entry transfer
described below (and a confirmation of such tender received by the Exchange
Agent, including an Agent's Message if the tendering holder has not delivered
a Letter of Transmittal). The term "Agent's Message" means a message,
transmitted by the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), to and received by the Exchange Agent
and forming a part of a book-entry confirmation, which states that the Book-
Entry Transfer Facility has received an express acknowledgment from the
tendering participant that such participant has received and agrees to be
bound by the Letter of Transmittal and that the Company may enforce such
Letter of Transmittal against such participant.
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By executing the Letter of Transmittal (or, in the case of a book-entry
transfer, an Agent's Message in lieu thereof), each holder will make to the
Company the representations set forth above in the second paragraph under the
heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL, INCLUDING
DELIVERY THROUGH DTC AND ANY ACCEPTANCE OF AN AGENT'S MESSAGE TRANSMITTED
THROUGH THE DTC AUTOMATED TENDER OFFER PROGRAM, AND ALL OTHER REQUIRED
DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE
HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at the Book-Entry Transfer Facility, for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature guarantee, or (in the
case of a book-entry transfer) an Agent's Message in lieu of the Letter of
Transmittal, and all other required documents must in each case be transmitted
to and
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received or confirmed by the Exchange Agent at its address set forth below on
or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in their sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Issuer shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Issuer, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal (or, in the case of a book-entry transfer, an Agent's Message in
lieu thereof) or any other required documents to the Exchange Agent or (iii)
who cannot complete the procedures for book-entry transfer (including delivery
of an Agent's Message), prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution (i) an Agent's Message with respect to guaranteed
delivery that is accepted by the Company or (ii) a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder,
the certificate number(s) of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof) (or,
in the case of a book-entry transfer, an Agent's Message in lieu thereof)
together with the certificate(s) representing the Old Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof) (or, in the case of a book-entry transfer, an Agent's
Message in lieu thereof), as well as the certificate(s) representing all
tendered Old Notes in proper form for transfer (or a confirmation of book-
entry transfer of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent upon three New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
91
<PAGE>
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case
of Old Notes transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries;
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole judgment
of the Company, might materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and
return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders to withdraw
such Old Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
EXCHANGE AGENT
Harris Trust and Savings Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
92
<PAGE>
HARRIS TRUST AND SAVINGS BANK
C/O HARRIS TRUST COMPANY OF NEW YORK
By Mail: By Facsimile Transmission By Overnight Courier
Wall Street (for Eligible Institutions only): or Hand:
Station (212) 701-7636 Wall Street Plaza
P.O. Box 1010 (212) 701-7637 88 Pine Street, 19th
New York, NY 10268-1010 Floor
Attn: Reorganization Dept. New York, NY 10005
Attn: Reorganization
Dept.
Confirm by Telephone:
(212) 701-7624
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others to
solicit acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records
on the date of exchange. Accordingly, no gain or loss for accounting purposes
will be recognized by the Company. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A,
to a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
93
<PAGE>
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who receives Exchange Notes in exchange for Old Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating Broker-
Dealer that receives Exchange Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such Participating Broker-Dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the Exchange Notes are to
be acquired by the holder or the person receiving such Exchange Notes, whether
or not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act, and (v) the holder or any such other person acknowledges
that if such holder or other person participates in the Exchange Offer for the
purpose of distributing the Exchange Notes it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on those no-
action letters. As indicated above, each Participating Broker-Dealer that
receives a New Note for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see "Plan of Distribution."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based on the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service (the "Service") will not
take a contrary view, and no ruling from the Service has been or will be
sought. Legislative, judicial or administrative changes or interpretations may
be forthcoming that could alter or modify the statements and conditions set
forth herein. Any such changes or interpretations may or may not be
retroactive and could affect the tax consequences to holders. Certain holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules
not discussed below. The Company recommends that each holder consult such
holder's own tax advisor as to the particular tax consequences of exchanging
such holder's Old Notes for Exchange Notes, including the applicability and
effect of any state, local or foreign tax laws.
The Company believes that the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer will not be treated as an "exchange" for
federal income tax purposes because the Exchange Notes will not be
94
<PAGE>
considered to differ materially in kind or extent from the Old Notes. Rather,
the Exchange Notes received by a holder will be treated as a continuation of
the Old Notes in the hands of such holder. As a result, there will be no
federal income tax consequences to holders exchanging Old Notes for Exchange
Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Old Notes where such Old Notes were acquired as
a result of market-making activities or other trading activities. The Company
has agreed that for a period of up to 180 days after the Expiration Date, they
will make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale. In
addition, until May 11, 1998 (90 days after the commencement of the Exchange
Offer), all dealers effecting transactions in the Exchange Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of up to 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
EXPERTS
The Company's consolidated balance sheets as of September 30, 1997 and 1996,
and the consolidated statements of operations, of cash flows, and of changes
in stockholders' equity (deficit) for each of the three years in the period
ended September 30, 1997 included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The consolidated balance sheet of Milton Can and subsidiary as of December
31, 1995 and the related consolidated statements of earnings, stockholders'
equity, and cash flows for the year then ended incorporated herein by
reference to the Company's Current Report on Form 8-K/A dated May 28, 1996,
filed August 12, 1996 have been so incorporated by reference in reliance upon
the report of KPMG Peat Marwick LLP, independent accountants, given upon the
authority of said firm as experts in accounting and auditing.
95
<PAGE>
The Statements of Financial Position of Davies Can (a division of Crown Cork
& Seal Company, Inc.) as of December 31, 1995 and 1994 and the Statements of
Operations, of Cash Flows and of Owner's Net Investment for the years then
ended incorporated herein by reference to the Company's Current Report on Form
8-K/A dated June 17, 1996, filed August 30, 1996 have been so incorporated by
reference in reliance upon the report of Price Waterhouse LLP, independent
accountants, given upon the authority of said firm as experts in accounting
and auditing.
LEGAL MATTERS
The validity of the issuance of the Exchange Notes offered hereby will be
passed upon for the Company by Kirkland & Ellis, Chicago, Illinois. Certain
partners of Kirkland & Ellis beneficially own shares of the Company's Common
Stock.
96
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report.......................................... F-2
Consolidated Balance Sheets at September 28, 1997 and September 29,
1996................................................................. F-3
Consolidated Statements of Operations for each of the three years in
the period ended September 28, 1997.................................. F-4
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended September 28, 1997......................... F-5
Consolidated Statements of Cash Flows for each of the three years in
the period ended September 28, 1997.................................. F-6
Notes to Consolidated Financial Statements............................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
BWAY Corporation
We have audited the accompanying consolidated balance sheets of BWAY
Corporation and subsidiaries (the "Company") as of September 28, 1997 and
September 29, 1996 and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended September 28, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of September
28, 1997 and September 29, 1996 and the results of its operations and its cash
flows for each of the three years in the period ended September 28, 1997 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
November 10, 1997
F-2
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 1,374 $ 1,852
Accounts receivable, net of allowance for
doubtful accounts of $580 and $390.............. 41,806 39,011
Inventories...................................... 46,615 37,044
Other current assets............................. 2,150 1,293
Deferred tax asset............................... 5,111 2,405
-------- --------
Total current assets........................... 97,056 81,605
PROPERTY, PLANT, AND EQUIPMENT--Net................ 123,617 94,800
OTHER ASSETS:
Goodwill, net of accumulated amortization of
$5,464 and $2,825............................... 73,652 50,117
Intangible assets, net........................... 13,580 14,690
Deferred financing costs, net of accumulated
amortization of $541 and $83.................... 4,844 1,336
Other assets..................................... 3,628 2,585
-------- --------
Total other assets............................. 95,704 68,728
-------- --------
$316,377 $245,133
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................. $ 57,443 $ 36,206
Accrued salaries and wages....................... 8,949 4,820
Accrued income taxes............................. 1,338 759
Other current liabilities........................ 16,265 14,013
Accrued rebates.................................. 5,020 3,382
Current maturities of long-term debt............. 1,151 145
-------- --------
Total current liabilities...................... 90,166 59,325
LONG-TERM DEBT..................................... 114,381 95,053
LONG-TERM LIABILITIES:
Deferred income taxes............................ 14,969 14,135
Other............................................ 11,395 3,991
-------- --------
Total long-term liabilities.................... 26,364 18,126
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized
5,000,000 shares
Common stock, $.01 par value; authorized
24,000,000 shares, issued 9,851,002 and
6,564,546....................................... 99 66
Additional paid-in capital....................... 37,629 37,612
Retained earnings................................ 48,673 35,569
-------- --------
86,401 73,247
Less treasury stock, at cost, 51,790 and 49,186.. 935 618
-------- --------
Total stockholders' equity..................... 85,466 72,629
-------- --------
$316,377 $245,133
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1,
1997 1996 1995
------------- ------------- ----------
<S> <C> <C> <C>
NET SALES............................... $402,150 $283,105 $247,480
COSTS, EXPENSES, AND OTHER:
Cost of products sold (excluding
depreciation and amortization)....... 341,406 236,741 208,097
Depreciation and amortization......... 13,024 7,425 5,934
Selling and administrative expense.... 19,651 14,589 10,335
Provision for restructuring........... 12,860
Interest expense, net................. 10,649 4,872 5,211
Gain on curtailment of postretirement
benefits............................. (5,828)
AB leasing fees and expenses.......... 1,389
AB leasing termination expense........ 1,995
Other, net............................ 998 (340) (275)
-------- -------- --------
Total costs, expenses, and other.... 379,900 276,147 232,686
-------- -------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM..................... 22,250 6,958 14,794
PROVISION FOR INCOME TAXES.............. 9,146 3,239 6,021
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM........ 13,104 3,719 8,773
EXTRAORDINARY LOSS RESULTING FROM THE
EXTINGUISHMENT OF DEBT--Net of related
tax benefit of $1,683.................. (2,535)
-------- -------- --------
NET INCOME.............................. $ 13,104 $ 1,184 $ 8,773
======== ======== ========
EARNINGS PER COMMON SHARE:
Income before extraordinary item...... $ 1.31 $ 0.40 $ 1.24
Extraordinary item.................... (0.27)
-------- -------- --------
Net income.......................... $ 1.31 $ 0.13 $ 1.24
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................ 9,983 9,410 7,097
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF
SHARES
--------------- ADDITIONAL
COMMON TREASURY COMMON PAID-IN RETAINED TREASURY
STOCK STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
------ -------- ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE--October 2,
1994................... 4,195 (55) $38 $ 3,994 $23,230 $ (247) $27,015
Net income............ 8,773 8,773
Issuance of common
stock before Initial
Public Offering...... 65 1 504 505
Accretion of
redeemable common
stock................ (372) (372)
Lapse of put on
redeemable common
stock................ 4 296 2,754 3,054
Initial Public
Offering of common
stock................ 2,017 20 24,946 24,966
Common stock issued to
AB Leasing for
termination of
management contract.. 133 1 1,994 1,995
Purchase of treasury
stock................ (15) (99) (99)
----- ---- --- ------- ------- ------ -------
BALANCE--October 1,
1995................... 6,410 (70) 64 31,734 34,385 (346) 65,837
Net income............ 1,184 1,184
Issuance of common
stock for
acquisitions......... 155 656 2 5,984 8,614 14,600
Issuance of treasury
stock under employee
savings plan......... 31 6 583 589
Purchase of treasury
stock................ (650) (9,469) (9,469)
Other................. (112) (112)
----- ---- --- ------- ------- ------ -------
BALANCE--September 29,
1996................... 6,565 (33) 66 37,612 35,569 (618) 72,629
Net income............ 13,104 13,104
Issuance of common
stock for 3 for 2
stock split.......... 3,283 (17) 33 (33)
Issuance of treasury
stock under employee
savings plan......... 43 830 830
Purchase of treasury
stock................ (45) (1,147) (1,147)
Stock options
exercised............ 3 50 50
----- ---- --- ------- ------- ------ -------
BALANCE--September 28,
1997................... 9,851 (52) $99 $37,629 $48,673 $ (935) $85,466
===== ==== === ======= ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BWAY CORPORATION AND SUBSIDIAIRES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1,
1997 1996 1995
------------- ------------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................ $ 13,104 $ 1,184 $ 8,773
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................ 8,860 5,656 4,853
Amortization of goodwill and other
intangibles........................ 4,164 1,769 1,087
Amortization of deferred financing
costs.............................. 458 525 609
Write-off of deferred loan fees
related to debt extinguishment..... 2,466
Gain on curtailment of
postretirement benefits............ (5,828)
Provision for doubtful accounts..... 190 188 (224)
Restructuring charge................ 12,860
Loss (gain) on disposition of
property, plant, and equipment..... 1,397 (21) 68
Deferred income taxes............... 2,996 (4,837) 1,314
Termination of AB Leasing contract
through issuance of common shares.. 1,995
Changes in assets and liabilities,
net of effects of business
acquisitions:
Accounts receivable............... 2,953 3,271 (4,836)
Inventories....................... (1,088) (2,962) (730)
Other assets...................... 1,268 (54) 623
Accounts payable.................. 13,539 3,847 (1,597)
Accrued liabilities............... 249 1,628 (506)
Income taxes, net................. 2,851 131 642
-------- -------- -------
Net cash provided by operating
activities...................... 45,113 25,651 12,071
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.... (41,619) (69,697)
Capital expenditures.................. (22,961) (12,671) (13,593)
Proceeds from disposition of property,
plant, and equipment................. 21
Other................................. 302
-------- -------- -------
Net cash used in investing
activities...................... (64,278) (82,347) (13,593)
FINANCING ACTIVITIES:
Net borrowings (repayments) under bank
revolving credit agreement........... $(80,293) $ 93,770 $(5,000)
Proceeds from issuance of Notes....... 100,000
Extinguishment of long-term debt...... (50,000)
Net proceeds from Initial Public
Offering............................. 24,966
Proceeds from issuance of common stock
before Initial Public Offering....... 505
Repayments on long-term debt.......... (165) (2,095) (258)
Increase (decrease) in unpresented
bank drafts.......................... 4,208 4,335 403
Purchases of treasury stock........... (1,147) (9,469) (99)
Financing costs incurred.............. (3,966) (1,419) (75)
Other................................. 50 (112)
-------- -------- -------
Net cash provided by financing
activities...................... 18,687 35,010 20,442
-------- -------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS...................... (478) (21,686) 18,920
CASH AND CASH EQUIVALENTS:
Beginning of year..................... 1,852 23,538 4,618
-------- -------- -------
End of year........................... $ 1,374 $ 1,852 $23,538
======== ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:........
Interest............................ $ 5,666 $ 6,010 $ 4,636
======== ======== =======
Income taxes........................ $ 4,774 $ 6,544 $ 4,054
======== ======== =======
Details of businesses acquired were as
follows:.............................
Fair value of assets acquired....... $ 61,259 $107,553
Liabilities assumed................. (18,890) (22,256)
Value of common stock issued........ (14,600)
Long-term note issued............... (750) (1,000)
-------- --------
Net cash paid for acquisitions... $ 41,619 $ 69,697
======== ========
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Amounts owed for capital expenditures. $ 4,140
========
Common stock issued for acquisitions.. $ 14,600
======== ========
Common stock issued under employee
savings plan......................... $ 830 $ 589
======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
SEPTEMBER 28, 1997
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations--BWAY Corporation ("BWAY") is a holding company whose
subsidiaries, Brockway Standard, Inc. ("BSI"), Milton Can Company, Inc.
("MCC"), Brockway Standard (New Jersey), Inc. ("BSNJ"), Brockway Standard
(Ohio), Inc. ("BSO"), PlateMasters, Inc. ("PMI"), and Brockway Standard
(Canada), Inc. ("BSCI") (collectively the "Company") manufacture and
distribute metal containers in the United States and Canada.
Common Stock--On June 20, 1995, in connection with the Initial Public
Offering ("IPO") of the Company's stock, the Company increased the number of
common stock outstanding through an approximately 374-for-1 stock split.
On September 22, 1997, the Company increased the number of shares of common
stock outstanding through a 3-for-2 stock split, effected in the form of a
common stock dividend on the Company's issued and outstanding shares.
Accordingly, earnings per share and share data have been adjusted to give
retroactive effect to the stock splits for all periods presented.
Principles of Consolidation--The consolidated financial statements of the
Company include the accounts of BWAY and its wholly owned subsidiaries, BSI,
MCC, BSNJ, BSO, PMI, and BSCI. All material intercompany balances and
transactions have been eliminated in consolidation.
Fiscal Year--The Company operates on a 52/53-week fiscal year ending on the
Sunday closest to September 30 of the applicable year.
Inventories--Inventories are carried at the lower of cost or market, with
cost determined under the last-in, first-out (LIFO) method of inventory
valuation.
Property, Plant, and Equipment--Property, plant, and equipment is recorded
at cost. Depreciation is provided over the estimated useful lives of the
assets on a straight-line basis for financial reporting purposes. Expenditures
for major renewals and replacements are capitalized. Expenditures for
maintenance and repairs are charged to income as incurred. When property items
are retired or otherwise disposed of, amounts applicable to such units are
removed from the related asset and accumulated depreciation accounts and any
resulting gain or loss is credited or charged to income. Useful lives are
generally as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................... 17-30 years
Machinery and equipment....................................... 10-17 years
Furniture and fixtures........................................ 5-7 years
Computer systems.............................................. 5-7 years
</TABLE>
Computer Information Systems--Costs directly associated with the initial
purchase, development, and implementation of computer information systems are
deferred and included in property, plant, and equipment. Such costs are
amortized on a straight-line basis over the expected useful life of the
systems, principally five to seven years. Ongoing maintenance costs of
computer information systems are expensed.
Intangible Assets--Intangible assets consist of identifiable intangibles
(trademarks, customer lists, and covenants not-to-compete) and goodwill.
Identifiable intangibles are amortized over the term of the agreement (5 to 7
years) or estimated useful life (2 to 17 years). Goodwill is amortized over 30
years on a straight-line basis.
F-7
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred Financing Costs--Deferred financing costs are being amortized over
the term of the related loan agreement using the straight-line method, which
approximates the effective yield method.
Revenue Recognition--The Company recognizes revenue at the time the product
is shipped to the customer.
Accrued Rebates--The Company enters into contractual agreements for rebates
on certain products with its customers. As sales occur, a provision for
rebates is recorded as a reduction to arrive at net sales and is accrued on
the balance sheet.
Income Taxes--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") 109, "Accounting for
Income Taxes." SFAS 109 requires, among other things, the use of the liability
method of computing deferred income taxes. Under the liability method, the
effect of changes in corporate tax rates on deferred income taxes is
recognized currently as an adjustment to income tax expense. The liability
method also requires that deferred tax assets or liabilities be recorded based
on the difference between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of--The
Company adopted SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets To Be Disposed of," as of September 29, 1996. In
accordance with SFAS 121, the Company has elected to review for impairment, on
a quarterly basis, long-lived assets and certain identifiable intangibles
whenever events or changes in circumstances indicate that the carrying amount
of any asset may not be reasonable based on estimates of future undiscounted
cash flows. In the event of an impairment, the asset is written down to its
fair market value. Impairment of goodwill and write-down, if any, is measured
based on estimates of future undiscounted cash flows. Assets to be disposed of
are recorded at the lower of net book value or fair market value less cost to
sell at the date management commits to a plan of disposal. There was no
cumulative effect adjustment recorded upon adoption.
Cash and Cash Equivalents--For purposes of the presentation of the
consolidated statements of cash flows, the Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.
Accounting for Stock Options--The Company adopted SFAS 123, "Accounting for
Stock-Based Compensation," as of September 28, 1997. As permitted under the
statement, the Company has continued to account for stock-based compensation
under the intrinsic value method prescribed in Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees." Compensation cost for
employees' and directors' stock options is measured as the excess, if any, of
the quoted market price of the Company's stock at the date of grant over the
exercise price amount an employee or director must pay to acquire the stock.
Earnings Per Common Share--Earnings per common share are based on the
weighted average number of common shares and common stock equivalents
outstanding during each year. Common stock sold during the twelve-month period
prior to the June 1995 IPO has been included in the earnings per share
calculation for all periods presented in accordance with Staff Accounting
Bulletin 83. Common stock equivalents represent the dilutive effect of the
assumed exercise of the outstanding stock options. In February 1997, the
Financial Accounting Standards Board issued SFAS 128, "Earnings Per Share."
The Company has considered the impact of this new standard and does not
believe earnings per share determined under this statement are materially
different than earnings per share determined in accordance with current
accounting standards. The statement is effective for financial statements for
periods ending after December 15, 1997.
F-8
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications--Certain amounts in the previously reported financial
statements have been reclassified to conform to the current presentation.
2. ACQUISITIONS
Milton Can Company--On May 28, 1996, the Company acquired all of the
outstanding stock of Milton Can Company, Inc. This subsidiary was renamed
Brockway Standard (New Jersey), Inc. ("BSNJ"). BSNJ is a manufacturer of
paint, oblong, and specialty cans within the general line segment of the North
American metal container industry. The Company paid $13.4 million in cash, $1
million in notes, and $14.6 million in BWAY stock. The Company issued a total
of 1,216,455 shares in connection with the merger, comprised of 984,261 shares
of its treasury stock and 232,194 newly issued shares. In addition, the
Company repaid BSNJ's approximately $12.3 million in term and revolving bank
debt concurrent with consummation of the purchase transaction.
Davies Can Company--On June 17, 1996, the Company acquired substantially all
of the assets and assumed certain of the liabilities of Davies Can Company
("Davies"), an unincorporated division of the Van Dorn Company (a wholly owned
subsidiary of Crown Cork & Seal Company, Inc.). This subsidiary was renamed
Brockway Standard (Ohio), Inc. ("BSO"). BSO manufactures paint, oblong, and
utility cans within the general line segment of the North American metal
container industry. The Company paid approximately $41.7 million in cash,
subject to an adjustment based on the change in working capital from December
31, 1995 through June 17, 1996.
Ball Aerosol--On October 28, 1996, the Company acquired substantially all of
the assets related to the metal aerosol can business from Ball Metal Food
Container Corporation (the "BMFCC"), a wholly owned subsidiary of Ball
Corporation. This subsidiary was named Milton Can Company, Inc. ("MCC"). MCC
consists of a facility in Cincinnati which includes a material center and
substantially all the assets used in connection with the marketing,
distribution, selling, manufacturing, designing, and engineering of metal
aerosol cans. The Company paid approximately $42.4 million for the acquired
business. In its purchase price allocations for the acquisition, MCC reduced
the carrying value of the acquired property, plant and equipment assets since
MCC determined that the fair market value of the acquired assets was lower
than the historical cost of such assets.
Separately, the parties entered into supply agreements whereby certain
coating, decorating, and metal processing services will be provided by the
Company to the BMFCC.
The purchase method of accounting was used to establish and record a new
cost basis for the assets acquired and liabilities assumed. The operating
results for BSNJ, BSO, and MCC have been included in the Company's
consolidated financial statements since the dates of acquisition. The excess
of the aggregate purchase price over the aggregate fair market value of net
identifiable assets acquired was approximately $79 million.
The following pro forma results assume the acquisitions of BSNJ, BSO, and
MCC occurred at the beginning of the fiscal year ended September 29, 1996
after giving affect to certain pro forma adjustments, consisting of an
adjustment to reflect the amortization of cost in excess of the net assets
acquired, increased interest expense, and the estimated related income tax
effects:
F-9
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
---------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net sales..................................... $406,476 $413,750
Income before extraordinary item.............. 13,202 1,005
Net income (loss)............................. 13,202 (1,530)
Earnings (loss) per common share:
Income before extraordinary item............ 1.32 0.10
Net income (loss)........................... 1.32 (0.16)
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisitions been
consummated as of the beginning of each period presented, nor is it
necessarily indicative of future operating results.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
Inventories at FIFO cost:
Raw materials.............................. $12,661 $ 9,300
Work-in-progress........................... 23,603 18,601
Finished goods............................. 11,091 9,189
------- -------
47,355 37,090
LIFO reserve................................. (740) (46)
------- -------
$46,615 $37,044
======= =======
</TABLE>
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
Land.......................................... $ 3,788 $ 2,288
Building and improvements..................... 19,823 14,145
Machinery and equipment....................... 97,656 80,328
Furniture and fixtures........................ 3,320 2,535
Construction in progress...................... 24,126 12,423
-------- --------
148,713 111,719
Less accumulated depreciation................. 25,096 16,919
-------- --------
Property, plant, and equipment--net........... $123,617 $ 94,800
======== ========
</TABLE>
F-10
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
Customer lists................................ $ 7,486 $ 7,071
Tradename..................................... 4,704 4,704
Noncompete agreements......................... 4,494 4,494
------- -------
16,684 16,269
Less accumulated amortization................. 3,104 1,579
------- -------
$13,580 $14,690
======= =======
</TABLE>
6. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Included in accounts payable and accrued salaries and wages at September 28,
1997 and September 29, 1996 are bank drafts issued and outstanding for which
no rights of offset exist to cash and cash equivalents, as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
Bank drafts issued and outstanding included
in:
Accounts payable......................... $11,256 $7,942
Accrued salaries and wages............... 1,641 747
------- ------
$12,897 $8,689
======= ======
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
10.25% Notes.................................. $100,000
Credit agreement.............................. 13,500 $92,000
Other borrowings.............................. 2,032 3,198
-------- -------
115,532 95,198
Less current maturities of long-term debt..... 1,151 145
-------- -------
Total long-term debt...................... $114,381 $95,053
======== =======
</TABLE>
On June 17, 1996, the Company terminated its existing bank agreement and
entered into a new credit agreement with BT Alex Brown (formerly Bankers Trust
Company) and NationsBank, N.A. (the "Credit Agreement"). Initial borrowings
under the Credit Agreement were used to repay all obligations under the
Company's previous revolving credit facility. Funds from the Credit Agreement
were also used to prepay the $50 million private placement of 8.35% Senior
Secured Notes maturing September 1, 2001. In conjunction with the prepayment
of the Senior Secured Notes, the Company recorded an extraordinary loss
related to the early extinguishment of debt in the amount of $2.5 million, net
of taxes.
In October 1997, the Company amended its Credit Agreement. The amendment
provides the Company with lower interest rate margins and greater flexibility
with regard to growth investments in joint ventures and other subsidiaries.
The amendment also provides the Company with a second option to increase the
borrowing limit
F-11
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
by another $25 million for a maximum borrowing limit of $150 million, provided
certain conditions are met and provided that only one $25 million increase
occurs in any twelve-month period. The amendment also extends the expiration
of the Credit Agreement one year to June 17, 2002.
The Credit Agreement allows the Company to borrow up to $100 million or $150
million if certain conditions are met. The interest rates under the Credit
Agreement are based on rate margins for either prime rate as announced by
NationsBank from time to time ("Prime") or LIBOR, at the option of the
Company. The applicable rate margin is determined on a quarterly basis by a
review of the Company's leverage ratio. The Company's borrowing rate is at its
option either LIBOR plus 1.0%, or Prime. The Company's borrowing rate is
6.9375% at September 28, 1997. Loans under the Credit Agreement are unsecured
and can be prepaid at the option of the Company without premium or penalty.
The Credit Agreement is subject to certain restrictive covenants, including
covenants which require the Company to maintain a certain minimum level of net
worth and a maximum ratio for leverage. In addition, BWAY is restricted in its
ability to pay shareholder dividends and other restricted payments in an
amount greater than approximately $16.4 million at September 28, 1997 and to
incur additional indebtedness. The Company's subsidiaries are restricted in
their ability to transfer funds to the Company, except for funds to be used to
effect approved acquisitions, pay dividends, reimburse the Company for
operating and other expenditures made on behalf of the subsidiaries and repay
permitted intercompany indebtedness. Restricted net assets of the Company's
subsidiaries collectively amounted to approximately $71 million at September
28, 1997.
On April 11, 1997, the Company received the net proceeds of approximately
$96 million from a private placement of $100 million 10 1/4% Senior
Subordinated Notes due 2007 (the "Notes"). The net proceeds were used by the
subsidiaries to repay a portion of the Company's indebtedness under the Credit
Agreement.
Interest on the Notes is payable semi-annually in arrears on April 15 and
October 15 of each year, commencing on October 15, 1997. The Notes are general
unsecured senior subordinated obligations of the Company and are effectively
subordinated to all secured indebtedness, as defined, of the Company to the
extent of the value of the assets securing any such indebtedness. The Notes
are redeemable, in whole or in part, at the option of the Company, on or after
April 15, 2002 at the prices specified in the Notes (105.125% on April 15,
2002 declining annually to 100% on April 15, 2005). In addition, until April
15, 2000, the Company may, at its option, redeem up to 33 1/3% of the
aggregate principal amount of the Notes originally issued at a redemption
price equal to 110 1/4% of the principal amount thereof, plus accrued and
unpaid interest to the date of redemption, with the net cash proceeds of one
or more public or private sales of common stock of the Company, subject to
certain provisions of the indenture. Upon the occurrence of a Change in
Control, as defined in the Notes, the Company will be required to make an
offer to repurchase the Notes at 101% of the principal amount plus accrued and
unpaid interest to the date of repurchase. The Notes contain certain
restrictive covenants, including limitations on asset sales, additional
indebtedness, and mergers. In addition, the Company is restricted in its
ability to pay shareholder dividends and other restricted payments in an
amount greater than $29.3 million at September 28, 1997.
The Company has filed a registration statement relating to an offer to
exchange the Notes for the Company's 10 1/4% Senior Subordinated Notes due
2007, Series B (the "Exchange Notes"). BWAY is a holding company with no
independent operations although it incurs some limited expenses on behalf of
its operating subsidiaries. BWAY has no significant assets other than the
common stock of its subsidiaries. The Notes are, and the Exchange Notes will
be, fully and unconditionally guaranteed on a joint and several basis by
certain of the Company's direct and indirect subsidiaries. The subsidiary
guarantors are wholly owned by BWAY and constitute all of the direct and
indirect subsidiaries of BWAY except for four subsidiaries that are
individually, and in the aggregate, inconsequential. Separate financial
statements of the subsidiary guarantors are not presented because management
has determined that they would not be material to investors.
F-12
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Scheduled maturities of long-term debt as of September 28, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1998.......................... $ 1,151
1999.......................... 131
2000..........................
2001.......................... 750
2002.......................... 13,500
Thereafter.................... 100,000
--------
$115,532
========
</TABLE>
Based on quoted market prices and the borrowing rates currently available to
the Company for bank loans with similar terms and maturities, the fair value
of long-term debt at September 28, 1997 was estimated at $123.5 million and at
September 29, 1996 was estimated to approximate book value.
8. STOCKHOLDERS' EQUITY
Initial Public Offering
On June 20, 1995, the Company completed its IPO with the sale of 2,486,799
shares of common stock and realized net proceeds of approximately $20.3
million. On July 25, 1995, an additional 538,629 shares of the Company's stock
were sold to cover overallotments, providing additional net proceeds of
approximately $4.7 million.
Stock Option Plans
Immediately prior to the IPO in June 1995, the Company adopted the Brockway
Standard Holdings Corporation 1995 Long-Term Incentive Plan and the Formula
Plan for Non-Employee Directors (the "Formula Plan") for its directors,
officers, and key employees. On August 20, 1996, the Board of Directors i)
adopted the Amended and Restated 1995 Long-Term Incentive Plan (the "Amended
Incentive Plan"), which Amended Incentive Plan increased the aggregate number
of shares of common stock authorized for issuance under the Amended Incentive
Plan from 735,000 to 1,125,000, and ii) froze the Formula Plan with only
45,000 of the available 150,000 shares of common stock being granted
thereunder. The options generally become exercisable in installments of 33%
per year on each of the first through third anniversaries of the grant date
and the options expire ten years from date of grant; 4,200 of the options have
been exercised as of September 28, 1997.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted-
average assumption: expected dividends of 0.0%, expected volatility of 30.00%,
risk-free interest of 6.58%, and expected lives of 6.0 years.
F-13
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's two stock option plans as of
September 28, 1997 and changes during fiscal 1995, 1996, and 1997 is presented
below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
FIXED OPTIONS SHARES PRICE
------------- ------- --------
<S> <C> <C>
Outstanding at October 2, 1994......................... -- $ --
Granted.............................................. 319,500 9.81
Outstanding at October 1, 1995......................... 319,500 9.81
Granted.............................................. 579,600 12.49
Forfeited............................................ (6,300) 12.67
-------
Outstanding at September 29, 1996...................... 892,800 11.52
Granted.............................................. 66,300 14.06
Forfeited............................................ (12,600) 12.67
Exercised............................................ (4,200) 11.87
-------
Outstanding at September 28, 1997...................... 942,300 11.72
=======
Exercisable at October 1, 1995......................... -- --
=======
Exercisable at September 29, 1996...................... 113,100 9.78
=======
Exercisable at September 28, 1997...................... 368,100 10.99
=======
Weighted average grant date fair value of options
granted during the year ended September 28, 1997...... $ 6.15
=======
</TABLE>
The following table summarizes information about stock options outstanding
at September 28, 1997:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING AT REMAINING AVERATE EXERCISABLE AT AVERAGE
EXERICISE SEPTEMBER 28, CONTRACTUAL EXERCISE SEPTEMBER 28, EXERCISE
PRICE 1997 LIFE PRICE 1997 PRICE
--------- -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ 9.00-10.00 271,500 7.7 $ 9.67 186,000 $ 9.67
10.01-11.00 50,000 7.9 10.69 21,700 10.68
11.01-12.00 28,800 9.0 11.67 -- --
12.01-13.00 532,000 8.7 12.54 160,400 12.58
14.01-15.00 55,500 9.6 14.33 -- --
18.01-19.00 4,500 9.8 18.17 -- --
------- --- ------ ------- ------
942,300 8.4 $11.72 368,100 $10.99
======= === ====== ======= ======
</TABLE>
The range of exercise prices for options outstanding were $9.67 to $14.33
per share.
The fair value of options granted during the year ended September 28, 1997
was $380,000. The Company applies Accounting Principles Board Opinion 25 and
related Interpretations in accounting for its stock option plans. Accordingly,
no compensation cost has been recognized for its fixed stock option plans. Had
compensation cost for the Company's stock option plans been determined based
on the fair value at the grant dates for awards under those plans consistent
with the method of FASB Statement 123, the Company's net income and earnings
F-14
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
per share for each of the three years in the period ended September 28, 1997
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Net income to common shareholders (in thousands):
As reported...................................... $13,104 $1,184 $8,773
======= ====== ======
Pro forma.......................................... $12,334 $ 712 $8,671
======= ====== ======
Net income per common and common equivalent share:
As reported...................................... $ 1.31 $ 0.13 $ 1.24
======= ====== ======
Pro forma.......................................... $ 1.24 $ 0.08 $ 1.22
======= ====== ======
</TABLE>
Shareholder Rights Plan
The Company has a Shareholder Rights Plan, as amended by Amendment 1 to the
Rights Plan dated February 12, 1996, as amended by Amendment 2 to the Rights
Plan dated November 26, 1997 (as amended, the "Rights Plan"), under which a
preferred share purchase right is presently attached to and trades with each
outstanding share of the Company's common stock. The rights become exercisable
and transferable apart from the common stock after a person or group other
than an Exempt Person (as defined in the Rights Plan), without the Company's
consent, acquires beneficial ownership of, or the right to obtain beneficial
ownership of, 15% or more of the Company's common stock or ten business days
after a person or group announces or commences a tender offer or exchange
offer that could result in 15% ownership. Once exercisable, each right
entitles the holder to purchase one fifteen-hundredth share of Junior
Participating Series A Preferred Stock at an exercise price of $60 per share
subject to adjustment to prevent dilution. The rights have no voting power and
no current dilutive effect on earnings per common share. The rights expire on
June 15, 2005 and are redeemable at the discretion of the Board of Directors
at $.01 per share.
If a person acquires 15% ownership, except in an offer approved by the
Company under the Rights Plan, then each right not owned by the acquirer or
related parties will entitle its holder to purchase, at the right's exercise
price, additional shares of common stock or common stock equivalents. In
addition, after an acquirer obtains 15% ownership, if the Company is involved
in certain mergers, business combinations, or asset sales, each right not
owned by the acquirer or related persons will entitle its holder to purchase,
at the right's exercise price, additional shares of common stock of the other
party to the transaction.
9. INCOME TAXES
The Company files a consolidated federal income tax return. Deferred income
taxes are provided to recognize the differences between the carrying amount of
assets and liabilities for financial statement purposes and the amounts used
for income tax purposes.
F-15
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Components of net deferred tax liability are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29,
1996 1997
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant, and equipment.............. $23,071 $16,452
Inventory................................... 1,241 660
Other....................................... 114 1,097
------- -------
24,426 18,209
Deferred tax assets:
Restructuring and reorganization reserves... 4,685 2,279
Employee benefits........................... 7,836 1,404
Customer claims/rebates..................... 101 1,346
Accounts receivable......................... 230 244
Other....................................... 1,716 1,206
------- -------
14,568 6,479
------- -------
Net deferred tax liability................ $ 9,858 $11,730
======= =======
Net current deferred tax asset................ $(5,111) $(2,405)
Net noncurrent deferred tax liability......... 14,969 14,135
------- -------
$ 9,858 $11,730
======= =======
</TABLE>
The provision for income taxes is reconciled with the federal statutory rate
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ --------------
AMOUNT % AMOUNT % AMOUNT %
------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Income tax at federal statutory
rate.............................. $7,788 35.0% $2,435 35.0% $5,178 35.0%
State income taxes, net of federal
income tax benefit................ 549 2.5% 314 4.5% 562 3.8%
Nondeductible amortization of
intangibles....................... 754 3.4% 476 6.8% 304 2.1%
Other.............................. 55 0.2% 14 0.2% (23) (0.2)%
------ ----- ------ ----- ------ ------
$9,146 41.1% $3,239 46.5% $6,021 40.7%
====== ===== ====== ===== ====== ======
</TABLE>
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1,
1997 1996 1995
------------- ------------- ----------
<S> <C> <C> <C>
Current:
Federal.......................... $ 9,569 $ 7,265 $4,287
State............................ 1,449 811 420
Deferred........................... (1,872) (4,837) 1,314
------- ------- ------
$ 9,146 $ 3,239 $6,021
======= ======= ======
</TABLE>
10. LEASE COMMITMENTS
The Company leases warehouses, office space, equipment, and vehicles under
operating leases. Rent expense during each of the last three fiscal years was
approximately $4.2 million (1997), $3.3 million (1996), and $2.6 million
(1995).
F-16
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At September 28, 1997, future minimum rental payments under capitalized
leases and under noncancelable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
FISCAL YEAR
1998.................................................. $137 $ 3,526
1999.................................................. 137 2,633
2000.................................................. 1,964
2001.................................................. 1,679
2002.................................................. 1,202
Thereafter.............................................. 2,131
---- -------
Total minium lease payments............................. 274 $13,135
=======
Imputed interest at 8.66%............................... (22)
----
Present value of minimum capitalized lease payments..... $252
====
</TABLE>
11. PROFIT SHARING AND PENSION PLANS
The Company has qualified profit sharing and savings plans for specified
employees. These plans are contributory defined contribution plans which
provide for employee contributions with a Company matching provision, and for
certain employees a deferred profit sharing component funded by the Company.
The Company's net contributions to the profit sharing and savings plans for
each of the last three fiscal years were approximately $0.7 million (1997),
$1.5 million (1996), and $1.2 million (1995).
BSNJ has a noncontributory defined benefit pension plan covering a majority
of its salaried employees. The plan provides benefit payments using a formula
based on an employee's compensation and length of service. BSNJ funds the plan
in amounts equal to the minimum funding requirements of the Employee
Retirement Income Security Act of 1974, plus additional amounts as BSNJ
actuarial consultants advise to be appropriate and as management approves from
time to time. The Company froze this plan effective December 31, 1996.
The periodic net pension income related to continuing operations is
comprised of the following:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 28, 1996
(ACQUISITION)
YEAR ENDED THROUGH
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
Service cost--benefits earned during the
period..................................... $ 31,100 $ 42,000
Interest cost on projected benefit
obligation................................. 191,300 81,000
Actual return on assets..................... (399,800) (183,000)
--------- --------
Net pension income...................... $(177,400) $(60,000)
========= ========
</TABLE>
F-17
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table shows the plans' funded status and amounts recognized in
the balance sheet:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 28, 1996
(ACQUISITION)
YEAR ENDED THROUGH
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
Actuarial present value of benefit
obligations--Vested........................ $ 2,242,800 $ 2,288,000
=========== ===========
Accumulated benefit obligation.............. $ 2,242,800 $ 2,288,000
=========== ===========
Fair value of plan assets................. $ 4,911,800 $ 4,966,800
Projected benefit obligation.............. (2,242,800) (3,256,800)
----------- -----------
Funded status........................... 2,669,000 1,710,000
Unrecognized net gain....................... (832,500) (290,000)
Unrecognized prior service cost............. 327,200
----------- -----------
Prepaid pension expense..................... $ 2,163,700 $ 1,420,000
=========== ===========
The actuarial assumptions used were:
Discount rate............................. 7.25% 7.75%
==== ====
Rate of increase in compensation levels... 6.00% 6.00%
==== ====
Expected return on assets................. 9.00% 9.00%
==== ====
</TABLE>
Most of BSNJ's union employees are covered under multi-employer defined
benefit plans administered by the union. Total contributions charged to
expense for such plans are $0.7 million as of September 28, 1997.
In connection with the acquisition of MCC, the Company assumed three defined
benefit postretirement medical plans. These plans are noncontributory and
provide certain medical benefits after retirement to covered union employees.
In June 1997, the Company and employees belonging to one union representing
approximately 50% of the employees at MCC reached a new collective bargaining
agreement. One of the provisions of the new agreement eliminates
postretirement medical benefits provided by the Company which resulted in the
recording of a curtailment gain of approximately $5.8 million.
As of September 28, 1997, in accordance with the terms of two applicable
collective bargaining agreements the Company continues to offer postretirement
medical coverage to certain union employees who retire from employment at MCC.
Net periodic postretirement medical benefit plan expense from the period
October 28, 1996 (date of acquisition) through September 28, 1997 includes the
following components:
<TABLE>
<S> <C>
Service cost--benefits earned during the year................... $178,114
Interest cost on accumulated postretirement medical benefit plan
obligation..................................................... 471,914
--------
Net periodic postretirement medical benefit plan expense........ $650,028
========
</TABLE>
F-18
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the combined status of the defined benefit
postretirement medical benefit plans at September 28, 1997:
<TABLE>
<S> <C>
Accumulated postretirement medical benefit obligation:
Current retirees.......................................... $2,937,542
Fully eligible active plan participants................... 1,105,936
Employees not yet eligible for retirement................. 2,868,667
------------
Total accumulated postretirement medical benefit
obligation............................................. 6,912,145
Net periodic postretirement medical benefit plan expense.. 650,028
------------
Accrued postretirement medical benefit plan expense..... $7,562,173
============
The actuarial assumptions used were:
Discount rate............................................. 7.50%
============
Medical expense trend rate................................ 10.5% to 5.5%
============
Average retirement age.................................... 62
The 1983 Group Annuitant Mortality Table
</TABLE>
12. RELATED PARTY TRANSACTIONS
BSI was a party to a management agreement with AB Leasing and Management,
Inc. ("AB Leasing"), a company related by common ownership, whereby BSI paid
AB Leasing on an annual basis the greater of $200 thousand or 15% of net
income, as defined. Upon the completion of the IPO, the Company's management
agreement with AB Leasing was terminated. In connection with the termination,
the Company paid $1.995 million, through the issuance of 199,500 shares of
common stock to AB Leasing just prior to the effectiveness of the Offering.
The Company recorded a nonrecurring, noncash, pre-tax charge to operations of
$1.995 million in connection therewith in the third quarter of 1995. BSI
expensed fees of approximately $1.08 million in fiscal 1995 for management
services including strategic and financial planning. BSI also reimbursed AB
Leasing for certain expenses incurred on behalf of BSI amounting to
approximately $309 thousand in fiscal 1995.
BSNJ leases its primary operating facility under an operating lease from a
partnership in which certain members of the Company's management are partners.
The lease, which is for a five-year period ending on September 30, 1999 with
renewal options, carries a monthly lease payment of $52,457.
In 1997, 1996 and 1995, the Company purchased computer software and incurred
related implementation costs totaling approximately $0.6 million, $1.2 million
and $2.5 million, respectively, from a software company which has certain
directors who are also directors of the Company.
13. REORGANIZATION AND RESTRUCTURING
The acquisitions of BSNJ, BSO, and MCC have resulted in redundancy of
facilities and equipment. Management has committed to a plan to exit certain
activities of the acquired companies and integrate acquired assets and
businesses with BWAY facilities. In connection with recording the purchases,
the Company established reorganization liabilities of approximately $3.0
million and $2.8 million during fiscal 1997 and 1996, respectively, which were
classified as other current liabilities. The liabilities represent the direct
costs expected to be incurred which have no future economic benefit to the
Company and include charges relating to the closing of four manufacturing
facilities and severance costs. The reorganization liability includes the
following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
Closing/abandonment of facilities............. $1,395 $2,046
Severance and benefit costs................... 612
------ ------
$1,395 $2,658
====== ======
</TABLE>
F-19
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has charged approximately $4.3 million against the
reorganization liability during fiscal 1997 and approximately $114 thousand
during fiscal 1996.
Also, during the fourth quarter of fiscal 1996, the Company recorded a
restructuring charge comprised of a write-down of assets to be disposed
against operations of $12.9 million. Increased volume resulting from the
acquisitions provided the opportunity for the Company to consolidate certain
of its manufacturing processes to meet increased customer demand and improve
efficiencies, which will result in the disposal of surplus equipment and
currently productive manufacturing equipment for scrap values beginning in
early fiscal 1997 and ending in fiscal 1998. When fully implemented, the
rationalization is expected on an overall basis, to result in reduced overhead
expense, and enhanced operational efficiencies.
14. CONTINGENCIES
Environmental
The Company continues to monitor and evaluate on an ongoing and regular
basis its compliance with applicable environmental laws and regulations.
Expenditures are expensed or capitalized depending on their future economic
benefit. Expenditures that relate to an existing condition caused by past
operations and that have no future economic benefit are expensed. Liabilities
for noncapital expenditures are recorded when environmental remediation is
probable and the costs can be reasonably estimated. The Company believes that
it is in compliance in all material respects with applicable federal, state,
and local environmental regulations.
The Company (and, in some cases, predecessors to the Company) have, from
time to time, received requests for information or notices of potential
responsibility pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") with respect to certain waste
disposal sites utilized by former or current facilities of the Company or its
various predecessors. To the Company's knowledge, all such matters which have
not been resolved are, subject to certain limitations, indemnified by the
sellers of the relevant Company affiliates, and all such unresolved matters
have been accepted for indemnification by such sellers. Because liability
under CERCLA is retroactive, it is possible that in the future the Company may
incur liability with respect to other sites.
Environmental investigations voluntarily conducted by the Company at its
Homerville, Georgia facility in 1993 and 1994 detected certain conditions of
soil and groundwater contamination, that predated the Company's 1989
acquisition of the facility from Owens-Illinois. Such contamination is subject
to indemnification by Owens-Illinois. The Company and Owens-Illinois have
entered into a supplemental agreement affirming Owens- Illinois's
responsibility for this matter and establishing procedures for Owens-Illinois
investigation and remediation of the contamination. In 1994, the Georgia
Department of Natural Resources ("DNR") determined that further investigation
must be completed before DNR decides whether corrective action is needed.
Owens-Illinois' investigation of the contamination is continuing. Owens-
Illinois is managing the remediation activities and paying for such work
directly. Preliminary consultant estimates indicated that the cost of cleanup
could range from $1 million to $6 million, depending on the extent of
contamination. Since Owens-Illinois is conducting the work, management has no
way of determining the actual costs related to the clean-up efforts.
Management does not believe that the final resolution of this matter will have
a material adverse effect on the results of operations or financial condition
of the Company, and has not accrued a liability with respect to this matter
because it believes that a loss contingency is not probable.
The Cincinnati facility, which was acquired in the MCC Acquisition, is
listed on environmental agency lists as a site that may require investigation
for potential contamination. The listings could result in a requirement for
the Company to investigate and remediate the facility. To date, no agency has
required such action and the cost of any investigation or remediation can not
be reasonably estimated. BMFCC has agreed to indemnify the Company, subject to
certain limitations, for liabilities associated with the Cincinnati facility.
F-20
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At the Peabody, Massachusetts facility, which was previously leased by BSNJ,
groundwater remediation is underway. The owner of the facility has asserted
that BSNJ bears liability for costs associated with completing the
remediation. The Company believes that this claim is without merit and that
the facility owner is liable for remedial costs pursuant to the former lease.
The former shareholders of Milton Can, subject to certain limitations,
indemnified the Company for liabilities associated with the contamination.
Management believes that neither of the foregoing matters will have a
material adverse effect on the results of operations or financial condition of
the Company in light of both the potential indemnification obligations of
others to the Company and the Company's understanding of the underlying
potential liability.
Letters of Credit
At September 28, 1997, a bank had issued standby letters of credit on behalf
of BWAY in the aggregate amount of $1.2 million in favor of BWAY's workers'
compensation insurer.
15. CONCENTRATIONS OF CREDIT RISK
The Company sells its metal containers to a large number of customers in
numerous industry sectors. To reduce credit risk, the Company sets credit
limits and performs ongoing credit evaluations. Sales to the Company's ten
largest customers amounted to approximately 38% (1997), 39% (1996), and 43%
(1995), of the Company's sales including sales to one customer of 10% (1997),
13% (1996), and 13% (1995).
Although the Company's exposure to credit risk associated with nonpayment is
affected by conditions with the customers' industries, the balances are
substantially current and are within terms and limits established by the
Company. Accounts receivable from one customer amounted to approximately 11%
of total accounts receivable at September 29, 1996.
16. QUARTERLY INFORMATION (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- -------- -------- --------
<S> <C> <C> <C> <C>
FISCAL YEAR 1997:
Net sales................................ $91,166 $100,178 $109,676 $101,130
======= ======== ======== ========
Gross profit............................. $10,441 $ 14,560 $ 13,432 $ 13,451
======= ======== ======== ========
Net income............................... $ 1,418 $ 3,237 $ 4,399 $ 4,050
======= ======== ======== ========
Earnings per common share:
Net income............................. $ 0.15 $ 0.33 $ 0.44 $ 0.40
======= ======== ======== ========
FISCAL YEAR 1996:
Net sales................................ $58,154 $ 61,768 $ 73,715 $ 89,468
======= ======== ======== ========
Gross profit............................. $ 7,563 $ 9,985 $ 12,001 $ 11,159
======= ======== ======== ========
Income before extraordinary items........ $ 2,219 $ 2,788 $ 3,867 $ (5,155)
Extraordinary items...................... (2,535)
------- -------- -------- --------
Net income............................. $ 2,219 $ 2,788 $ 1,332 $ (5,155)
======= ======== ======== ========
Earnings per common share:
Income before extraordinary item....... $ 0.23 $ 0.31 $ 0.42 $ (0.52)
======= ======== ======== ========
Net income............................. $ 0.23 $ 0.31 $ 0.15 $ (0.52)
======= ======== ======== ========
</TABLE>
F-21
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED
HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH
IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICI-
TATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICI-
TATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUB-
SEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... iv
Incorporation of Certain Documents by Reference........................... v
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 13
Use of Proceeds........................................................... 19
Capitalization............................................................ 19
Selected Historical Consolidated Financial Data........................... 20
Unaudited Consolidated Pro Forma Condensed Financial Data................. 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 26
Business.................................................................. 32
Management................................................................ 41
Security Ownership of Certain Beneficial Owners and Management............ 52
Certain Relationships and Related Transactions............................ 54
Description of Credit Agreement........................................... 55
Description of Exchange Notes............................................. 56
Book-Entry; Delivery and Form............................................. 84
The Exchange Offer........................................................ 86
Certain Federal Income Tax Consequences................................... 94
Plan of Distribution...................................................... 95
Experts................................................................... 95
Legal Matters............................................................. 96
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
---------------------------
PROSPECTUS
---------------------------
$100,000,000
LOGO
OFFER TO EXCHANGE ITS 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B FOR
ANY AND ALL OF ITS OUTSTANDING 10 1/4% SENIOR SUBORDINATED
NOTES DUE 2007
LOGO
FEBRUARY 9, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
