AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 2003
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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U.S. CAN CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 3411 06-1094196
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</Table>
---------------------
UNITED STATES CAN COMPANY
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 3411 06-1145011
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</Table>
---------------------
USC MAY VERPACKUNGEN HOLDING INC.
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 3411 36-4335392
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</Table>
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700 EAST BUTTERFIELD ROAD, SUITE 250
LOMBARD, ILLINOIS 60148
TELEPHONE: (630) 678-8000
FACSIMILE: (630) 678-8135
(Address, including zip code, and telephone number, including area code, of each
registrant's principal executive offices)
---------------------
SANDRA VOLLMAN
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
UNITED STATES CAN COMPANY
700 EAST BUTTERFIELD ROAD, SUITE 250
LOMBARD, ILLINOIS 60148
TELEPHONE: (630) 678-8000
FACSIMILE: (630) 678-8135
(Name and address, including zip code, and telephone number, including area
code, of agent for service of process for each registrant)
---------------------
COPY TO:
JANE D. GOLDSTEIN, ESQ.
ROPES & GRAY LLP
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110
TELEPHONE: (617) 951-7000
FACSIMILE: (617) 951-7050
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE REGISTRATION FEE
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10 7/8% Series B Senior Secured Notes due
2010..................................... $125,000,000 100% $125,000,000 $10,113
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Guarantees of 10 7/8% Series B Senior
Secured Notes due 2010................... $125,000,000 (2) (2) None(2)
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</Table>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933.
(2) No further fee is payable pursuant to Rule 457(n) under the Securities Act
of 1933.
---------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED SEPTEMBER 19, 2003
PROSPECTUS
[USCAN LOGO]
UNITED STATES CAN COMPANY
OFFER TO EXCHANGE ALL OUTSTANDING
10 7/8% SENIOR SECURED NOTES DUE 2010
($125,000,000 AGGREGATE PRINCIPAL FOR AMOUNT OUTSTANDING)
FOR
10 7/8% SERIES B SENIOR SECURED NOTES DUE 2010
GUARANTEED BY U.S. CAN CORPORATION,
ITS PARENT, AND
USC MAY VERPACKUNGEN HOLDING INC.,
ITS WHOLLY-OWNED SUBSIDIARY
------------------
We are offering to exchange our 10 7/8% Series B Senior Secured Notes due
2010, or the exchange notes, for all of our outstanding 10 7/8% Senior Secured
Notes due 2010, or the notes. We refer to this offer as the exchange offer. We
are making this exchange offer on the terms and conditions set forth in this
prospectus and the accompanying letter of transmittal. We have registered the
exchange notes under the Securities Act of 1933, while we have not registered
the notes. The form and terms of the notes and the exchange notes are identical
in all material respects, except for various transfer restrictions and
registration rights relating to the notes.
The exchange offer will remain open for not less than 20 business days from
the date we mail notice of the exchange offer to note holders. We do not expect
to keep the exchange offer open for more than 30 business days from the mailing
date, including all extensions. We will accept for exchange all outstanding
notes validly tendered and not withdrawn prior to 12:00 midnight, New York City
time, on , 2003, unless we extend this exchange offer. You may
withdraw the tender of your notes at any time prior to this date and time.
Although our offer is subject to customary conditions, it is not conditioned
upon any minimum principal amount of notes being tendered for exchange.
Information about the exchange notes:
- The exchange notes will mature on July 15, 2010.
- We will pay interest on the exchange notes every six months, on January 15
and July 15 of each year, beginning on January 15, 2004.
- We may redeem the exchange notes at any time on or after July 15, 2007.
- On or before July 15, 2006, we may redeem up to 35% of the aggregate
principal amount of the exchange notes with the net proceeds of specified
public offerings of common equity by us.
- If we sell certain assets or experience specific kinds of changes in
control, we must offer to repurchase all or a portion of the exchange
notes.
- The exchange notes are our secured obligations and rank equal in right of
payment with all of our unsubordinated indebtedness and senior to all of
our future indebtedness that by its terms is subordinated to the exchange
notes.
We will not receive any proceeds from the issuance of the exchange notes. We
will pay all the expenses incurred by us in connection with this exchange offer
and the issuance of the exchange notes.
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a 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 broker-dealer in connection with resales of
exchange notes received in exchange for notes where the notes were acquired by
the broker-dealer as a result of market-making activities or other trading
activities. We have agreed that, starting on the expiration date of the exchange
offer and ending on the close of business one year after the expiration date, we
will make this prospectus available to any broker-dealer for use in connection
with any resale of the exchange notes. See "Plan of Distribution."
YOU SHOULD CAREFULLY REVIEW THE "RISK FACTORS" BEGINNING ON PAGE 11 IN
CONNECTION WITH THIS EXCHANGE OFFER AND AN INVESTMENT IN THE EXCHANGE NOTES.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the exchange notes or our offer of the
exchange notes or determined that this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
THE DATE OF THIS PROSPECTUS IS .
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Summary..................................................... 1
Risk Factors................................................ 11
Use of Proceeds............................................. 22
Capitalization.............................................. 22
Ratio of Earnings to Fixed Charges.......................... 23
Selected Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 42
Management.................................................. 52
Security Ownership of Certain Beneficial Owners and
Management................................................ 60
Certain Relationships and Related Party Transactions........ 62
Description of Certain Indebtedness......................... 64
Description of the Exchange Notes........................... 67
The Exchange Offer.......................................... 111
Material United States Federal Income Tax Considerations.... 120
Plan of Distribution........................................ 126
Legal Matters............................................... 127
Independent Auditors........................................ 127
Where You Can Find More Information......................... 127
Index to Consolidated Financial Statements.................. F-1
</Table>
---------------------
This prospectus contains summaries of the terms of several material
documents. These summaries include the terms that we believe to be material, but
are qualified in their entirety by reference to the full and complete text of
the related documents. We will make copies of these documents, which are not
filed as exhibits to the registration statement in which this prospectus is
included, available to you at your request.
This exchange offer is not being made to, and we will not accept surrenders
for exchange from, holders of the outstanding notes in any jurisdiction in which
the exchange offer or its acceptance would not comply with the securities or
blue sky laws of that jurisdiction.
All resales must be made in compliance with state securities or blue sky
laws. Compliance with these laws may require that the exchange notes be
registered or qualified in a state or that the resales be made by or through a
licensed broker-dealer, unless exemptions from these requirements are available.
We assume no responsibility for compliance with these requirements.
THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION. YOU SHOULD READ THIS PROSPECTUS AND THE LETTER OF
TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER YOUR OUTSTANDING NOTES
FOR EXCHANGE NOTES.
---------------------
i
MARKET AND INDUSTRY DATA
Unless otherwise indicated, the market share and industry data used
throughout this prospectus were obtained primarily from internal company surveys
and management estimates based on these surveys and our management's knowledge
of the industry. The Chemical Specialties Product Association, European Aerosol
Federation and Can Manufacturers Institute were the primary sources for third
party industry data. Industry surveys and publications generally state that the
information contained therein has been obtained from sources believed to be
reliable, but there can be no assurance as to the accuracy and completeness of
such information. We have not independently verified any of the data from
third-party sources. Similarly, internal company surveys and management
estimates, while we believe they are reliable, have not been verified by any
independent sources. While we are not aware of any misstatements regarding our
industry data presented in this prospectus, our estimates involve risks and
uncertainties and are subject to change based on various factors, including
those discussed under the heading "Risk Factors" in this prospectus.
TRADEMARKS
U.S. Can(R) and Plastite(R) are our trademarks. All other trademarks and
service marks used in this prospectus are the property of their respective
owners.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934. Forward-looking statements include statements concerning our plans,
objectives, goals, strategies, future events, future revenues or performance,
capital expenditures, financing needs, plans or intentions relating to
acquisitions and other information that is not historical information and, in
particular, appear under the headings "Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." When
used in this prospectus, the words "estimates," "expects," "anticipates,"
"projects," "plans," "intends," "believes" and variations of such words or
similar expressions are intended to identify forward-looking statements. All
forward-looking statements, including, without limitation, our examination of
historical operating trends, are based upon our current expectations and various
assumptions. Our expectations, beliefs and projections are expressed in good
faith and we believe there is a reasonable basis for them, but there can be no
assurance that our expectations, beliefs and projections will be realized.
There are a number of risks and uncertainties that could cause our actual
results to differ materially from the forward-looking statements contained in
this prospectus. Important factors that could cause our actual results to differ
materially from the forward-looking statements we make in this prospectus are
set forth in this prospectus, including the factors described under the heading
"Risk Factors." As stated elsewhere in this prospectus, such risks,
uncertainties and other important factors include, among others:
- general economic and business conditions;
- our substantial amount of debt and our ability to generate sufficient
cash flow to service our debt;
- our compliance with the financial covenants contained in our various debt
agreements;
- changes in competitive conditions in the markets or countries where we
operate;
- changes in demand for our products;
- the level of cost reductions achieved through restructuring and capital
expenditure programs;
- raw material costs and availability, particularly tin-plated steel;
- reductions in the market prices of our products;
- the loss of any significant customer;
ii
- risks associated with international operations, including foreign
currency fluctuations and devaluations and political instability in our
foreign markets;
- increases in our leverage;
- changes in interest rates;
- our ability to effectively integrate acquisitions;
- changes in our business strategy or development plans;
- the timing and cost of plant closures;
- our ability to successfully implement new manufacturing technology; and
- increases in the cost of compliance with laws and regulations, including
environmental laws and regulations.
There may be other factors that may cause our actual results to differ
materially from the forward-looking statements.
All forward-looking statements attributable to us or persons acting on our
behalf apply only as of the date of this prospectus and are expressly qualified
in their entirety by the cautionary statements included in this prospectus. We
undertake no obligation to publicly update or revise forward-looking statements
which may be made to reflect events or circumstances after the date made or to
reflect the occurrence of unanticipated events.
iii
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It does not contain all the information that you may consider important in
making your investment decision. Therefore, you should read the entire
prospectus carefully, including in particular the "Risk Factors" section. Except
as otherwise required by the context, references in this prospectus to "our
company," "we," "us," or "our" refer to U.S. Can Corporation and all of its
subsidiaries. All references to "U.S. Can" refer to U.S. Can Corporation,
references to the "Company" refer to United States Can Company and references to
"May" refer to May Verpackungen, one of our subsidiaries.
UNITED STATES CAN COMPANY
We are a leading manufacturer of steel containers for personal care,
household, automotive, paint, industrial and specialty products in the United
States and Europe, as well as plastic containers in the United States and food
cans in Europe. Our product offerings include a wide variety of steel
containers, such as aerosol cans, paint cans, oblong containers and a large
number of custom and specialty products and plastic containers for industrial
and consumer products. We have long-standing customer relationships with many
leading consumer products companies in the United States and Europe, including
Reckitt Benckiser, Sherwin Williams, S.C. Johnson, Unilever and L'Oreal. In
steel aerosol cans, we hold the number one market position in the United States
and the number two market position in Europe. We also hold the number two market
position in paint cans in the United States. We attribute our market leadership
to our ability to consistently provide high-quality products and service at
competitive prices, while continually improving our product-related
technologies.
For the fiscal year ended December 31, 2002, we reported net sales of
$796.5 million, and for the six month period ended June 29, 2003, we reported
net sales of $409.2 million. Our aerosol products globally represented
approximately 60% of our net sales for the same periods. Our domestic operations
represented approximately 70% of our net sales, with the remainder generated by
our European operations.
We have four business segments: Aerosol Products; International Operations;
Paint, Plastic and General Line Products and Custom and Specialty Products.
Our principal executive offices are located at 700 East Butterfield Road,
Suite 250, Lombard, Illinois 60148 (Telephone Number: (630) 678-8000).
THE REFINANCING
We used the $125 million in proceeds from the original offering of the
notes to prepay a portion of our senior secured credit facility. In addition, in
connection with the original offering of the notes, we amended our senior
secured credit facility to:
- permit the issuance of the notes and the second-priority liens securing
the notes;
- amend the levels we must achieve under our financial covenants relating
to our leverage ratio, interest coverage ratio, fixed charge coverage
ratio and minimum EBITDA, as defined under the senior secured credit
facility;
- allow us to apply the proceeds from the original offering of the notes to
make the required prepayment of our Tranche A term loan in direct order
of maturity;
- allow us to apply up to $55 million of the proceeds from the original
offering of the notes to repayment of our revolving credit facility
instead of our term loans; and
- permit us to re-borrow a portion of the aforementioned $55 million
repayment for potential repurchases of our outstanding 12 3/8% senior
subordinated notes due 2010.
We have incurred and re-borrowed approximately $6.4 million under our senior
secured credit facility in connection with the fees and expenses related to the
original offering of the notes and the amendment of our senior secured credit
facility. In addition, we expect to incur and re-borrow an additional $1.2
million for other fees and expenses related to the original offering of the
notes. We refer to the original offering of the notes, the application of the
proceeds from that offering, the amendment of our senior secured credit facility
and the payment of associated fees and expenses in this prospectus as the
"refinancing."
1
THE EXCHANGE OFFER
The exchange offer relates to the exchange of up to $125,000,000 aggregate
principal amount of our outstanding 10 7/8% Senior Secured Notes due 2010 for an
equal aggregate principal amount of our new 10 7/8% Series B Senior Secured
Notes due 2010. The exchange notes will be obligations of United States Can
Company entitled to the benefits of the indenture governing the outstanding
notes.
Registration Rights
Agreement..................... You are entitled to exchange your notes for
exchange notes with terms that are identical in
all material respects to the notes. The
exchange offer is intended to satisfy these
rights. After the exchange offer is complete,
you may no longer be entitled to the benefits
of the rights granted under the registration
rights agreement that we entered into as part
of the offering of the notes.
The Exchange Offer............ We are offering to exchange $1,000 principal
amount of exchange notes, which have been
registered under the Securities Act, for each
$1,000 principal amount of notes that were
issued on July 22, 2003 in a transaction exempt
from registration under the Securities Act.
Each of your notes must be properly tendered
and accepted in order to be exchanged. We will
exchange all notes that are properly tendered
and not validly withdrawn.
As of the date of this prospectus, there are
$125,000,000 in aggregate principal amount of
notes outstanding.
We will issue the exchange notes on or promptly
after the expiration of the exchange offer.
Expiration Date............... The exchange offer will expire at 12:00
midnight, New York City time, on ,
unless we decide to extend the exchange offer.
Conditions to the Exchange
Offer......................... The exchange offer is subject to the condition
that it does not violate applicable law or
interpretations of the staff of the Commission.
If we determine that applicable federal law
does not permit the exchange offer, we may
terminate the offer. The exchange offer is not
conditioned upon any minimum principal amount
of outstanding notes being tendered. The
holders of notes have rights under the
registration rights agreement should we fail to
consummate the exchange offer.
Persons who acquire the exchange notes are
responsible for compliance with the state
securities or blue sky laws regarding resales.
We assume no responsibility for compliance with
these requirements.
Resales of the Exchange
Notes......................... We believe that you may offer for resale,
resell or otherwise transfer the exchange notes
without complying with the registration and
prospectus delivery requirements of the
Securities Act if you:
- acquire the exchange notes issued in the
exchange offer in the ordinary course of your
business;
- are not participating, do not intend to
participate and have no arrangement or
undertaking with anyone to participate, in
the
2
distribution of the exchange notes issued to
you in the exchange offer; and
- are not an "affiliate" of ours as defined in
Rule 405 of the Securities Act.
We have based our belief on the interpretations
of the staff of the Commission set forth in
no-action letters issued to other companies. We
have not, however, requested the Commission to
issue an interpretation with respect to resales
of the exchange notes, and we do not expect to
do so in the future.
If any of these conditions are not satisfied
and you transfer any exchange notes without
delivering a proper prospectus or without
qualifying for a registration exemption, you
may incur liability under the Securities Act.
We will not be responsible for or indemnify you
against any liability you may incur. Each
broker-dealer that receives exchange notes for
its own account in exchange for notes, where
the notes were acquired by a 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 those exchange notes. See "Plan
of Distribution."
This offer is not being made to, nor will we
accept surrenders for exchange from, holders of
notes in any jurisdiction in which this offer
or its acceptance would not comply with the
securities or blue sky laws of that
jurisdiction. Furthermore, persons who acquire
the exchange notes are responsible for
compliance with these securities or blue sky
laws regarding resales. We assume no
responsibility for compliance with these
requirements.
Accrued Interest on the
Exchange Notes and the
Notes......................... Interest on each exchange note will accrue from
the last date on which interest was paid on the
note being tendered for exchange or, if no
interest has been paid, from the date on which
the notes were issued in the original offering.
Consequently, holders who exchange their
outstanding notes for exchange notes will
receive the same interest payment on January
15, 2004 (the first interest payment date with
respect to the notes and the exchange notes to
be issued pursuant to the exchange offer) that
they would have received had they not accepted
the exchange offer. Interest on the notes
accepted for exchange will cease to accrue upon
issuance of the exchange notes.
Procedures for Tendering
Exchange Notes................ If you wish to tender your notes for exchange
pursuant to the exchange offer, you must
transmit to Wells Fargo Bank Minnesota,
National Association, as exchange agent, on or
prior to the expiration date either:
- a properly completed and duly executed copy
of the letter of transmittal accompanying
this prospectus, or a facsimile of the letter
of transmittal, together with your notes and
any other documentation required by this
letter of transmittal, at the
3
address set forth on the cover page of the
letter of transmittal; or
- if you are effecting delivery by book-entry
transfer, a computer-generated message
transmitted by means of the Automated Tender
Offer Program System of The Depository Trust
Company in which you acknowledge and agree to
be bound by the terms of the letter of
transmittal and which, when received by the
exchange agent, forms a part of a
confirmation of book-entry transfer.
In addition, you must deliver to the exchange
agent on or prior to the expiration date:
- if you are effecting delivery by book-entry
transfer, a timely confirmation of book-entry
transfer of your notes into the account of
the exchange agent at The Depository Trust
Company pursuant to the procedures for
book-entry transfers described in this
prospectus under the heading "The Exchange
Offer -- Procedures for Tendering;" or
- if necessary, the documents required for
compliance with the guaranteed delivery
procedures described in this prospectus under
the heading "The Exchange Offer -- Guaranteed
Delivery Procedures."
By executing and delivering the accompanying
letter of transmittal or effecting delivery by
book-entry transfer, you are representing to us
that, among other things, (i) the person
receiving the exchange notes pursuant to the
exchange offer, whether or not this person is
the holder, is receiving them in the ordinary
course of business, (ii) neither the holder nor
any other person receiving the exchange notes
pursuant to the exchange offer has an
arrangement or understanding with any person to
participate in the distribution of such
exchange notes and that such holder is not
engaged in, and does not intend to engage in, a
distribution of the exchange notes, and (iii)
neither the holder nor any other person
receiving the exchange notes pursuant to the
exchange offer is an "affiliate" of ours within
the meaning of Rule 405 under the Securities
Act.
Special Procedures for
Beneficial Owners............. If you are a beneficial owner of notes and your
name does not appear on a security listing of
The Depository Trust Company as the holder of
those notes or if you are a beneficial owner of
notes that are registered in the name of a
broker, dealer, commercial bank, trust company
or other nominee and you wish to tender those
notes in the exchange offer, you should
promptly contact the person in whose name your
notes are registered and instruct that person
to tender on your behalf. If you, as a
beneficial holder, wish to tender on your own
behalf you must, prior to completing and
executing the letter of transmittal and
delivering your notes, either make appropriate
arrangements to register ownership of the notes
in your name or obtain a properly completed
bond power from the registered holder. The
transfer of record ownership may take
considerable time.
4
Guaranteed Delivery
Procedures.................... If you wish to tender your notes and time will
not permit the letter of transmittal or any of
the documents required by the letter of
transmittal to reach the exchange agent by the
expiration date, or the procedure for
book-entry transfer cannot be completed on time
or certificates for your notes cannot be
delivered on time, you may tender your notes
pursuant to the guaranteed delivery procedures
described in this prospectus under the heading
"The Exchange Offer -- Guaranteed Delivery
Procedures."
Shelf Registration
Statement..................... If any changes in law or of the applicable
interpretation of the staff of the Commission
do not permit us to effect the exchange offer,
we do not complete the exchange offer within
180 days of the original offering of the notes
or upon the request of any holder of the notes
under specified circumstances, we have agreed
to register the notes on a shelf registration
statement and to use our best efforts to cause
this shelf registration statement to be
declared effective by the Commission. We have
agreed to maintain the effectiveness of the
shelf registration statement for, under
specified circumstances, at least two years
from the date the shelf registration statement
is declared effective.
Withdrawal Rights............. You may withdraw the tender of your notes at
any time prior to 12:00 midnight, New York City
time, on the expiration date.
Acceptance of Outstanding
Notes and Delivery of Exchange
Notes......................... Subject to certain conditions, we will accept
for exchange any and all notes that are
properly tendered and not validly withdrawn.
The exchange notes issued pursuant to the
exchange offer will be delivered promptly
following the expiration date.
U.S. Federal Income Tax
Consequences.................. The exchange of notes for the exchange notes
should not be a taxable exchange for United
States federal income tax purposes. See
"Certain United States Federal Tax
Considerations."
Use of Proceeds............... We will not receive any proceeds from the
issuance of the exchange notes. We will pay all
of our expenses relating to the exchange offer.
Exchange Agent................ Wells Fargo Bank Minnesota, National
Association is serving as exchange agent in
connection with the exchange offer. The
exchange agent can be reached at: Sixth and
Marquette, MAC N9303-120, Minneapolis,
Minnesota 55479. For more information with
respect to the exchange offer, please contact
the exchange agent at (800) 344-5128 or send
your questions by facsimile to the exchange
agent at (612) 667-4927.
5
THE EXCHANGE NOTES
GENERAL....................... The form and terms of the exchange notes are
identical in all material respects to the form
and terms of the notes except that:
- the exchange notes will bear a Series B
designation;
- we will have registered the exchange notes
under the Securities Act and, therefore, they
generally will not bear legends restricting
their transfer; and
- the holders of exchange notes will not be
entitled to rights under the registration
rights agreement.
The exchange notes will evidence the same debt
as the notes and will be entitled to the
benefits of the indenture under which the notes
were issued.
Issuer........................ United States Can Company.
Notes Offered................. $125.0 million principal amount of 10 7/8%
Series B Senior Secured Notes due 2010.
Maturity Date................. July 15, 2010.
Interest Payment Dates........ January 15 and July 15, commencing January 15,
2004.
Ranking....................... The exchange notes will be our secured
obligations and will rank pari passu in right
of payment with all of our unsubordinated
indebtedness and senior in right of payment to
all of our future indebtedness that by its
terms is junior or subordinated in right of
payment to the exchange notes. As of June 29,
2003, after giving effect to the refinancing,
we would have had approximately $575.5 million
of outstanding indebtedness, $175.9 million of
which would have been subordinated to the
exchange notes.
Collateral.................... The exchange notes will be secured by
second-priority liens, subject to certain
exceptions and permitted liens, on
substantially all of our, our domestic
subsidiaries' and our parent's existing and
after-acquired assets for which a first
priority lien has been granted to the lenders
under our senior secured credit facility, which
we refer to in this prospectus as the
"collateral."
The indenture and the security documents
relating to the exchange notes permit us to
incur additional debt and other obligations
which may also be secured by liens on the
collateral that are senior to or pari passu
with the second-priority lien securing the
exchange notes subject to certain restrictions.
No appraisals of any collateral have been
prepared by us or on our behalf in connection
with this offering. The value of the collateral
at any time will depend on market and other
economic conditions, including the availability
of suitable buyers for the collateral.
The first-priority liens on all or a portion of
the collateral may be released as more fully
provided under the security documents governing
the senior secured credit facility, whereupon
under certain circumstances the second-priority
lien that secures the
6
exchange notes on such released collateral
shall automatically be released without the
consent of the holders of the exchange notes.
In addition, the lenders under the senior
secured credit facility will have the sole
ability to control the exercise of remedies
with respect to the collateral. In the event of
a liquidation of the collateral, the proceeds
may not be sufficient to satisfy the
obligations under the senior secured credit
facility or the exchange notes. See "Risk
Factors -- Risks Related to Your Investment in
the Exchange Notes -- The value of the
collateral securing the exchange notes may not
be sufficient to satisfy obligations under the
exchange notes and the collateral securing the
exchange notes may be reduced or diluted under
certain circumstances" and "-- The lenders
under our senior secured credit facility will
have the sole right to exercise remedies
against the collateral for so long as the
senior secured credit facility is outstanding,
including releasing the collateral securing the
exchange notes." You should read "Description
of the Exchange Notes -- Security" for a more
complete description of the security granted to
the holders of the exchange notes.
Optional Redemption........... At any time and from time to time on or after
July 15, 2007, we may redeem the exchange notes
in whole or in part, at redemption prices set
forth in the section entitled "Description of
the Exchange Notes -- Redemption," plus accrued
and unpaid interest, if any, to the redemption
date.
Optional Redemption After Some
Equity Offerings.............. At any time and from time to time on or before
July 15, 2006, we may use the proceeds of a
prior equity offering to redeem up to 35% of
the aggregate principal amount of the exchange
notes at a redemption price equal to 110.875%
of the principal amount thereof, plus accrued
and unpaid interest, if any, through the date
of redemption if at least 65% of the aggregate
principal amount of the exchange notes
originally issued remains outstanding
immediately after giving effect to the
redemption.
Change of Control............. Upon a change of control, as defined under the
section entitled "Description of the Exchange
Notes -- Change of Control," you will have the
right, as a holder of exchange notes, to
require us to repurchase all or part of your
exchange notes at a price equal to 101% of the
principal amount thereof, plus accrued and
unpaid interest, if any, to the date of
repurchase.
Guarantee..................... United States Can Company's obligations under
the exchange notes will be guaranteed on a
senior secured basis by its parent, U.S. Can,
and all of its domestic subsidiaries, which we
collectively refer to as the guarantors. None
of our foreign subsidiaries will guarantee the
exchange notes. The guarantees will be general
secured obligations of the guarantors and will
rank pari passu with all existing and future
indebtedness of the guarantors that is not, by
its terms, expressly subordinated in right of
payment to the guarantees. See "Description of
the Exchange Notes -- Parent and Subsidiary
Guarantees."
7
Restrictive Covenants......... The indenture governing the exchange notes
limits our ability and the ability of our
restricted subsidiaries to:
- incur more debt;
- create liens;
- repurchase stock, repurchase subordinated
debt and make certain investments;
- pay dividends, make loans or transfer
property or assets;
- enter into sale and leaseback transactions;
- transfer or dispose of substantially all of
our assets; and
- engage in transactions with affiliates.
These covenants are subject to a number of
important exceptions and limitations that are
described under the heading "Description of the
Exchange Notes."
Risk Factors.................. You should consider carefully all of the
information set forth in this prospectus and,
in particular, you should evaluate the specific
factors set forth under "Risk Factors" in
deciding whether to invest in the exchange
notes.
8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
OF U.S. CAN CORPORATION AND ITS SUBSIDIARIES
The following tables present our summary financial data. The summary
historical financial data for the years ended December 31, 1998 through 2002
have been derived from our audited consolidated financial statements. The
summary financial data for the six months ended June 30, 2002 and June 29, 2003
have been derived from our unaudited interim condensed consolidated financial
statements, which in our opinion include all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for the fair
presentation of our financial position and results of operations for these
periods. Operating results for the six months ended June 29, 2003 are not
necessarily indicative of results that may be expected for the entire year or
any future period.
We have not provided separate financial statements or data for the Company
in this prospectus. U.S. Can's only assets are its investment in and advances to
the Company. We believe that the financial statements of U.S. Can and the
consolidated financial statements of the Company do not vary significantly. We
believe that the material differences are, and will be, related to stockholders'
equity and intercompany indebtedness.
The following summary historical financial data should be read in
conjunction with "Capitalization," "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the notes thereto included elsewhere
in this prospectus.
<Table>
<Caption>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------
--------------------------------------------- JUNE 30, JUNE 29,
1998 1999 2000 2001 2002 2002 2003
------ ------ ------- ------- ------- -------- --------
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Net sales................................ $731.0 $732.9 $ 809.5 $ 772.2 $ 796.5 $ 389.7 $ 409.2
Cost of sales............................ 638.9 630.4 693.2 695.5 710.4 347.8 363.1
------ ------ ------- ------- ------- ------- -------
Gross income............................. 92.1 102.5 116.3 76.7 86.1 41.9 46.1
Selling, general and administrative
expenses............................... 34.5 35.5 45.9 46.6 37.9 19.2 18.4
Special charges(1)....................... 35.9 -- 3.3 36.2 8.7 -- 1.6
Recapitalization charge(2)............... -- -- 18.9 -- -- -- --
------ ------ ------- ------- ------- ------- -------
Operating income (loss).................. 21.7 67.0 48.2 (6.1) 39.5 22.7 26.1
Interest expense......................... 34.9 29.9 40.5 57.3 55.4 27.9 28.3
Loss from early extinguishment of
debt(3)................................ -- 2.1 24.2 -- -- -- --
------ ------ ------- ------- ------- ------- -------
Income (loss) before income taxes........ (13.2) 35.0 (16.5) (63.4) (15.9) (5.2) (2.2)
Provision (benefit) for income taxes..... (5.7) 13.8 (5.0) (23.0) 37.6 (1.9) 2.9
------ ------ ------- ------- ------- ------- -------
Income (loss) from continuing operations
before discontinued operations and
cumulative effect of accounting
change................................. (7.5) 21.2 (11.5) (40.4) (53.5) (3.3) (5.1)
Net loss on sale of discontinued
business(4)............................ (8.5) -- -- -- -- -- --
Cumulative effect of accounting change,
net of income taxes(5)................. -- -- -- -- (18.3) (18.3) --
Preferred stock dividend requirement..... -- -- (2.6) (11.3) (12.5) (6.0) (6.6)
------ ------ ------- ------- ------- ------- -------
Net income (loss) attributable to common
stockholders........................... $(16.0) $ 21.2 $ (14.1) $ (51.7) $ (84.3) $ (27.6) $ (11.7)
====== ====== ======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
Depreciation and amortization............ 35.4 31.9 33.7 34.6 36.1 17.7 18.3
Capital expenditures..................... 22.8 31.0 24.5 19.5 27.2 11.0 7.4
Ratio of earnings to fixed charges(6).... * 2.1x * * * * *
</Table>
9
<Table>
<Caption>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------
--------------------------------------------- JUNE 30, JUNE 29,
1998 1999 2000 2001 2002 2002 2003
------ ------ ------- ------- ------- -------- --------
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 18.1 $ 15.7 $ 10.8 $ 14.7 $ 11.8 $ 16.5 $ 19.0
Working capital.......................... 76.1 37.7 74.2 64.3 44.5 72.6 53.3
Total assets............................. 555.6 663.6 637.9 634.4 578.8 641.1 608.1
Total debt............................... 316.7 359.3 495.0 536.8 549.7 554.8 567.9
Redeemable Preferred Stock............... -- -- 109.3 120.6 133.1 126.7 139.8
Stockholders' equity/(deficit)........... 50.2 68.6 (174.3) (247.1) (343.8) (275.2) (345.5)
</Table>
- ---------------
(1) In 1998, we established a restructuring provision for closure of the Green
Bay, Wisconsin aerosol assembly plant, the Alsip, Illinois general line
plant, and the Columbiana, Ohio specialty plant; a write-down to estimated
proceeds for the sale of the metal closure business located in Glen Dale,
West Virginia; and selected closures and realignment of facilities servicing
the lithography needs of our core businesses. In 2000, we announced a
reduction in force program. In 2001, we initiated several restructuring
programs that consisted of a voluntary termination program, the closure of
five manufacturing facilities and the consolidation of two other facilities
into a new facility in Atlanta, Georgia. See Note (4) of the audited
consolidated financial statements for a description of the 2002, 2001 and
2000 special charges and Note (3) to our unaudited consolidated financial
statements as of June 29, 2003 for a discussion of the special charge in the
first six months of 2003.
(2) See Note (3) to the audited consolidated financial statements.
(3) In April of 2002, the FASB issued Statement of Financial Accounting Standard
No. 145 (SFAS No. 145) related to gains and losses on extinguishment of
debt. We have adopted SFAS No. 145 and have determined that the losses in
2000 and 1999 do not meet the criteria in Opinion 30 for classification as
an extraordinary item. As such, we have reported our 2000 and 1999 losses
from early extinguishment of debt as deductions from income before income
taxes. See Note (2)(n) to the audited consolidated financial statements for
further details on SFAS No. 145. See Note (6) to the audited consolidated
financial statements for further details relating to the early
extinguishment of debt.
(4) On November 9, 1998, we sold our commercial metal services business for net
cash proceeds of $28 million. We recorded an incremental $8.5 million
after-tax charge for the loss on this sale.
(5) See Note (15) to the audited consolidated financial statements.
(6) For purposes of computing the ratio of earnings to fixed charges, earnings
represents earnings from continuing operations plus fixed charges. Fixed
charges include interest expense on indebtedness, amortization of debt
discount and the portion of rent deemed representative of an interest factor
and preferred stock dividend requirements. Approximately, $13.2 million,
$18.1 million, $70.4 million and $23.6 million of additional pre-tax
earnings for the fiscal years ended December 31, 1998, 2000, 2001 and 2002,
respectively, and approximately $8.9 million and $6.3 million of additional
pre-tax earnings for the first six months of 2002 and 2003, respectively,
would have been required for us to have achieved a ratio of earnings to
fixed charges of 1.0x for those periods.
10
RISK FACTORS
You should carefully consider the following factors in addition to the
other information set forth in this prospectus before investing in the exchange
notes.
RISKS RELATED TO YOUR INVESTMENT IN THE EXCHANGE NOTES
WE HAVE SUBSTANTIAL DEBT THAT COULD NEGATIVELY IMPACT OUR BUSINESS BY, AMONG
OTHER THINGS, INCREASING OUR VULNERABILITY TO GENERAL ADVERSE ECONOMIC AND
INDUSTRY CONDITIONS AND PREVENTING US FROM FULFILLING OUR OBLIGATIONS UNDER THE
EXCHANGE NOTES.
As a result of the refinancing, we have significant debt outstanding. As of
June 29, 2003, after giving effect to the refinancing, we would have had total
consolidated debt outstanding of $575.5 million and $55.7 million of unused
commitment under our revolving credit facility.
Our high level of debt could:
- make it difficult for us to satisfy our obligations, including making
interest payments under the exchange notes and our other debt
obligations;
- limit our ability to obtain additional financing to operate our business;
- limit our financial flexibility in planning for and reacting to industry
changes;
- place us at a competitive disadvantage as compared to less leveraged
companies;
- increase our vulnerability to general adverse economic and industry
conditions, including changes in interest rates; and
- require us to dedicate a substantial portion of our cash flow to payments
on our debt, reducing the availability of our cash flow for other
purposes.
We may borrow additional funds to fund our capital expenditures and working
capital needs. We also may incur additional debt to finance future acquisitions.
The incurrence of additional debt could make it more likely that we will
experience some or all of the risks described above.
IF WE DO NOT GENERATE SUFFICIENT POSITIVE CASH FLOWS, WE MAY BE UNABLE TO
SERVICE OUR DEBT, INCLUDING THE EXCHANGE NOTES.
Our ability to pay principal and interest on the exchange notes and our
other indebtedness depends on our future operating performance. Future operating
performance is subject to market conditions and business factors that often are
beyond our control. Consequently, we cannot assure you that we will have
sufficient cash flows to service our debt.
If our cash flows and capital resources are insufficient to allow us to
make scheduled payments on our debt, we may have to reduce or delay capital
expenditures, sell assets, seek additional capital or restructure or refinance
our debt. We cannot assure you that the terms of our debt will allow these
alternative measures or that such measures would enable us to satisfy our
scheduled debt service obligations.
If we cannot make scheduled payments on our debt, we will be in default
and, as a result:
- our debt holders could declare all outstanding principal and interest to
be due and payable;
- our senior debt lenders could terminate their commitments and commence
foreclosure proceedings against our assets; and
- we could be forced into bankruptcy or liquidation.
11
THE TERMS OF OUR DEBT MAY SEVERELY LIMIT OUR ABILITY TO PLAN FOR OR RESPOND TO
CHANGES IN OUR BUSINESS.
Our senior secured credit facility, our 12 3/8% senior subordinated notes
due 2010 and the indenture governing the exchange notes restrict, among other
things, our ability to take specific actions, even if such actions may be in our
best interest. These restrictions limit our ability to:
- incur liens or make negative pledges on our assets;
- merge, consolidate or sell our assets;
- issue additional debt;
- pay dividends or redeem capital stock and prepay other debt;
- enter into sale and leaseback transactions;
- make investments and acquisitions;
- enter into transactions with affiliates;
- make capital expenditures;
- materially change our business;
- amend our debt and other material agreements;
- issue and sell capital stock;
- restrict distributions from our subsidiaries; or
- prepay specified indebtedness.
Our debt requires us to maintain specified financial ratios and meet
specific financial tests. Our failure to comply with these covenants could
result in an event of default that, if not cured or waived, could result in us
being required to repay these borrowings before their due date. If we were
unable to make this repayment or otherwise refinance these borrowings, our
lenders could foreclose on our assets. If we were unable to refinance these
borrowings on favorable terms, our business could be adversely impacted.
THE VALUE OF THE COLLATERAL SECURING THE EXCHANGE NOTES MAY NOT BE SUFFICIENT TO
SATISFY OBLIGATIONS UNDER THE EXCHANGE NOTES AND THE COLLATERAL SECURING THE
EXCHANGE NOTES MAY BE REDUCED OR DILUTED UNDER CERTAIN CIRCUMSTANCES.
The exchange notes will be secured by second priority liens on the
collateral described in this prospectus. The collateral also secures on a first
priority basis our obligations under our senior secured credit facility, as well
as other indebtedness to the extent permitted by the terms of the indenture
governing the exchange notes. As of June 29, 2003, we and our subsidiaries had
approximately $36.8 million of secured indebtedness outside of our senior
secured credit facility, including outstanding capital leases, other purchase
money indebtedness, mortgages and indebtedness of our foreign subsidiaries.
These obligations are generally secured by a first priority lien on the
underlying assets relating to such obligations and in some instances, a second
priority lien has been granted for the benefit of the lenders under our senior
secured credit facility. As a result, the exchange notes will be secured by a
third-priority security interest in such assets. In addition, your rights to the
collateral would be diluted by any future increases in the indebtedness secured
by the collateral.
In the event of foreclosure on the collateral, the proceeds from the sale
of the collateral securing indebtedness under the exchange notes may not be
sufficient to satisfy the exchange notes. This is because proceeds from a sale
of the collateral would be distributed to satisfy indebtedness and all other
obligations under the senior secured credit facility and any other indebtedness
secured by a first priority lien on the collateral before any such proceeds are
distributed in respect of the exchange notes. Only after all of our obligations
under the senior secured credit facility and any such other first priority
indebtedness have been satisfied will proceeds from the sale of collateral be
available to holders of the exchange notes.
12
The value of the collateral and the amount to be received upon a sale of
the collateral will depend upon many factors including, among others, the
condition of the collateral and our industry, the ability to sell the collateral
in an orderly sale, the condition of the international, national and local
economies, the availability of buyers and similar factors. The book value of the
collateral should not be relied on as a measure of realizable value for such
assets. By their nature, portions of the collateral may be illiquid and may have
no readily ascertainable market value. In addition, a significant portion of the
collateral includes assets that may only be usable, and thus retain value, as
part of our existing operating businesses. Accordingly, any such sale of the
collateral separate from the sale of certain operating businesses may not be
feasible or of significant value. To the extent that holders of other secured
indebtedness or third parties enjoy liens (including statutory liens), such
holders or third parties may have rights and remedies with respect to the
collateral securing the exchange notes that, if exercised, could reduce the
proceeds available to satisfy the obligations under the exchange notes. See
"Description of the Exchange Notes -- Security -- Intercreditor Agreement."
The indenture governing the exchange notes and the senior secured credit
facility may also permit us to designate one or more of our restricted
subsidiaries as an unrestricted subsidiary. If we designate an unrestricted
subsidiary, all of the liens on any collateral owned by the unrestricted
subsidiary or any of its subsidiaries and any guarantees of the exchange notes
by the unrestricted subsidiary or any or its subsidiaries will be released under
the indenture but not under the senior secured credit facility. Designation of
an unrestricted subsidiary will reduce the aggregate value of the collateral to
the extent that liens on the assets of the unrestricted subsidiary and its
subsidiaries are released and the exchange notes will be structurally
subordinated to the debt and other obligations of the unrestricted subsidiary
and its subsidiaries. This may materially reduce the collateral available to
secure the exchange notes.
THE EXCHANGE NOTES WILL BE STRUCTURALLY SUBORDINATED TO THE DEBT OF OUR
SUBSIDIARIES THAT ARE NOT GUARANTORS OF THE EXCHANGE NOTES.
The exchange notes will be our direct obligations and will be guaranteed by
substantially all of our domestic subsidiaries. None of our foreign subsidiaries
are guarantors of the exchange notes. Our cash flow and our ability to service
our debt, including the exchange notes, depend partly upon the earnings of our
non-guarantor subsidiaries. As of June 29, 2003, our non-guarantor subsidiaries
had approximately $138.3 million of total liabilities outstanding, including
trade payables and excluding intercompany indebtedness.
Our subsidiaries are separate and distinct legal entities. Our ability to
repatriate cash from our subsidiaries may be limited. Except for the guarantors,
our subsidiaries have no obligation to pay any amounts due on the exchange notes
or to provide us with funds for our payment obligations, whether by dividends,
distributions, loans or other payments. Payments to us by our subsidiaries will
also be contingent upon our subsidiaries' earnings and business considerations.
In addition, any payment of dividends, distributions, loans or advances by our
subsidiaries to us could be subject to statutory or contractual restrictions.
Our right to receive any assets of any of our subsidiaries upon their
liquidation or reorganization, and therefore the right of the holders of the
exchange notes to participate in those assets, will be effectively subordinated
to the claims of any such subsidiary's creditors, including, without limitation,
bank and trade creditors. This means that such creditors of any of our
subsidiaries would have a claim prior to that of the holders of the exchange
notes with respect to the assets of that non-guarantor subsidiary. In addition,
even if we were a creditor of any of our subsidiaries, our rights as a creditor
would be subordinate to any security interest in the assets of our subsidiaries
and any indebtedness of our subsidiaries senior to that held by us.
As of June 29, 2003, our non-guarantor subsidiaries represented
approximately 38% of our consolidated assets. To the extent we expand our
foreign operations, a larger percentage of our consolidated assets, net sales
and operating income may be derived from non-guarantor subsidiaries and as
discussed above, our ability to repatriate cash from such subsidiaries may be
limited.
13
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE HOLDERS OF THE EXCHANGE NOTES TO RETURN PAYMENTS RECEIVED
FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor, if the
guarantor at the time it incurred the indebtedness evidenced by its guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of its guarantee and was insolvent or rendered insolvent
by reason of such incurrence;
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay those debts as they mature.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets;
- the present fair saleable value of its assets was 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; or
- it could not pay its debts as they become due.
The indenture requires that certain future domestic subsidiaries guarantee
the exchange notes. These considerations will also apply to their guarantees.
We cannot assure you as to what standard a court would apply in determining
whether a guarantor would be considered to be insolvent. If a court determined
that a guarantor was insolvent after giving effect to the guarantees, it could
void the guarantees of the exchange notes by one or more of our subsidiaries and
require you to return any payments received from such subsidiaries.
OUR SENIOR DEBT BEARS INTEREST AT A FLOATING RATE, AND IF INTEREST RATES RISE,
OUR PAYMENTS WILL INCREASE AND WE MAY INCUR LOSSES.
Outstanding amounts under our senior secured credit facility bear interest
at a floating rate. Current interest rates are low and our financial results
have benefited from these low rates. If interest rates rise, our senior debt
interest payments also will increase, which could make it more difficult for us
to satisfy our debt obligations and further reduce availability of our cash flow
for operations and other purposes. For example, based on the amount of floating
rate debt outstanding during the six months ended June 29, 2003 and without
giving effect to our interest rate protection agreements, we expect that a 1%
increase in interest rates would have increased our interest expense for the six
months ended June 29, 2003 by $3.7 million to $32.0 million. We currently have
certain interest rate protection agreements in place but these agreements expire
in October 2003. Although we may use interest rate protection agreements from
time to time to reduce our exposure to interest rate fluctuations in some cases,
we may not elect or have the ability to implement these agreements or, if we do
implement them, they may not achieve the desired effect. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
THE LENDERS UNDER OUR SENIOR SECURED CREDIT FACILITY HAVE THE SOLE RIGHT TO
EXERCISE REMEDIES AGAINST THE COLLATERAL FOR SO LONG AS THE SENIOR SECURED
CREDIT FACILITY IS OUTSTANDING, INCLUDING RELEASING THE COLLATERAL SECURING THE
EXCHANGE NOTES.
The intercreditor agreement provides that the lenders under our senior
secured credit facility have the exclusive right to manage, perform and enforce
the terms of the security documents relating to the
14
collateral, and to exercise and enforce all privileges, rights and remedies
thereunder, including to take or retake control or possession of the collateral
and to hold or dispose of the collateral. Under the terms of the intercreditor
agreement, the lenders under the senior secured credit facility may, under
certain circumstances, release all or any portion of the collateral securing the
senior secured credit facility, including, without limitation, in connection
with certain sales of assets. The collateral so released will no longer secure
our obligations under the exchange notes. In addition, if an event of default
has occurred, the lenders under the senior secured credit facility may release
collateral in connection with the foreclosure, sale or other disposition of such
collateral to satisfy obligations under the senior secured credit facility. Any
collateral released would cease to act as security for the exchange notes and
the guarantees of the exchange notes, as well as our obligations under the
senior secured credit facility.
In addition, since the lenders under the senior secured credit facility
control the disposition of the collateral securing the senior secured credit
facility and the exchange notes, if there were an event of default under the
exchange notes, the lenders could decide not to proceed against the collateral,
regardless of whether or not there is a default under the senior secured credit
facility. In such event, the only remedy available to the holders of the
exchange notes would be to sue for payment on the exchange notes and the
guarantees. By virtue of the direction of the administration of the pledges and
security interests and the release of collateral, actions may be taken under the
collateral documents that may be adverse to you.
MAY MAY BE UNABLE TO REFINANCE ITS CREDIT FACILITIES.
May has various bank facilities originating under loan agreements dated
between 1996 and 1999. These agreements provide for up to ten-year terms with
floating interest rates, and among other things, include provisions for the
banks to terminate the credit lines upon giving notice and rightfully demand
security for the credit lines. During April 2003, a formal demand for security
was made by the lenders under May's credit facilities. On April 30, 2003, May
granted two of its banks a collateral interest in its inventory and accounts
receivable in exchange for their agreement to allow the continuation of
facilities in the amount of E11.8 million through June 30, 2003. In addition, we
made payments of E1.5 million on May 7, 2003 and E1.0 million on June 30, 2003
in full payment of term loans for which one of May's lenders demanded early
payment in accordance with terms of the borrowings. These term loans were
guaranteed by U.S. Can. May has initiated discussions with several banks to
secure a new facility that would replace the existing facilities and allow it to
meet its seasonal borrowing needs. May has received a proposal from its existing
lenders to extend the existing facilities through October 31, 2003. This new
facility is expected to be in an amount comparable to historical credit lines
and secured in the same manner as the existing borrowings. If we are unable to
secure adequate substitute financing for May or May defaults on payments of debt
under its borrowing agreements, we will need to provide financing for May from
other sources. There can be no assurance that the existing banks will extend or
replace the current facilities, that new banks will extend the required level of
credit, that May will not default under its borrowing agreements or that funds
will be available from other sources to finance May's requirements, each of
which could have a material adverse effect on our financial position.
WE MAY BE UNABLE TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL
OFFER REQUIRED BY OUR INDENTURE.
The indenture provides that, upon a change in control of our company or
U.S. Can, we will be required to offer to repurchase all of the outstanding
exchange notes at 101% of the principal amount thereof, plus accrued interest.
This provision will not necessarily protect exchange note holders in a highly
leveraged transaction or certain other transactions. In addition, our financial
resources may limit our ability to repurchase the exchange notes or repay our
outstanding debt under the senior secured credit facility. For example, our
senior secured credit facility prohibits our repurchase of the exchange notes if
we have outstanding debt under the facility. Furthermore, any future debt that
we incur would also likely limit our ability to repurchase the exchange notes.
We currently anticipate that we will need additional financing to pay the
principal of the exchange notes or to repurchase the exchange notes upon a
change of control as required under the indenture. We
15
may obtain such financing by refinancing our debt, selling our equity securities
or selling the equity securities or assets of our subsidiaries. We cannot assure
you that upon a change of control we will have sufficient funds, or will be
permitted by our outstanding debt, to purchase the exchange notes tendered by
holders. See "Description of the Exchange Notes -- Change of Control."
THERE MAY BE NO ACTIVE TRADING MARKET FOR THE EXCHANGE NOTES. FURTHER, RESALES
OF THE EXCHANGE NOTES MUST COMPLY WITH THE APPLICABLE STATE SECURITIES LAWS.
The exchange notes are new securities for which there currently is no
market. Although Citigroup, the initial purchaser of the notes, has informed us
that it intends to make a market in the exchange notes, it is not obligated to
do so and it may discontinue any market making activities at any time without
notice. Accordingly, the development or liquidity of any market for the exchange
notes is uncertain. We do not intend to apply for listing of the exchange notes
on any securities exchange or for quotation through The Nasdaq National Market.
In addition, changes in the overall market for high yield securities and
changes in our financial performance or prospects or in the prospects for
companies in our industry generally may adversely affect the liquidity of the
trading market in the exchange notes and the market price quoted for the
exchange notes. See "Description of Exchange Notes" and "The Exchange Offer."
All resales must be made in compliance with state securities or "blue sky"
laws. Compliance with these laws may require that the exchange notes be
registered or qualified in a state or that the resales be made by or through a
licensed broker-dealer, unless exemptions from these requirements are available.
We assume no responsibility with regard to compliance with these requirements.
YOUR FAILURE TO EXCHANGE YOUR NOTES IN THE EXCHANGE OFFER WILL RESTRICT YOUR
ABILITY TO RESELL THEM.
Untendered outstanding notes that you do not exchange for the registered
exchange notes pursuant to the exchange offer will remain restricted securities,
subject to the following restrictions on transfer:
- you may resell only if registered pursuant to the Securities Act or if an
exemption from registration is available;
- the notes will bear a legend restricting transfer in the absence of
registration or an exemption; and
- a holder of the notes who wants to sell or otherwise dispose of all or
any part of its notes under an exemption from registration under the
Securities Act, if requested by us, must deliver to us an opinion of
independent counsel experienced in Securities Act matters, reasonably
satisfactory in form and substance to us, that an exemption is available.
Except under limited circumstances, we have no obligation to register any
notes that are not tendered in the exchange offer.
BERKSHIRE PARTNERS OWNS A CONTROLLING INTEREST IN OUR VOTING SECURITIES AND ITS
INTERESTS COULD BE INCONSISTENT WITH THE INTERESTS OF THE NOTE HOLDERS.
Berkshire Partners and its affiliates own approximately 77.3% of our total
common equity. Subject to certain limitations contained in our stockholders
agreement, Berkshire Partners controls us. Accordingly, Berkshire Partners and
its affiliates will control the power to elect directors and to approve many
actions requiring the approval of our stockholders, such as adopting most
amendments to our certificate of incorporation and approving mergers, sales of
all or substantially all of our assets and other corporate transactions that
could result in a change of control of our company. We cannot assure you that
Berkshire Partners' interests will be consistent with the note holders'
interests.
16
RISKS RELATED TO OUR BUSINESS
WE FACE COMPETITIVE RISKS FROM MANY SOURCES THAT MAY NEGATIVELY IMPACT OUR
BUSINESS.
The can and container industry is highly competitive and some of our
competitors have greater financial resources than we do. Quality, service and
price are the principal methods of competition in our industry. Because our
customers have the ability to buy similar products from our competitors, we are
limited in our ability to increase prices. We believe our capital investments
have improved our operating efficiencies, and consequently, improved
profitability, but we cannot assure you that we will continue to improve profit
margins in this manner. In addition, our business could be adversely affected if
we are unable to meet our customers' quality and service demands.
We also face competitive risks from substitute products, such as aluminum,
glass and plastic containers. The market for such substitute products has grown
substantially over the past several years and from time to time our customers,
including some of our larger customers, have switched from steel containers to
these substitute products to package their products. Our business also is
affected by changes in consumer demand for our customers' products. A decrease
in the costs of substitute products, a widespread introduction of substitute
products by our customers as a substitute for steel containers or a decline in
consumer demand for our customers' products could reduce our customers' orders
and adversely affect our business.
OUR FAILURE TO IMPLEMENT OUR COST SAVINGS STRATEGY COULD NEGATIVELY IMPACT OUR
BUSINESS.
A significant element of our business strategy is the improvement of our
operating efficiencies and a reduction of our operating costs. We have and will
continue to consider opportunities to consolidate our manufacturing plants,
implement programs to lower our operating costs, implement new manufacturing
technology and continue our focus on overhead reductions. Our failure to
successfully implement this strategy could negatively impact our business and
our results of operations.
INCREASES IN TIN-PLATED STEEL PRICES COULD CAUSE OUR PRODUCTION COSTS TO
INCREASE, WHICH COULD REDUCE OUR ABILITY TO COMPETE EFFECTIVELY.
Tin-plated steel is the most significant raw material used to make our
products. Negotiations with our domestic and European tin-plated steel suppliers
generally occur once per year. Failure to negotiate favorable tin-plated steel
prices in the future could result in an increase in production costs and a
negative impact on our results of operations.
The President of the United States imposed 30% ad valorem tariffs under
Section 201 of the Trade Act of 1974 on tin mill imports from most foreign
producers effective March 30, 2002. These tariffs are scheduled to remain in
effect for three years, declining to 24% in 2003 and 18% in 2004. Tin mill
imports from Canada, Mexico and certain developing counties are excluded from
these tariffs. However, we do purchase the vast majority of our domestic steel
from domestic sources and since the tariffs curtail foreign competition, a
negative impact to us could arise from price increases from domestic suppliers.
In response to the U.S. tariffs imposed under Section 201 of the Trade Act
of 1974, in March 2002, the European Union established a steel safeguard
initiative whereby imports of steel into the European Union from designated
countries are assessed a duty of 17% versus the previous duty of 1%. The new
duty on some European imports remains in effect for the duration of the U.S.
imposed tariffs under Section 201. Due to the fact that our European operations
do not import steel from any of the countries affected by the new European duty,
our international operations were not affected by the new duty in 2002.
Some customer contracts allow us to pass tin-plated steel price increases
through to our customers. However, these contracts generally limit pass-throughs
and also may require us to match other competitive bids. If we cannot pass
through all future tin-plated steel price increases to our customers or match
other
17
packaging suppliers' bids, our financial condition may be adversely affected.
See "Business -- Raw Materials."
THE LOSS OF A KEY CUSTOMER COULD HAVE A SIGNIFICANT NEGATIVE IMPACT ON OUR
BUSINESS.
A significant percentage of our sales are made to a limited number of
customers. Our largest customer accounted for approximately 8.6% of our sales in
2002. The loss of a key customer could adversely affect our business because we
may be unable to lower our operating costs or replace the sales revenue with new
customers quickly enough to offset the resulting sales decrease.
In addition, several of our manufacturing plants are dependent on high
volume orders from customers. The loss of any of these customers or a decrease
in demand for their products that are packaged in our containers could adversely
affect our business and force us to close manufacturing plants.
OUR PRINCIPAL MARKETS ARE SUBJECT TO OVERCAPACITY, WHICH COULD ADVERSELY AFFECT
OUR BUSINESS.
The worldwide steel container markets have experienced limited growth in
demand in recent years. Steel containers are standardized products, allowing for
relatively little differentiation among competitors. This led to overcapacity
and price competition among steel container producers, as capacity growth
outpaced the growth in demand for steel containers. The North American steel
container market, in particular, is considered to be a mature market,
characterized by stable growth and a sophisticated distribution system.
Price-driven competition has increased as producers seek to capture more sales
volume in order to keep their plants operating at optimal levels and reduce unit
costs.
Competitive pricing pressures, overcapacity or any failure to develop new
product designs and technologies could cause us to lose existing business or
opportunities to generate new business and could result in decreased
profitability.
WE HAVE SIGNIFICANT UNDERFUNDED PENSION PLAN OBLIGATIONS AND SIGNIFICANT
UNFUNDED POST-RETIREMENT OBLIGATIONS.
We sponsor a noncontributory defined benefit pension plan covering a
portion of our domestic hourly workforce. In 2001, we contributed $1.5 million
to this plan, but made no contributions in 2002 and minimal contributions in the
first six months of 2003. We currently anticipate our 2003 aggregate funding
requirements to be approximately $1.1 million.
We rely upon actuarial models to calculate our pension benefit obligations
and the related effects on operations. Accounting for pension plans requires the
use of estimates and assumptions regarding numerous factors, including discount
rate, the long-term rate of return on plan assets, retirement ages, mortality
and employee turnover. On an annual basis, we evaluate these critical
assumptions and make changes to them as necessary to reflect our experience. Two
of the critical assumptions in determining our reported expense or liability for
pensions are the discount rate and the long-term expected rate of return on plan
assets. The use of a lower discount rate and a lower long-term expected rate of
return on plan assets would increase the present value of benefit obligations
and increase pension expense and postretirement benefit expense. In 2002, we
reduced our discount rate to reflect market interest rate conditions.
As of December 31, 2002, the latest date for which information is
available, our accumulated benefit obligation with respect to our domestic
noncontributory defined benefit pension plan exceeded the fair value of our plan
assets by approximately $12.4 million. If the market interest rates that we use
to determine our discount rate decline from current levels, our pension expense
and cash contributions will most likely increase in future years. Likewise, a
deterioration in the plan's investment portfolio performance will also cause
increases to our pension expense and cash contributions. Finally, our pension
liability would be increased if the pension plan were terminated immediately,
because the interest rate assumption used to value the benefits and the value of
the assets on a termination basis would most likely be lower than the current
funding assumptions. While our pension plan continues in effect, we continue to
incur additional pension obligations. Our pension plan is subject to the
Employee Retirement Income
18
Security Act of 1974, or ERISA. Under ERISA, the Pension Benefit Guaranty
Corporation, or PBGC, has the authority to terminate an underfunded plan under
certain circumstances. In the event our pension plan is terminated for any
reason while the plans are underfunded, we will incur a liability to the PBGC
that may be equal to the entire amount of the underfunding, determined on a
termination basis. We do not have any reason to believe that the PBGC will
terminate our plan in the foreseeable future.
We also sponsor defined benefit plans in certain of our international
operations. The largest plan is significantly underfunded, and the remaining
plans are unfunded. We made contributions of $0.9 million to these plans in the
first six months of 2003 and $0.8 million and $1.1 million for the years ended
December 31, 2002 and 2001, respectively. We currently anticipate our 2003
aggregate funding requirement to be approximately $1.7 million. As of December
31, 2002, the latest date for which information is available, our projected
benefit obligation exceeded the fair value of our plan assets by approximately
$29.8 million. If the market interest rates that we use to determine our
discount rate decline from current levels, our pension expense and cash
contributions will most likely increase in future years. Likewise, a
deterioration in the plan's investment portfolio performance will also cause
increases to our pension expense and cash contributions.
Hourly employees at four plants are covered by union-sponsored collectively
bargained, multi-employer pension plans. We contributed to these plans and
charged to expense approximately $1.1 million in each of 2001 and 2002, and
approximately $0.5 million in the first six months of 2003. The contributions
are generally determined in accordance with the provisions of the negotiated
labor contracts and are generally based on a per employee, per week amount. Our
liability, if any, is not presently determinable and therefore no amount has
been recorded for any contingent unfunded liability.
We also provide post-retirement medical and life insurance benefits for
certain domestic retired employees in connection with collective bargaining
agreements. As of December 31, 2002, our unfunded "accumulated post-retirement
benefit obligation" calculated in accordance with generally accepted accounting
principles for retiree medical benefits was approximately $32.2 million, based
on assumptions set forth in our consolidated financial statements.
OUR BUSINESS IS SUBJECT TO SOME SEASONAL FLUCTUATIONS, WHICH MAY INCREASE OUR
BORROWING NEEDS AT VARIOUS POINTS IN THE YEAR.
Our business has some seasonal variations. Quarterly sales and earnings
tend to be slightly stronger starting in early spring (second quarter) through
late summer (third quarter). Aerosol sales have minor increases in the spring
and summer related to increased sales of containers for household products and
insect repellents. Paint container sales tend to be stronger in spring and early
summer due to the favorable weather conditions. Portions of the custom and
specialty products line tend to vary seasonally, because of holiday sales late
in the year. May's food can sales generally peak in the third and fourth
quarters. These seasonal variations may lead to increased working capital
requirements and borrowing needs. Our results of operations could be adversely
affected if we are required to substantially increase our borrowings or if we
are unable to accurately predict our working capital needs and secure the
necessary credit lines in connection with seasonal variations.
WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS.
We operate facilities and sell products in several countries outside the
United States. We have significant foreign operations, including plants and
sales offices in Denmark, France, Germany, Italy, Spain and the United Kingdom.
In addition, we have a joint venture with an aerosol can manufacturer located in
Argentina. Our international operations subject us to risks associated with
selling and operating in foreign countries. In Europe, these risks include:
- fluctuations in currency exchange rates;
- restrictions on dividend payments and other payments by our foreign
subsidiaries;
19
- withholding and other taxes on dividend payments and other payments by
our foreign subsidiaries; and
- investment regulation and other restrictions by foreign governments.
In Argentina, these risks include:
- limitations on conversion of foreign currencies into U.S. dollars;
- hyperinflation; and
- political instability.
We may enter into transactions to hedge the risk of exchange rate
fluctuations or take other steps to protect against these risks. However, we
cannot assure you that we can protect ourselves against these risks or that
these risks will not adversely affect our business.
OUR BUSINESS IS SUBJECT TO SUBSTANTIAL ENVIRONMENTAL REMEDIATION AND COMPLIANCE
COSTS.
Our operations are subject to federal, state, local and foreign laws and
regulations relating to pollution, the protection of the environment, the
management and disposal of hazardous substances and wastes and the cleanup of
contaminated sites. In particular, our lithography operations' air emissions are
strictly regulated. We spend significant funds each year to upgrade emissions
control equipment to comply with changes in environmental regulations and
increase the efficiencies of our manufacturing operations. Changes in applicable
environmental regulations could increase the capital expenditures necessary to
bring manufacturing facilities into compliance with changing environmental laws.
We also could incur substantial costs, including cleanup costs, fines and
civil or criminal sanctions, as a result of violations of, or liabilities under,
environmental laws or non-compliance with environmental permits required for our
production facilities. Occasionally, contaminants from current or historical
operations have been detected at some of our present and former sites. Although
we are not currently aware of any material claims or obligations with respect to
these sites, the detection of additional contaminants or the imposition of
cleanup obligations at existing or unknown sites of contamination could result
in significant liability.
We cannot predict the amount or timing of costs imposed under environmental
laws. Liability under certain environmental laws relating to contaminated sites
can be imposed retroactively and on a joint and several basis (i.e., one liable
party could be held liable for all costs at a site). We have been named as a
potentially responsible party for costs incurred in the clean up of a regional
groundwater plume partially extending underneath property located in San
Leandro, California, formerly a site of one of our can assembly plants. We have
agreed to indemnify the owner of this property against this matter. We do not
believe the past operations of our can assembly plant caused or contributed to
this groundwater plume. However, any liability in connection with this or other
environmental matters could adversely affect our business.
OUR FORMER INDEPENDENT PUBLIC ACCOUNTANT, ARTHUR ANDERSEN LLP, HAS BEEN FOUND
GUILTY OF A FEDERAL OBSTRUCTION OF JUSTICE CHARGE, AND YOU MAY BE UNABLE TO
EXERCISE EFFECTIVE REMEDIES AGAINST IT IN ANY LEGAL ACTION.
Our former independent public accountant, Arthur Andersen LLP, provided us
with auditing services for fiscal periods through December 31, 2001, including
issuing an audit report with respect to our audited consolidated financial
statements included elsewhere in this prospectus. On June 15, 2002, a jury in
Houston, Texas found Arthur Andersen LLP guilty of a federal obstruction of
justice charge arising from the federal government's investigation of Enron
Corp. On August 31, 2002, Arthur Andersen LLP ceased practicing before the
Commission.
Arthur Andersen LLP has not reissued its audit report with respect to our
audited consolidated financial statements included in this prospectus.
Furthermore, Arthur Andersen LLP has not consented to
20
the inclusion of its audit report in this prospectus and Arthur Andersen LLP
will not consent to the inclusion of its audit report in any registration
statement we may file with respect to the exchange notes following the
completion of this offering or in other filings we make with the Commission
following this offering. As a result, you may not have an effective remedy
against Arthur Andersen LLP in connection with a material misstatement or
omission with respect to our audited consolidated financial statements that are
included in this prospectus, any registration statement with respect to the
exchange notes following this offering or any other filing we may make with the
Commission, including any claim under Section 11 of the Securities Act. In
addition, even if you were able to assert such a claim, as a result of its
conviction and other lawsuits, Arthur Andersen LLP may fail or otherwise have
insufficient assets to satisfy claims made by investors or by us that might
arise under federal securities laws or otherwise relating to any alleged
material misstatement or omission with respect to our audited consolidated
financial statements. In addition, in connection with any future capital markets
transaction in which we are required to include financial statements that were
audited by Arthur Andersen LLP, as a result of the foregoing, investors may
elect not to participate in any such offering or, in the alternate, may require
us to obtain a new audit with respect to previously audited financial
statements. Consequently, our financing costs may increase or we may miss
attractive capital market opportunities.
A SIGNIFICANT PORTION OF OUR WORKFORCE IS UNIONIZED AND LABOR DISRUPTIONS COULD
ADVERSELY AFFECT OUR BUSINESS.
As of June 29, 2003, we had approximately 3,700 employees. Nearly 1,550 of
our U.S. employees are subject to collective bargaining agreements. In keeping
with common practice, virtually all manufacturing employees at our European
plants are unionized. Although we consider our current relations with our
employees to be generally good, if we do not maintain these good relations, or
if major work disruptions were to occur, our production costs could increase.
See "Business -- Labor."
21
USE OF PROCEEDS
There will be no proceeds from the issuance of the exchange notes.
In connection with the original offering of the notes, we used the $125.0
million of proceeds to repay $23.3 million of our Tranche A term loan under our
senior secured credit facility that, at the time of the repayment, bore interest
at a weighted average rate of 5.77% and matures on January 4, 2006, repay $46.7
million of our Tranche B term loan under our senior secured credit facility
that, at the time of the repayment, bore interest at a weighted average rate of
6.00% and matures on January 4, 2006 and repay $55.0 million of our revolving
credit facility that, at the time of the repayment, bore interest at a weighted
average rate of 5.72% and matures on January 4, 2006. We have incurred and
re-borrowed approximately $6.4 million under our senior secured credit facility
in connection with the fees and expenses related to the original offering of the
notes and the amendment of our senior secured credit facility. In addition, we
expect to incur and re-borrow an additional $1.2 million for other fees and
expenses related to the original offering of the notes and we may re-borrow
additional amounts for working capital and other general corporate purposes,
including potential repurchases of our outstanding 12 3/8% senior subordinated
notes due 2010.
CAPITALIZATION
The following table sets forth as of June 29, 2003 our actual
capitalization and our capitalization as adjusted to give effect to the
refinancing.
<Table>
<Caption>
AS OF JUNE 29, 2003
---------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN MILLIONS)
Cash and cash equivalents................................... $ 19.0 $ 19.0
======= =======
Debt:
Senior secured credit facility:
Revolving credit facility(1)........................... $ 90.0 $ 42.6
Tranche A term loan.................................... 64.0 40.7
Tranche B term loan.................................... 177.5 130.8
Tranche C term loan.................................... 20.0 20.0
Other senior debt......................................... 40.5 40.5
Notes offered in the original offering.................... -- 125.0
Senior subordinated notes................................. 175.9 175.9
------- -------
Total debt........................................... 567.9 575.5
Preferred stock............................................. 139.8 139.8
Stockholders' equity (deficit).............................. (345.5) (345.5)
------- -------
Total capitalization................................. $ 362.2 $ 369.8
======= =======
</Table>
- ---------------
(1) Our revolving credit facility provides for up to $110.0 million of
borrowings. The amounts shown for the revolving credit facility do not
include $11.7 million in outstanding letters of credit that reduce the
amounts available for borrowing under the facility.
22
RATIO OF EARNINGS TO FIXED CHARGES
The table below sets forth the ratio of earnings to fixed charges of U.S.
Can and its consolidated subsidiaries for each of the periods indicated.
<Table>
<Caption>
SIX MONTHS ENDED FISCAL YEAR ENDED DECEMBER 31,
- ------------------------------------------------ --------------------------------
PRO FORMA
JUNE 29, 2003(1) JUNE 29, 2003 JUNE 30, 2002 2002 2001 2000 1999 1998
- ---------------- ------------- ------------- ---- ---- ---- ---- ----
* * * * * * 2.1 *
</Table>
- ---------------
* Approximately, $13.2 million, $18.1 million, $70.4 million and $23.6 million
of additional pre-tax earnings for the fiscal years ended December 31, 1998,
2000, 2001 and 2002, respectively, and approximately $8.9 million, $6.3
million and $11.7 million of additional pre-tax earnings for the first six
months of 2002 and 2003 and the pro forma first six months of 2003,
respectively, would have been required for us to have achieved a ratio of
earnings to fixed charges of 1.0x for those periods.
(1) The pro forma ratio of earnings to fixed charges for the six months ended
June 29, 2003 gives effect to the principal reduction of our senior secured
credit facility from the proceeds we received from the original issuance of
the notes as if (a) the receipt of such proceeds and (b) the principal
reduction of our senior secured credit facility had both occurred on January
1, 2003.
For purposes of computing the ratio of earnings to fixed charges, earnings
represents earnings from continuing operations plus fixed charges. Fixed charges
include interest expense on indebtedness, amortization of debt discount, the
portion of rent deemed representative of an interest factor and preferred stock
dividend requirements.
23
SELECTED FINANCIAL DATA
INTRODUCTION
The following consolidated selected financial data as of and for each of
the fiscal years in the five years ended December 31, 2002, were derived from
our audited consolidated financial statements. The following consolidated
selected financial data as of and for each of the six-month periods ended June
30, 2002 and June 29, 2003 were derived from our unaudited interim consolidated
financial statements. We believe that the selected financial data as of and for
the six months ended June 30, 2002 and June 29, 2003, include all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
information included therein. You should not regard the results of operations
for the six months ended June 29, 2003 as indicative of the results that may be
expected for the full year.
We have not provided separate financial statements or data for the Company
in this prospectus. U.S. Can's only assets are its investment in and advances to
the Company. We believe that the financial statements of U.S. Can and the
consolidated financial statements of the Company do not vary significantly. We
believe that the material differences are, and will be, related to stockholders'
equity and intercompany indebtedness.
You should read all of this information in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements for the years ended December 31, 2002, 2001 and 2000
and for the six months ended June 29, 2003 and June 30, 2002, contained
elsewhere in this prospectus.
<Table>
<Caption>
SIX MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, -------------------
--------------------------------------------- JUNE 30, JUNE 29,
1998 1999 2000 2001 2002 2002 2003
------ ------ ------- ------- ------- -------- --------
(DOLLARS IN MILLIONS)
OPERATING DATA:
Net sales............................... $731.0 $732.9 $ 809.5 $ 772.2 $ 796.5 $ 389.7 $ 409.2
Cost of sales........................... 638.9 630.4 693.2 695.5 710.4 347.8 363.1
------ ------ ------- ------- ------- ------- -------
Gross income............................ 92.1 102.5 116.3 76.7 86.1 41.9 46.1
Selling, general and administrative
expenses.............................. 34.5 35.5 45.9 46.6 37.9 19.2 18.4
Special charges(a)...................... 35.9 -- 3.3 36.2 8.7 -- 1.6
Recapitalization charge(b).............. -- -- 18.9 -- -- -- --
------ ------ ------- ------- ------- ------- -------
Operating income (loss)................. 21.7 67.0 48.2 (6.1) 39.5 22.7 26.1
Interest expense........................ 34.9 29.9 40.5 57.3 55.4 27.9 28.3
Loss from early extinguishment of
debt(c)............................... -- 2.1 24.2 -- -- -- --
------ ------ ------- ------- ------- ------- -------
Income (loss) before income taxes....... (13.2) 35.0 (16.5) (63.4) (15.9) (5.2) (2.2)
Provision (benefit) for income taxes.... (5.7) 13.8 (5.0) (23.0) 37.6 (1.9) 2.9
------ ------ ------- ------- ------- ------- -------
Income (loss) from continuing operations
before discontinued operations and
cumulative effect of accounting
change................................ (7.5) 21.2 (11.5) (40.4) (53.5) (3.3) (5.1)
Net loss on sale of discontinued
business(d)........................... (8.5) -- -- -- -- -- --
Cumulative effect of accounting change,
net of income taxes(e)................ -- -- -- -- (18.3) (18.3) --
Preferred stock dividend requirement.... -- -- (2.6) (11.3) (12.5) (6.0) (6.6)
------ ------ ------- ------- ------- ------- -------
Net income (loss) attributable to common
stockholders.......................... $(16.0) $ 21.2 $ (14.1) $ (51.7) $ (84.3) $ (27.6) $ (11.7)
====== ====== ======= ======= ======= ======= =======
</Table>
24
<Table>
<Caption>
SIX MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, -------------------
--------------------------------------------- JUNE 30, JUNE 29,
1998 1999 2000 2001 2002 2002 2003
------ ------ ------- ------- ------- -------- --------
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA:
Total assets............................ $555.6 $663.6 $ 637.9 $ 634.4 $ 578.8 $ 641.1 $ 608.1
Total debt.............................. 316.7 359.3 495.0 536.8 549.7 554.8 567.9
Redeemable preferred stock.............. -- -- 109.3 120.6 133.1 126.7 139.8
Stockholders' equity/(deficit).......... 50.2 68.6 (174.3) (247.1) (343.8) (275.2) (345.5)
</Table>
- ---------------
(a) In 1998, we established a restructuring provision for closure of the Green
Bay, Wisconsin aerosol assembly plant, the Alsip, Illinois general line
plant, and the Columbiana, Ohio specialty plant; a write-down to estimated
proceeds for the sale of the metal closure business located in Glen Dale,
West Virginia; and selected closures and realignment of facilities servicing
the lithography needs of our core businesses. In 2000, we announced a
reduction in force program. In 2001, we initiated several restructuring
programs that consisted of a voluntary termination program, the closure of
five manufacturing facilities and the consolidation of two other facilities
into a new facility in Atlanta, Georgia. See Note (4) of the audited
consolidated financial statements for a description of the 2002, 2001 and
2000 special charges and Note (3) to our unaudited consolidated financial
statements as of June 29, 2003 for a discussion of the special charge in the
first six months of 2003.
(b) See Note (3) to the audited consolidated financial statements.
(c) In April of 2002, the FASB issued Statement of Financial Accounting Standard
No. 145 (SFAS No. 145) related to gains and losses on extinguishment of
debt. We have adopted SFAS No. 145 and have determined that the losses in
2000 and 1999 do not meet the criteria in Opinion 30 for classification as
an extraordinary item. As such, we have reported our 2000 and 1999 losses
from early extinguishment of debt as deductions from income before income
taxes. See Note (2)(n) to the audited consolidated financial statements for
further details on SFAS No. 145. See Note (6) to the audited consolidated
financial statements for further details relating to the early
extinguishment of debt.
(d) On November 9, 1998, we sold our commercial metal services business. Our
metal services business included one plant in each of Chicago, Illinois;
Trenton, New Jersey; Brookfield, Ohio; and Alsip, Illinois.
(e) See Note (15) to the audited consolidated financial statements.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SUMMARY
We are a leading manufacturer of steel containers for personal care,
household, automotive, paint, industrial and specialty products in the United
States and Europe. We also are a manufacturer of plastic containers in the
United States and food cans in Europe. Our product offerings include a wide
variety of steel containers, such as aerosol cans, paint cans, oblong containers
and a large number of custom and specialty products, and plastic containers,
such as plastic pails for industrial and consumer products. We own or lease 13
facilities in the United States and eight facilities in Europe.
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of our company and our
subsidiaries for the three years ended December 31, 2002 and the six months
ended June 29, 2003. This discussion should be read in conjunction with the
consolidated financial statements and notes to the consolidated financial
statements.
We have not provided separate financial statements or data for the Company
in this prospectus. U.S. Can's only assets are its investment in and advances to
the Company. We believe that the financial statements of U.S. Can and the
consolidated financial statements of the Company do not vary significantly. We
believe that the material differences are, and will be, related to stockholders'
equity and intercompany indebtedness.
RESTRUCTURING OVERVIEW
We initiated several restructuring programs in 2001, consisting of a
voluntary termination program offered to corporate office salaried employees,
the closure of five manufacturing facilities and the additional consolidation of
two other facilities into one new facility. As part of these programs,
- we eliminated approximately 600 employee positions;
- we closed a paint can manufacturing facility and a warehouse in
Baltimore, Maryland in 2001;
- we ceased manufacturing operations in Dallas, Texas in 2001;
- we closed a custom and specialty plant located in the Baltimore, Maryland
area in 2002;
- we closed our manufacturing facility located in Southall, England in
2002;
- we closed two plastics facilities in Georgia and transferred production
from these facilities to a new facility in Atlanta, Georgia in 2002; and
- we closed our lithography facility located in Burns Harbor, Indiana in
the fourth quarter of 2002.
While the majority of the restructuring programs were completed in 2002,
certain portions of the programs will not be completed until 2003, and we do not
expect to realize the full benefits until 2004. Certain long-term liabilities
(approximately $3.7 million as of June 29, 2003) resulting from these programs,
consisting primarily of employee termination costs and future ongoing facility
carrying costs, will be paid over several years.
CRITICAL ACCOUNTING POLICIES; USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Estimates are used for, but not limited to: allowance for
doubtful accounts; inventory valuation; purchase accounting allocations;
restructuring amounts; asset impairments; depreciable lives of assets; goodwill
impairments; pension assumptions and tax valuation allowances. Future events and
their effects cannot be perceived with certainty. Accordingly, our accounting
estimates require the exercise of management's current best
26
reasonable judgment based on facts available. The accounting estimates used in
the preparation of the consolidated financial statements will change as new
events occur, as more experience is acquired, as more information is obtained
and our operating environments change. Significant business or customer
conditions could cause material changes to the amounts reflected in our
financial statements. Accounting policies requiring significant management
judgments include those related to revenue recognition, inventory valuation,
accounts receivable allowances, goodwill impairment, restructuring reserves, tax
valuation allowances, pension benefit obligations and interest rate exposure.
Our critical accounting policies are described in Note (2) to our audited
consolidated financial statements. Significant business or customer conditions
could cause material changes to the amounts reflected in our financial
statements. For example, we enter into contractual agreements with certain of
our customers for rebates, generally based on annual sales volumes. Should our
estimates of the customers' annual sales volumes vary materially from the sales
volumes actually realized, revenue may be materially impacted. Similarly, a
large portion of our inventory is manufactured to customer specifications. Other
inventory is generally less specific and saleable to multiple customers.
However, losses may result should we manufacture customized products which we
are unable to sell. Management also estimates allowances for collectibility
related to our accounts receivable. These allowances are based on the customer
relationships, the aging and turns of accounts receivable, credit worthiness of
customers, credit concentrations and payment history. Despite our best efforts,
the inability of a particular customer to pay its debts could impact
collectibility of receivables and could have an impact on future revenues if the
customer is unable to arrange other financing.
We adopted Statement of Financial Accounting Standards (SFAS) No. 142
"Goodwill and Other Intangible Assets" on January 1, 2002. Under this standard,
goodwill and "indefinite-lived" intangibles are no longer amortized, but are
tested at least annually for impairment. We identify potential impairments of
goodwill by comparing an estimated fair value for each applicable business unit
to its respective carrying value. Although the values were assessed using a
variety of internal and external sources, future events may cause reassessments
of these values and related goodwill impairments.
During the first six months of 2002, we completed the initial transitional
goodwill impairment test as of January 1, 2002 required under SFAS No. 142, and
reported that a non-cash impairment charge was required in the Custom and
Specialty and International segments. During the fourth quarter of 2002, we
determined the amount of the goodwill impairment and recorded a pre-tax goodwill
impairment charge of $39.1 million ($18.3 million, net of tax) relating to the
Custom and Specialty and International segments. The charge has been presented
as a cumulative effect of a change in accounting principle effective as of
January 1, 2002 and is primarily due to competitive pressures in the Custom and
Specialty and International segment marketplaces. To determine the amount of
goodwill impairment, we measured the impairment loss as the excess of the
carrying amount of goodwill over the implied fair value of goodwill. The
impairment charge has no impact on covenant compliance under our senior secured
credit facility. As of June 29, 2003, we had $27.4 million of goodwill remaining
on our balance sheet.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," was issued in August 2001. SFAS No. 144, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of, supercedes SFAS No. 121 and is effective
for fiscal years beginning after December 15, 2001. We adopted this
pronouncement on January 1, 2002. In accordance with SFAS 144, we continually
review whether events and circumstances subsequent to the acquisition of any
long-lived assets have occurred that indicate the remaining estimated useful
lives of those assets may warrant revision or that the remaining balance of
those assets may not be recoverable. If events and circumstances indicate that
the long-lived assets should be reviewed for possible impairment, we use
projections to assess whether future cash flows or operating income (before
amortization) on an undiscounted basis related to the tested assets is likely to
exceed the recorded carrying amount of those assets, to determine if a
write-down is appropriate. Should an impairment be identified, a loss would be
reported to the extent that the carrying value of the impaired assets exceeds
their fair values as determined by valuation techniques appropriate in the
circumstances that could include the use of similar projections on a discounted
basis.
27
As more fully described in Note (4) to our audited consolidated financial
statements and Note (3) to our unaudited consolidated financial statements as of
June 29, 2003, several restructuring programs were implemented in order to
streamline operations and reduce costs. We have established reserves and
recorded charges against such reserves, to cover the costs to implement the
programs. The estimated costs were determined based on contractual arrangements,
quotes from contractors, similar historical activities and other judgmental
determinations. Actual costs may differ from those estimated. In 2003, an
additional charge of $1.6 million was recorded related to position elimination
costs in the U.S. and Europe. We recorded the charge in accordance with SFAS No.
146, "Accounting for Costs Associated With Exit or Disposal Activities." SFAS
No. 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. SFAS No. 146 supercedes
the guidance of Emerging Issues Task Force ("EITF") Issue No. 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity," which required that liabilities for exit costs be recognized at the
date of an entity's commitment to an exit plan. The adoption of SFAS No. 146 did
not have a material effect on the timing of the special charges recorded in the
first half of 2003.
We account for income taxes using the asset and liability method under
which deferred income tax assets and liabilities are recognized for the tax
consequences of "temporary differences" between the financial statement carrying
amounts and the tax bases of existing assets and liabilities and operating
losses and tax credit carry forwards. On an ongoing basis, we evaluate our
deferred tax assets to determine whether it is more likely than not that such
assets will be realized in the future and records valuation allowances against
the deferred tax assets for amounts which are not considered more likely than
not to be realized. The estimate of the amount that is more likely than not to
be realized requires the use of assumptions concerning the amounts and timing of
our future income by taxing jurisdiction. Actual results may differ from those
estimates.
Due to a history of operating losses in certain countries coupled with the
deferred tax assets that arose in connection with the restructuring programs and
goodwill impairment charges, we have determined that we cannot conclude that it
is "more likely than not" that all of the deferred tax assets of certain of our
foreign operations will be realized in the foreseeable future. Accordingly,
during the fourth quarter of 2002, we established a valuation allowance of $44.7
million to provide for the estimated unrealizable amount of our net deferred tax
assets as of December 31, 2002. We will continue to assess the valuation
allowance and, to the extent it is determined that such allowance is no longer
required, these deferred tax assets will be recognized in the future.
We rely upon actuarial models to calculate our pension benefit obligations
and the related effects on operations. Accounting for pensions and
postretirement benefit plans using actuarial models requires the use of
estimates and assumptions regarding numerous factors, including discount rate,
the long-term rate of return on plan assets, health care cost increases,
retirement ages, mortality and employee turnover. On an annual basis, we
evaluate these critical assumptions and makes changes to them as necessary to
reflect our experience. In any given year, actual results could differ from
actuarial assumptions made due to economic and other factors which could impact
the amount of expense or liability for pensions or postretirement benefits we
report.
Two of the critical assumptions in determining our reported expense or
liability for pensions or postretirement benefits are the discount rate and the
long-term expected rate of return on plan assets. The use of a lower discount
rate and a lower long-term expected rate of return on plan assets would increase
the present value of benefit obligations and increase pension expense and
postretirement benefit expense. In 2002, we reduced our United States and
foreign discount rates to reflect market interest rate conditions.
To manage interest rate exposure, we enter into interest rate agreements.
The net interest paid or received on these agreements is recognized as interest
income or expense. Our interest rate agreements are reported in our financial
statements at fair value using a mark-to-market valuation. Changes in the fair
value of the contracts are recorded each period as a component of other
comprehensive income. Gains or losses on our interest rate agreements are
reclassified as earnings or losses in the period in which earnings are affected
by the underlying hedged item. This may result in additional volatility in
reported earnings,
28
other comprehensive income and accumulated other comprehensive income. Our
interest rate swaps and collars were entered into in 2000, when interest rates
were higher than current rates. Accordingly, these contracts are "out of the
money" and may require future payments if market interest rates do not return to
historical levels. These contracts expire in October 2003. In addition, if rates
do increase above historical levels and the counterparties to the agreements
default on their obligations under the agreements, our interest expense would
increase. We do not use financial instruments for trading or speculative
purposes.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JUNE 29, 2003, AS COMPARED TO THE THREE MONTH PERIOD
ENDED JUNE 30, 2002
Net Sales
Consolidated net sales for the three months ended June 29, 2003 were $210.3
million as compared to $203.6 million in 2002, an increase of 3.3%. Along
business segment lines, Aerosol net sales for the second quarter of 2003
decreased to $94.8 million from $96.9 million for the same period in 2002, a
2.2% decrease, due principally to decreased unit volume in the second quarter of
2003 ($4.6 million), offset partially by changes in product pricing and mix
($2.5 million). International net sales increased to $70.8 million for the
second quarter of 2003 from $57.4 million for the second quarter of 2002, an
increase of $13.4 million or 23.3%. The increase in International net sales was
primarily due to the positive impact of the translation of sales made in foreign
currencies ($12.6 million) based upon using the same average U.S. dollar
exchange rates in effect during the second quarter of 2002 along with increased
European aerosol unit volume ($0.8 million). Paint, Plastic and General Line net
sales decreased $1.6 million, from $32.7 million for the second quarter of 2002
to $31.1 million for the second quarter of 2003. This decrease was due primarily
to a decrease in volume ($2.7 million) partially offset by a change in product
mix and increasing resin prices in our plastics business, which are
contractually passed on to customers ($1.1 million). In the Custom and Specialty
segment, sales decreased 17.9% from $16.6 million for the second quarter of 2002
to $13.6 million for the second quarter of 2003, driven primarily by a decline
in volume ($5.5 million) partially offset by the positive impact of a change in
the mix of products sold in the second quarter of 2003 ($2.5 million).
Cost of Goods Sold
Consolidated cost of goods sold increased $4.9 million to $185.6 million
for the three months ended June 29, 2003 from the same quarter in 2002. The
principal reasons for the increase included the foreign currency translation
impact on costs ($12.1 million) based upon using the same average U.S. dollar
exchange rates in effect during the second quarter of 2002 and production
inefficiencies at May ($1.3 million). The increase was partially offset by
decreased costs resulting from a decline in metal paint volume ($5.5 million)
combined with operating efficiencies resulting from restructuring programs ($3.0
million).
Gross Income
Gross income of $24.7 million for the three-month period ended June 29,
2003 increased $1.8 million, or 7.9%, versus the corresponding period of 2002.
Gross profit margin of 11.7% in the second quarter of 2003 increased 0.5
percentage points from the second quarter of 2002. Gross profit margin was
positively impacted by operating efficiencies resulting from restructuring
programs (1.4 percentage points) and was negatively impacted by decreased volume
(0.3 percentage points) and production inefficiencies at May (0.6 percentage
points).
Selling, General and Administrative Costs
Selling, general and administrative costs decreased from $9.9 million for
the second quarter of 2002 to $8.7 million in the second quarter of 2003
primarily due to positive results from Company-wide cost saving programs.
29
Special Charges
During the second quarter of 2003, we recorded a restructuring charge of
$0.6 million related to potential additional severance costs for a previously
terminated employee of May. The employee sued us for unfair dismissal requesting
additional severance in accordance with his employment agreement. In June 2003,
we were informed that the courts intended to rule in favor of the terminated
employee and we recorded a charge for the additional severance. In August 2003,
the appeals court issued an opinion finding that the judgment could not be
overturned. We currently are evaluating the appeals court opinion to determine
whether grounds for further review exist. See Note (10) to the consolidated
financial statements for further information.
Total cash payments in the second quarter of 2003 were $1.6 million
(primarily severance and facility shut down costs) and we anticipate spending
another $11.3 million over the next several years.
<Table>
<Caption>
MARCH 31, 2003 NET CASH JUNE 29, 2003
BALANCE ADDITIONS PAYMENTS BALANCE
-------------- --------- -------- -------------
Employee Separation.................... $ 7.6 $0.6 $(0.7) $ 7.5
Facility Closing Costs................. 4.7 -- (0.9) 3.8
----- ---- ----- -----
Total.................................. $12.3 $0.6 $(1.6) $11.3(a)
===== ==== ===== =====
</Table>
- ---------------
(a) Includes $3.7 million classified as other long-term liabilities as of June
29, 2003.
Interest and Other Expenses; Preferred Stock Dividend Requirements
Interest expense in the second quarter of 2003 increased $0.1 million to
$14.2 million from the same period of 2002 primarily due to higher average
borrowings ($0.5 million) offset by lower interest rates ($0.4 million).
Income tax expense was $2.3 million for the second quarter of 2003 versus
an income tax benefit of $0.2 million for the second quarter of 2002. During the
fourth quarter of 2002, we recorded a valuation allowance as we could not
conclude that it is "more likely than not" that all of the deferred tax assets
of certain of our foreign operations will be realized in the foreseeable future.
Accordingly, we did not record an income tax benefit related to the second
quarter 2003 losses of those operations.
Payment in kind dividends of $3.4 million and $3.1 million on the
redeemable preferred stock were recorded for the second quarters of 2003 and
2002, respectively.
SIX MONTH PERIOD ENDED JUNE 29, 2003, AS COMPARED TO THE SIX MONTH PERIOD
ENDED JUNE 30, 2002
Net Sales
Net sales for the six-month period ended June 29, 2003, totaled $409.2
million, a 5.0% increase versus the corresponding period in 2002. Along business
segment lines, Aerosol net sales were relatively flat between periods with sales
of $183.5 million recorded in the first half of 2003 versus $183.4 million
recorded in the same period of 2002. International sales increased to $133.9
million for the first half of 2003 from $112.0 million for the first half of
2002, an increase of $21.9 million or 19.6%. The increase in International net
sales was primarily due to the positive impact of the translation of sales made
in foreign currencies ($23.4 million) based upon using the same average U.S.
dollar exchange rates in effect during the first half of 2002 along with the
positive impact of a change in product mix ($1.3 million). These increases were
partially offset by a decrease in International volume ($2.8 million) for the
first six months of 2003. Paint, Plastic and General Line segment sales
increased 1.3% to $62.4 million for the first six months of 2003 from $61.6
million for the same period in 2002. This increase was due primarily to an
increase in plastics volume ($1.7 million) and a change in product mix and
increasing resin prices in our plastics business ($1.4 million) which are
contractually passed on to customers but are partially offset by the negative
impact of a decrease in paint volume ($1.8 million) and changes in product mix
($0.5 million). Custom and Specialty sales of $29.4 million decreased from the
$32.8 million for the first
30
half of 2002, driven primarily by a decline in volume ($2.5 million) combined
with the negative impact of a change in the mix of products sold over the first
six months of 2003 ($0.9 million).
Cost of Goods Sold
Consolidated cost of goods sold of $363.1 million for the first half of
2003 increased $15.3 million, or 4.4%, from the same period in 2002. The
principal reasons for the increase included the foreign currency translation
impact on costs ($22.5 million) based upon using the same average U.S. dollar
exchange rates in effect during the first six months of 2002 and International
production inefficiencies ($3.4 million). The increase was partially offset by
decreased costs resulting from a decline in metal paint and plastics product
volume ($4.8 million) along with operating efficiencies resulting from
restructuring programs ($5.8 million).
Gross Income
Gross income of $46.1 million for the six-month period ended June 29, 2003
increased $4.2 million, or 10.0%, versus the corresponding period of 2002. Gross
profit margin of 11.3% for the first six months of 2003 increased 0.6% from the
same period in 2002. The increase in gross margin percentage was primarily due
to domestic operating efficiencies resulting from restructuring programs (1.4
percentage points) partially offset by International inefficiencies (0.8
percentage points).
Selling, General and Administrative Costs
Selling, general, and administrative expenses were $18.3 million in the
first half of 2003, a $0.9 million decrease in comparison to the same period of
2002 due to positive results from Company-wide cost saving programs.
Special Charges
During the first half of 2003, we recorded a restructuring charge of $1.6
million. A $1.0 million charge was recorded in the first quarter of 2003 related
to position elimination costs in the U.S. and Europe. The position eliminations
consisted of 16 employees, including two management level employees and an early
termination program in one European facility. As discussed previously, a $0.6
million charge was recorded in the second quarter of 2003 related to potential
additional severance costs for a previously terminated employee of May.
Total cash payments in the first six months of 2003 were $6.0 million
(primarily severance and facility shut down costs) and we anticipate spending
another $11.3 million over the next several years. The remaining reserve
consists primarily of employee termination benefits paid over time for
approximately 29 salaried and 51 hourly employees (approximately 600 positions
were originally identified for elimination) and other ongoing facility exit
costs. We recorded the charges in accordance with SFAS No. 146, "Accounting for
Costs Associated With Exit or Disposal Activities." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred rather than at the commitment date. The adoption
of SFAS No. 146 did not have a material effect on the timing of the special
charge recorded in the second quarter of 2003.
The table below presents the reserve categories and related activity as of
June 29, 2003:
<Table>
<Caption>
JANUARY 1, 2003 NET CASH JUNE 29, 2003
BALANCE ADDITIONS PAYMENTS BALANCE
--------------- --------- -------- -------------
Employee Separation.................... $ 9.2 $1.6 $(3.3) $ 7.5
Facility Closing Costs................. 6.5 -- (2.7) 3.8
----- ---- ----- -----
Total.................................. $15.7 $1.6 $(6.0) $11.3(a)
===== ==== ===== =====
</Table>
31
- ---------------
(a) Includes $3.7 million classified as other long-term liabilities as of June
29, 2003.
Interest and Other Expenses; Preferred Stock Dividend Requirements
Interest expense increased $0.4 million from $27.8 million for the first
six months of 2002 to $28.3 million for the same period in 2003 primarily due to
higher average borrowings ($1.0 million) partially offset by lower interest
rates ($0.6 million).
Income tax expense was $2.9 million for the first half of 2003 versus an
income tax benefit of $1.9 million for the first half of 2002. During the fourth
quarter of 2002, we recorded a valuation allowance as we could not conclude that
it is "more likely than not" that all of the deferred tax assets of certain of
our foreign operations will be realized in the foreseeable future. Accordingly,
we did not record an income tax benefit related to the first half of 2003 losses
of those operations.
Payment in kind dividends of $6.6 million and $6.1 million on the
redeemable preferred stock were recorded in the first half of 2003 and 2002,
respectively.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
Net Sales
Consolidated net sales for the year ended December 31, 2002 were $796.5
million as compared to $772.2 million in 2001, an increase of 3.1%. Along
business segment lines, Aerosol net sales in 2002 increased to $364.1 million
from $334.7 million in 2001, an increase of 8.8%, due principally to increased
unit volume ($37.4 million) partially offset by the pricing impacts resulting
from a change in customer mix and the 2002 effect of pricing concessions granted
in 2001 ($8.0 million). International net sales increased to $241.2 million in
2002 from $229.5 million in 2001, an increase of $11.7 million or 5.1% primarily
due to the positive impact of the translation of sales made in foreign
currencies based upon using the same average U.S. dollar exchange rates in
effect during the year ended December 31, 2001. Paint, Plastic and General Line
net sales decreased 8.0%, from $130.4 million in 2001 to $120.0 million in 2002.
This decrease was due to changes in product and customer mix along with falling
resin prices in our plastics business that are contractually passed on to
customers ($11.3 million) and decreased paint volume ($2.2 million) offset by
increased volume in plastics ($3.1 million). In 2002, we reduced manufacturing
capacity in our paint business as part of our restructuring programs. In the
Custom and Specialty segment, sales decreased 8.2% from $77.6 million in 2001 to
$71.2 million in 2002 driven primarily by a change in product mix ($7.6 million)
partially offset by an increase in volume ($1.2 million).
Cost of Goods Sold
Consolidated cost of goods sold increased $14.9 million to $710.4 million
for 2002. The principal reasons for the increase were increased volume
experienced in our domestic aerosol business ($32.1 million), operating
inefficiencies in the U.K. and Germany ($3.2 million) and the foreign currency
translation impact on costs ($11.9 million) based upon using the same average
U.S. dollar exchange rates in effect during the year ended December 31, 2001.
These increases were partially offset by cost containment programs and changes
in product mix in U.S. production facilities ($30.6 million) and the decline in
resin prices ($2.0 million). As anticipated, the tariffs imposed in 2001 on
imported steel did not have a material impact on our cost of goods sold in 2002.
The impact of higher steel prices due to the tariffs will increase our costs of
goods sold in 2003, however we cannot determine the effect on steel purchase
prices for 2004 and later years. For further discussion on the tariffs see
"Business -- Raw Materials."
Gross Income
Gross profit margin of 10.8% in 2002 increased 0.9 percentage points from
2001. The increase in the gross margin rate is due to the $9.6 million of
benefits achieved from the restructuring programs
32
(1.2 percentage points), volume related efficiencies (0.4 percentage points)
partially offset by operating costs and inefficiencies in the U.K. and Germany
(0.7 percentage points).
Selling, General and Administrative Costs
Selling, general and administrative costs decreased from $46.6 million in
2001 to $37.9 million in 2002 due to the lack of goodwill amortization during
the year and positive results from management's focus on Company-wide cost
saving programs initiated in 2001. As previously discussed, we have ceased the
amortization of goodwill. Goodwill amortization for the year ended December 31,
2001 was $2.8 million.
Special Charges
During 2002, we substantially completed the restructuring programs
initiated in 2001. We offered voluntary termination programs to corporate office
salaried employees, closed five manufacturing facilities and consolidated two
other facilities into a new facility in Atlanta, Georgia. In addition, during
the fourth quarter of 2002, we sold our Daegeling, Germany facility.
During 2002, we recorded a net charge of $8.7 million related to
restructuring. The net charge of $8.7 million consists of new restructuring
reserves of $11.9 million less reversals of $3.2 million due to the reassessment
of restructuring reserves established in 2001. Included in the 2002 net
restructuring charge are executive position elimination costs and the loss on
the sale of the Daegeling, Germany facility. While the majority of the
restructuring initiatives have been completed in 2002, certain portions of the
programs will not be completed until 2003, and we do not expect to realize the
full earnings benefits until 2004. Certain long-term liabilities (approximately
$3.7 million as of December 31, 2002), consisting primarily of employee
termination costs and future ongoing facility carrying costs will be paid over
many years. We initiated the restructuring programs in 2001 and recorded a net
restructuring charge of $36.2 million for the year.
The table below presents the reserve categories and related activity as of
December 31, 2002 (in millions):
<Table>
<Caption>
JANUARY 1, 2002 NET DECEMBER 31, 2002
BALANCE ADDITIONS(D) DEDUCTIONS(C) OTHER(B) BALANCE
--------------- ------------ ------------- -------- -----------------
Employee Separation......... $21.2 $4.9 $(17.6) $0.7 $ 9.2
Facility Closing Costs...... 10.7 3.8 (9.6) 1.6 6.5
----- ---- ------ ---- -----
Total....................... $31.9 $8.7 $(27.2) $2.3 $15.7(a)
===== ==== ====== ==== =====
</Table>
- ---------------
(a) Includes $3.7 million classified as other long-term liabilities as of
December 31, 2002.
(b) Non-cash foreign currency translation impact and the reversal of $1.5
million of asset write-offs previously expensed in 2001.
(c) Includes cash payments of $20.8 million. The remaining non-cash deductions
represent increased pension and post-retiree benefits transferred to Other
Long-Term Liabilities and the non-cash loss recorded on the sale of the
Daegeling facility.
(d) Includes reversals of $3.2 million due to the re-assessment of reserves.
Interest Expense; Preferred Stock Dividend Requirements
Interest expense in 2002 decreased 3.4%, or $1.9 million, versus 2001 due
to lower interest rates ($3.4 million) partially offset by the interest expense
impact of higher average borrowings ($1.5 million). See Note (6) to our audited
consolidated financial statements for a further discussion of debt position.
Payment in kind dividends of $12.5 million and $11.3 million on the
redeemable preferred stock issued in connection with the recapitalization were
recorded in 2002 and 2001, respectively. See Note (12) to our audited
consolidated financial statements.
33
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Net Sales
Consolidated net sales for the year ended December 31, 2001 were $772.2
million as compared to $809.5 million in 2000, a decrease of 4.6%. Along
business segment lines, Aerosol net sales in 2001 decreased to $334.7 million
from $357.7 million in 2000, a 6.4% decline, due principally to decreased unit
volume ($13.6 million), a change in the mix of sales volume towards lower
selling value products ($4.0 million) and pricing concessions granted in the
first half of 2001 ($5.3 million). The pricing concessions granted in the first
part of the year will continue to negatively impact the first half of 2002, both
in sales and gross profit. International net sales decreased to $229.5 million
in 2001 from $239.6 million in 2000, a decrease of $10.1 million or 4.2%. There
was a $9.7 million negative impact in 2001 due to U.S. dollar translation on
sales made in foreign currencies. Paint, Plastic and General Line net sales
decreased 4.1%, from $136.1 million in 2000 to $130.4 million in 2001 due
primarily to decreased unit volume of paint and general line products. In the
Custom and Specialty segment, sales increased 2.0% from $76.1 million in 2000 to
$77.6 million in 2001, due to additional sales as the result of the acquisition
of Olive Can ($12.1 million see Note (5) to our audited consolidated financial
statements) offset by the sale of the Wheeling metal closure and Warren
lithography businesses ($3.4 million) and an overall decline in volume ($6.5
million).
Cost of Goods Sold
Consolidated cost of goods sold increased $2.3 million to $695.5 million
for 2001. The principal reasons for the increase included additional volume as a
result of the Olive Can acquisition ($11.8 million) and a one-time inventory
write-off relating to discontinued Custom and Specialty products ($3.2 million)
offset by decreased costs caused by volume and mix ($12.7 million).
Gross Income
Gross profit margin of 9.9% in 2001 decreased 4.5 percentage points from
2000. The primary reasons for the decline in gross margin rate include the
impact of volume declines (0.5 percentage points), selling price and product mix
(2.0 percentage points) and manufacturing inefficiencies resulting from volume
softness (0.9 percentage points) and the delay in the sale of the Southall, U.K.
facility (0.4 percentage points).
Selling, General and Administrative Costs
Selling, general and administrative costs increased from $45.9 million in
2000 to $46.6 million in 2001. We expect a reduction to selling, general and
administration costs as a result of our offering a voluntary termination program
in connection with the restructuring initiatives discussed in Note (4) to our
audited consolidated financial statements.
Special Charges
During 2001, we initiated several restructuring programs. These programs
resulted in (a) the closure of five manufacturing facilities, (b) the additional
consolidation of two other facilities into one new facility, (c) the reversal of
a previous decision to close a custom and specialty lithography facility due to
changing business needs and (d) the elimination of approximately 600 jobs. The
restructuring programs, which are more fully described in Note (4) to our
audited consolidated financial statements, resulted in a net charge of $36.2
million in 2001. The programs are expected to result in improved operating
income in 2002 and future years as a result of reduced payroll costs and the
elimination of fixed overhead costs. A pre-tax charge of $3.4 million for
severance and other termination-related costs was recorded in the third quarter
of 2000. There also was an $18.9 million charge in the fourth quarter of 2000
related to the recapitalization. See Notes (3) and (4) to our audited
consolidated financial statements for further discussion on the recapitalization
and the special charge, respectively.
34
The tables below present the reserve categories and related activity as of
December 31, 2001 respectively (in millions):
<Table>
<Caption>
JANUARY 1, 2001 DECEMBER 31, 2001
BALANCE ADDITIONS(A) DEDUCTIONS(C) BALANCE
--------------- ------------ ------------- -----------------
Employee Separation........... $ 6.1 $19.8 $ (4.7) $21.2
Facility Closing Costs........ 9.3 11.2 (9.8) 10.7
Other Asset Write-Offs........ -- 5.2 (5.2)(d) --
----- ----- ------ -----
Total......................... $15.4 $36.2 $(19.7) $31.9(b)
===== ===== ====== =====
</Table>
- ---------------
(a) Includes a re-assessment of prior programs of $7.2 million
(b) Includes $6.0 million of other long-term liabilities as of December 31, 2001
(c) Includes cash payments of $8.3 million
(d) Net of proceeds from sale of Southall facility of $11.7 million
Interest Expense; Preferred Stock Dividend Requirements
Interest expense in 2001 increased 41.6%, or $16.8 million, versus 2000 due
to borrowings made in connection with the recapitalization transactions that
occurred in October 2000. The recapitalization resulted in increased borrowings
for all 2001 versus the fourth quarter of 2000. See "Liquidity and Capital
Resources" and Notes (3), (5) and (6) to our audited consolidated financial
statements for a further discussion of the recapitalization and our debt
position.
Payment in kind dividends of $11.3 million and $2.6 million on the
redeemable preferred stock issued in connection with the recapitalization were
recorded in 2001 and 2000, respectively. See Note (12) to our audited
consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
During the first half of 2003, liquidity needs were met through borrowings
made under credit lines and proceeds from the sale of a facility. Principal
liquidity needs included operating costs, working capital and capital
expenditures. Cash flow used by operations was $6.0 million for the six months
ended June 29, 2003, compared to cash used of $4.2 million for the six months
ended June 30, 2002. The increased use of cash by operations is due primarily to
increases in working capital. During 2002, liquidity needs were met through
internally generated cash flow and borrowings made under lines of credit.
Principal liquidity needs included operating costs, working capital, including
restructuring costs and capital expenditures. Cash flow provided by operations
was $6.2 million for the year ended December 31, 2002, compared to cash used of
$7.0 million for the year ended December 31, 2001. The decreased use of cash is
primarily due to the decrease in the net loss before income taxes.
Net cash used in investing activities was $2.0 million for the first half
of 2003 as compared to $10.6 million (primarily capital spending) for the first
half of 2002. First half of 2003 investing activities included capital spending
of $7.4 million, including $1.6 million in conjunction with our restructuring
programs, offset by the proceeds received from the sale of property of $5.4
million. Proceeds received from the sale of property during the first half of
2003 are composed primarily of the payment received for the sale of our
Daegeling, Germany facility, which was sold at the end of 2002. In 2002, net
cash used in investing activities was $21.7 million, as compared to $24.4
million in 2001. Investing activities for 2002 relate primarily to capital
spending of $27.2 million, including $11.5 million in conjunction with our
restructuring programs, offset by the proceeds received from the sale of
property of $5.7 million, including the final payment received for the sale of
our Southall facility of $4.8 million. Total capital expenditures in 2001 were
$19.5 million. Base capital expenditures are expected to range from $20.0
million to $24.0 million each year during the five years commencing 2003.
Capital expenditures in 2003 will include approximately $3.0 million to complete
our 2001 restructuring programs. Capital expenditures are expected
35
to be funded from cash on hand, operations and borrowings under the revolving
credit facility. Capital investments have historically yielded reduced operating
costs and improved profit margins, and management believes that the strategic
deployment of capital will enable overall profitability to improve by leveraging
the economies of scale inherent in the manufacturing of containers.
Net cash used by financing activities in the first six months of 2003 was
$16.7 million, versus net cash provided of $17.0 million for the same period in
2002. The primary financing sources were borrowings under the revolving credit
portion of our senior secured credit facility and unsecured revolving lines of
credit granted by various banks to fund the seasonal working capital
requirements of May. In 2002, net cash provided from financing activities was
$12.0 million versus $35.1 million in 2001. The primary financing sources in
2002 were borrowings under the revolving credit portion of our senior secured
credit facility and unsecured revolving lines of credit granted by various banks
to fund the seasonal working capital requirements of May. See Note (6) to our
audited consolidated financial statements for further discussion of our debt
obligations.
On July 22, 2003, we completed the offering of $125 million of the notes.
The notes are secured, on a second priority basis, by substantially all of the
collateral that currently secures our senior secured credit facility.
We also amended our senior secured credit facility to permit the offering
of the notes and adjust certain financial covenants, among other things. These
amendments also permit, from time to time and subject to certain conditions, us
to make borrowings under our revolving credit facility for repurchases of a
portion of our outstanding 12 3/8% senior subordinated notes in open market or
privately negotiated purchases.
We used the $125 million in proceeds generated from the offering of the
notes to prepay $23.3 million of our Tranche A term loan, $46.7 million of our
Tranche B term loan and to reduce our borrowings under our revolving credit
facility by $55.0 million. The repayments under the revolving credit facility
did not reduce the $110.0 million amount available for borrowings under the
facility. We have incurred and re-borrowed approximately $6.4 million under our
senior secured credit facility in connection with the fees and expenses related
to the offering and the amendment of our senior secured credit facility. In
addition, we expect to incur and re-borrow an additional $1.2 million for other
fees and expenses related to the original offering of the notes.
At June 29, 2003, prior to the refinancing, $90.0 million had been borrowed
under the $110.0 million revolving loan portion of the senior secured credit
facility. Letters of Credit of $11.7 million were also outstanding securing our
obligations under various insurance programs and other contractual agreements.
In addition, we had $19.0 million of cash and cash equivalents at quarter end.
As discussed previously, we reduced our borrowings under the revolving loan
portion of the facility with $55 million of the proceeds of the notes. After
payment of a portion of the fees and expenses, borrowings under the revolver
were $36.3 million (excluding letters of credit) at the close of business on
July 22, 2003.
Primary sources of liquidity are cash flow from operations and borrowings
under revolving credit facilities. We are permitted to re-borrow additional
amounts under our revolving credit facility to fund working capital
requirements, capital expenditures and other general corporate purposes,
including potential repurchases of our outstanding 12 3/8% senior subordinated
notes due 2010.
Principal repayments required under our senior secured credit facility will
be $0.3 million for the remainder of 2003, increasing to $169.4 million at the
maturity date in 2006. Any amounts outstanding at that time under our revolving
credit facility will also be due in 2006. Additionally, our senior secured
credit facility requires a prepayment in the event that excess cash flow (as
defined) exists and following certain other events, including certain asset
sales and issuances of debt and equity.
Amounts outstanding under our senior secured credit facility bear interest
at a rate per annum equal to either: (1) the base rate (as defined in our senior
secured credit facility) or (2) the LIBOR rate (as defined in our senior secured
credit facility), in each case, plus an applicable margin. The applicable
36
margins are subject to future reductions based on the achievement of certain
leverage ratio targets and on the credit rating of our senior secured credit
facility.
We also issued $175.0 million aggregate principal amount of 12 3/8% senior
subordinated notes due October 1, 2010. The 12 3/8% senior subordinated notes
are our unsecured obligations and are subordinated in right of payment to all of
our senior indebtedness. The 12 3/8% senior subordinated notes are guaranteed by
U.S. Can and all of our domestic restricted subsidiaries.
Our senior secured credit facility, the notes and the 12 3/8% senior
subordinated notes contain a number of financial and restrictive covenants.
Under our senior secured credit facility, we are required to meet certain
financial tests, including achievement of a minimum EBITDA level, a minimum
interest coverage ratio, a minimum fixed charge coverage ratio and a maximum
leverage ratio. The restrictive covenants limit our ability to incur debt, pay
dividends or make distributions, sell assets or consolidate or merge with other
companies. We are in compliance with all of the required financial ratios and
other covenants under both facilities, as amended, at June 29, 2003, and
anticipate being in compliance with the covenants as further amended in
connection with the refinancing during the remainder of 2003.
May has various bank facilities originating under loan agreements dated
between 1996 and 1999. These agreements provide for up to ten-year terms with
floating interest rates, and among other things, include provisions for the
banks to terminate the credit lines upon giving notice, rightfully demand
security for the credit lines, have a negative pledge from May not to grant
security without the bank's approval and the requirement that any bank lending
to May be treated on terms no less favorable than any other bank's borrowings by
May.
During April 2003, a formal demand for security was made by the lenders
under May's credit facilities. On April 30, 2003, May granted two of its banks a
collateral interest in its inventory and accounts receivable in exchange for
their agreement to allow the continuation of facilities in the amount of E11.8
million through June 30, 2003. In addition, we made payments of E1.5 million on
May 7, 2003 and E1.0 million on June 30, 2003 in full payment of term loans for
which one of May's lenders demanded early payment in accordance with terms of
the borrowings. These term loans were guaranteed by U.S. Can. May has initiated
discussions with several banks to secure a new facility that would replace the
existing facilities and allow it to meet its seasonal borrowing needs. May has
received a proposal from its existing lenders to extend the existing facilities
through October 31, 2003. This facility is expected to be in an amount
comparable to historical credit lines and secured in the same manner as the
existing borrowings. Management believes that it will be able to secure adequate
financing to meet May's working capital needs. If we are unable to secure
adequate substitute financing for May or May defaults on payments of debt under
its borrowing agreements, we will need to provide financing for May from other
sources available to us, including currently existing or new lines of credit in
the United States and Europe. There can be no assurance that the existing banks
will extend or replace the current facilities, that new banks will extend the
required level of credit, that May will not default under its borrowing
agreements or that funds will be available from other sources to finance May's
requirements, each of which could have a material adverse effect on our
financial position.
At existing levels of operations and assuming the renegotiation of the May
facilities, cash generated from operations together with amounts to be drawn
from the revolving credit facility, are expected to be adequate to meet
anticipated debt service requirements, restructuring costs, capital expenditures
and working capital needs. Future operating performance and the ability to
service or refinance the notes, to service, extend or refinance the senior
secured credit facility and to redeem or refinance our preferred stock will be
subject to future economic conditions and to financial, business and other
factors, many of which are beyond management's control.
37
We have a number of contractual commitments to make future cash payments.
Under existing agreements, contractual obligations as of December 31, 2002 are
as follows (000's omitted):
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
----------------------------------------------------
CONTRACTUAL OBLIGATIONS 1ST YEAR 2-3 YEARS 4-5 YEARS AFTER 5 YEARS
- ----------------------- -------- --------- --------- -------------
Long Term Debt........................... $25,074 $52,601(1) $291,140 $179,000
Capital lease obligations................ 1,079 788 -- --
Operating leases......................... 4,997 8,209 5,952 3,628
------- ------- -------- --------
Total Contractual Commitments............ $31,150 $61,598 $297,092 $182,628
======= ======= ======== ========
</Table>
- ---------------
(1) Includes a mortgage of $16.5 million on our property at Merthyr Tydfil, U.K.
that is due in December 2003. We expect that we will refinance this mortgage
prior to its due date.
INFLATION
Tin-plated steel represents the primary component of our raw materials
requirement. Historically, we have not always been able to immediately offset
increases in tinplate prices with customer price increases. Our capital spending
programs and manufacturing process upgrades are designed to increase operating
efficiencies and mitigate the impact of inflation on our cost structure.
Effective March 20, 2002, the President of the United States imposed 30% ad
valorem tariffs under Section 201 of the Trade Act of 1974 on tin mill imports
from most foreign producers. The tariffs are scheduled to remain in effect for
three years, declining to 24% in the second year and 18% in the third year. Tin
mill imports from Canada, Mexico and certain developing countries are excluded
from the tariffs. The tariffs did not materially effect our costs for 2002.
However, we do purchase the vast majority of our domestic steel from domestic
sources and since the tariffs curtails foreign competition, a negative impact to
us could arise from price increases from domestic suppliers.
In response to the U.S. tariffs imposed under Section 201 of the Trade Act
of 1974, in March of 2002 the European Union established a steel safeguard
initiative whereby imports of steel into the European Union from designated
countries are assessed a duty of 17% versus the previous duty of 1%. The new
duty on some European imports remains in effect for the duration of the U.S.
imposed tariffs under Section 201. Due to the fact that our European operations
do not import steel from any of the countries affected by the new European duty,
our international operations were not affected by the new duty in 2002.
Likewise, we do not anticipate the new duty to affect our operations in 2003 as
we have no plans to begin purchasing steel from these countries.
Tin-plate prices have increased slightly over the last five years. While
there is some long-term variability, tin-plate prices have generally been stable
and price increases have historically been announced several months before
implementation. This stability has enhanced our ability to communicate and
negotiate required selling price increases with our customers and minimizes
fluctuations of our gross margins. Many of our domestic and some of our
international multi-year supply agreements with our customers permit us to pass
through tin-plate price increases and, in some cases, other raw material costs.
The tariffs implemented in 2002 did not have a material effect on our costs for
the year but we have experienced increases in steel costs in 2003 which we
believe to be a result of the tariffs. We cannot assess the impact of the
tariffs on our steel prices in 2004 or later years. We have not always been able
to immediately offset increases in tin-plate prices with price increases on our
products. Further, the tariffs could jeopardize this pricing stability, and
could negatively impact our gross margins as we may not have the ability to
immediately or fully pass through tinplate price increases to all of our
customers. We are unable to determine the long term effects the tariffs will
have on steel prices or resource availability. However, we will continue to
explore other sourcing alternatives to limit any potential negative impact of
the tariffs.
38
NEW ACCOUNTING PRONOUNCEMENTS
During July 2001, the Financial Accounting Standards Board (FASB) issued
and we adopted SFAS No. 141 "Business Combinations." SFAS No. 141 modifies the
method of accounting for business combinations entered into after June 30, 2001
and addresses the accounting for acquired intangible assets. All business
combinations entered into after June 30, 2001, are accounted for using the
purchase method.
We adopted SFAS No. 142 "Goodwill and Other Intangible Assets" on January
1, 2002. This standard provides accounting and disclosure guidance for acquired
intangibles. Under this standard, goodwill and "indefinite-lived" intangibles
are no longer amortized, but are tested at least annually for impairment.
Effective January 1, 2002, we ceased amortization of our goodwill. We recorded
goodwill amortization of $2.8 million and $2.9 million for the years ended
December 31, 2001 and 2000. SFAS No. 142 required us to make an initial
assessment of goodwill impairment within six months after the adoption date. The
initial step was designed to identify potential goodwill impairment by comparing
an estimated fair value for each applicable reporting unit to its respective
carrying value. For the reporting units where the carrying value exceeds fair
value, a second step was performed by to measure the amount of the goodwill
impairment.
During the first six months of 2002, we completed the initial transitional
goodwill impairment test as of January 1, 2002, and reported that a non-cash
impairment charge was required in the custom and specialty and international
segments. During the fourth quarter of 2002, we determined the amount of the
goodwill impairment and recorded a pre-tax goodwill impairment charge of $39.1
million relating to the custom and specialty and international segments. The
charge has been presented as a cumulative effect of a change in accounting
principle effective as of January 1, 2002 and is primarily due to competitive
pressures in the custom and specialty and international segment marketplaces. To
determine the amount of goodwill impairment, we measured the impairment loss as
the excess of the carrying amount of goodwill over the implied fair value of
goodwill. The impairment charge has no impact on covenant compliance under our
senior secured credit facility. For further discussion of the goodwill
impairment charge see Note (15) to our audited consolidated financial
statements.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," was issued in August 2001. SFAS No. 144, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of, supercedes SFAS No. 121 and is effective
for fiscal years beginning after December 15, 2001. We adopted this
pronouncement on January 1, 2002. There was no impact to our financial position
and results of operations as a result of the adoption.
SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 46, Amendment of
FASB Statement No. 13, and Technical Corrections" was issued in April 2002 and
is effective for fiscal years beginning after May 15, 2002. This statement
eliminates the current requirement that gains and losses on extinguishment of
debt be classified as extraordinary items in the statement of operations.
Instead, the statement requires that gains and losses on extinguishment of debt
be evaluated against the criteria in APB Opinion 30 to determine whether or not
such gains or losses should be classified as an extraordinary item. The
statement also contains other corrections to authoritative accounting literature
in SFAS 4, 44 and 46. In accordance with the pronouncement, we have adopt the
standard for the year ended December 31, 2003.
The FASB issued SFAS No. 146 "Accounting for Costs Associated With Exit or
Disposal Activities," in July 2002. SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS No. 146 supercedes the guidance of Emerging Issues
Task Force ("EITF") Issue No. 94-3 "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity," which required that
liabilities for exit costs be recognized at the date of an entity's commitment
to an exit plan. SFAS No. 146 is effective for exit or disposal activities that
are initiated after December 31, 2002. We have adopted SFAS No. 146 as of
January 1, 2003. The adoption of SFAS No. 146 did not have a material effect on
the timing of the special charge recorded in the first half of 2003.
39
In December of 2002, the FASB issued SFAS No. 148 "Accounting for
Stock-Based Compensation -- Transition and Disclosure." SFAS No. 148 amends FASB
Statement No. 123 "Accounting for Stock-Based Compensation" to provide
alternative methods of transition for companies who voluntarily change to the
fair value based method of accounting for stock-based employee compensation. The
statement also increases stock-based compensation quarterly and annual
disclosure requirements for all companies and is effective for financial
statements of companies with fiscal years ending after December 15, 2002. We
adopted this statement in December of 2002 and there was no impact to our
financial position and results of operations as a result of the adoption. See
Note (2) to our audited consolidated financial statements for the additional
disclosures required by this pronouncement.
In May 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments including certain derivative
instruments embedded in other contracts and hedging activities under SFAS No.
133. It is effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. The adoption of
this standard is not expected to have a material impact on our financial
position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain
Financial Instruments with Characteristics of Both Liabilities and Equity" which
establishes standards for how an issuer of financial instruments classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances) if, at
inception, the monetary value of the obligation is based solely or predominantly
on a fixed monetary amount known at inception, variations in something other
than the fair value of the issuer's equity shares or variations inversely
related to changes in the fair value of the issuer's equity shares. This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. At June 29, 2003, we had $139.8 million of
redeemable preferred stock. As our redeemable preferred stock does not contain
an unconditional obligation requiring us to redeem it by transferring assets at
a specified or determinable date, or upon an event certain to occur, the
adoption of SFAS No. 150 will have no impact on our balance sheet or statement
of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
FOREIGN CURRENCY RISK
We have engaged in transactions that carry some degree of foreign currency
risk. As such, a series of forward hedge contracts were entered into to mitigate
the foreign currency risks associated with the financing of a production
facility in the United Kingdom. Pursuant to the agreement under which the
contracts had been issued, the counterparty elected to terminate the contracts
in January 2003. In connection with the termination, we paid $1.0 million to the
counterparty which will be reflected in 2003 interest expense in accordance with
the original contract terms.
We bear foreign exchange risk because much of the financing is currently
obtained in U.S. dollars, but a portion of our revenues and expenses are earned
in the various currencies of our foreign subsidiaries' operations. The revolving
credit facility allows certain foreign subsidiaries to borrow up to $75 million
in British Pounds Sterling and Euros. We have not made borrowings in any of
these currencies.
40
INTEREST RATE RISK
Interest rate risk exposure results from our floating rate borrowings. A
portion of the interest rate risks have been hedged by entering into swap and
collar agreements. Since the counterparties to the agreements are also lenders
under our senior secured credit facility, obligations under these agreements are
subject to the security interest under our senior secured credit facility.
The table below provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, including interest rate swaps and debt obligations. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. For interest rate swaps and
collars, the table presents notional amounts and weighted average interest rates
by expected (contractual) maturity dates. Notional amounts are used to calculate
the contractual payments to be exchanged under the contract.
<Table>
<Caption>
2003 2004 2005 2006 2007 THEREAFTER FAIR VALUE
----- ----- ----- ------ ---- ---------- ----------
(DOLLARS IN MILLIONS)
Debt Obligations
Fixed rate................... $16.2 $17.8 $ 0.6 $ 1.4 $1.3 $175.0 $115.7
Average interest rate........ 8.14% 8.35% 6.12% 8.58% 6.10% 12.38%
Variable rate................ $10.0 $14.0 $21.0 $288.5 $ -- $ 4.0 $337.5
Average interest rate........ 5.43% 5.42% 5.41% 5.64% 0.00% 1.40%
Interest Rate Swaps --
Variable to Fixed
Notional Amount............ $83.3 $ -- $ -- $ -- $ -- $ -- $ (3.4)
Pay/receive rate............. 6.63% -- -- -- -- --
Interest Rate Collars
Notional Amount............ $41.7 -- -- -- -- -- $ (1.5)
Cap Rate..................... 7.25% -- -- -- -- --
Floor Rate................... 6.10% -- -- -- -- --
</Table>
The interest rate swaps and collars were entered into in 2000, when
interest rates were higher than current rates. Accordingly, these contracts are
"out-of-the-money" and may require future payments if market interest rates do
not return to historical levels. These contracts expire in October 2003 and we
do not anticipate replacing them. In addition, if rates do increase above
historical levels and the counterparties to the agreements default on their
obligations under the agreements, our interest expense would increase. We do not
use financial instruments for trading or speculative purposes. No quoted market
value is available (except on the 12 3/8% senior subordinated notes due 2010).
Fair value amounts, because they do not include certain costs such as prepayment
penalties, do not represent the amount we would have to pay to reacquire and
retire all of our outstanding debt in a current transaction. See "Risk
Factors -- Risks Related to the Exchange Notes -- Our senior debt bears interest
at a floating rate, and if interest rates rise, our payments will increase and
we may incur losses."
41
BUSINESS
OUR BUSINESS
GENERAL
We are a leading manufacturer of steel containers for personal care,
household, automotive, paint, industrial and specialty products in the United
States and Europe, as well as plastic containers in the United States and food
cans in Europe. Our product offerings include a wide variety of steel
containers, such as aerosol cans, paint cans, oblong containers and a large
number of custom and specialty products and plastic containers for industrial
and consumer products. We attribute our market leadership to our ability to
consistently provide high-quality products and service at competitive prices,
while continually improving our product-related technologies.
We have long-standing relationships with many leading consumer products
companies in the United States and Europe, including Reckitt Benckiser, Sherwin
Williams, S. C. Johnson, Unilever and L'Oreal. In steel aerosol cans, we hold
the number one market position, based on sales volume, in the United States and
the number two market position in Europe. We also hold the number two market
position in steel paint cans in the United States, by unit volume.
For the fiscal year ended December 31, 2002, we reported net sales of
$796.5 million and for the six month period ended June 29, 2003, we reported net
sales of $409.2 million. Our aerosol products globally represented approximately
60% of our net sales for the same periods. Our domestic operations represented
approximately 70% of our net sales, with the remainder generated by our European
operations.
We have four business segments: Aerosol Products; International Operations;
Paint, Plastic and General Line Products; and Custom and Specialty Products.
AEROSOL PRODUCTS
As the largest producer of steel aerosol cans in the United States by sales
volume, we have a leading position in all of the major aerosol consumer product
lines, including personal care, household, automotive and spray paint cans. We
offer a wide range of steel aerosol cans that enhance our customers' product
offerings, including stylized necked-in cans and barrier-pack cans used for
products that cannot be mixed with a propellant, such as shaving gel. Most of
the aerosol cans that we produce employ a lithography process that consists of
printing our customers' designs and logos on the cans. Examples of products
using our steel aerosol cans include Lysol disinfectant, Suave hairspray,
Easy-Off oven cleaner, Reddi-Whip whipped cream and Krylon spray paint.
Steel aerosol cans in the United States represent our largest business
segment and accounted for approximately 46% of our net sales for the fiscal year
ended December 31, 2002, and approximately 45% of our net sales for the six
month period ended June 29, 2003. In 2002, we manufactured approximately 55% of
the steel aerosol containers produced in the United States in 2002.
INTERNATIONAL OPERATIONS
Our international operations primarily produce steel aerosol cans for the
European market. In 2002, we manufactured over 30% of the steel aerosol cans
produced. We also supply steel aerosol cans to customers in Latin America
through Formametal S.A., our Argentinean joint venture. In addition, we
participate in the metal food packaging market through our wholly-owned
subsidiary, May, a leading European food can producer with more than 30% of the
German food can market, by sales volume. May has long-term relationships with
several lending consumer products companies in Europe, including Mars and
Nestle.
International operations represents our second largest business segment and
accounted for approximately 30% of our net sales for the fiscal year ended
December 31, 2002, and approximately 33% of our net sales for the six month
period ended June 29, 2003.
42
PAINT, PLASTIC AND GENERAL LINE PRODUCTS
Our primary paint, plastic and general line products include steel paint
and coating containers, oblong cans for products such as turpentine and charcoal
lighter fluid, plastic pails and drums for industrial products, such as spackle
and dry wall compounds, and consumer products, such as swimming pool chemicals
and paint. Among our largest customers for these products are PPG Industries and
Behr. Examples of products using our containers include Thompson's Water Seal
and Arch pool chemicals.
Our paint, plastic and general line products accounted for approximately
15% of our net sales for the fiscal year ended December 31, 2002 and for the six
month period ended June 29, 2003. We hold the number two market position in the
United States in the steel paint can market.
CUSTOM AND SPECIALTY PRODUCTS
We believe that we offer the industry's widest range of decorative and
specialty products. Our primary products include functional and decorative
containers, tins and collectible items that are typically produced in smaller
quantities than our other products. Our customers in this segment include Wyeth
Nutritionals, America Online and Liz Claiborne Cosmetics. Examples of products
packaged with our containers include holiday tins sold by mass merchandisers
such as Wal-Mart, infant formula packaging for Wyeth Nutritionals, tins for
America Online compact discs and Liz Claiborne Cosmetics fragrance gift boxes.
Our custom and specialty products accounted for approximately 9% of our net
sales for the fiscal year ended December 31, 2002, and approximately 7% of our
net sales for the six month period ended June 29, 2003.
RESTRUCTURINGS
We initiated several restructuring programs in 2001, consisting of a
voluntary termination program offered to corporate office salaried employees,
the closure of five manufacturing facilities and the additional consolidation of
two other facilities into one new facility. As part of these programs:
- we eliminated approximately 600 employee positions;
- we closed a paint can manufacturing facility and a warehouse in
Baltimore, Maryland in 2001;
- we ceased manufacturing operations in Dallas, Texas in 2001;
- we closed a custom and specialty plant located in the Baltimore, Maryland
area in 2002;
- we closed our manufacturing facility located in Southall, England in
2002;
- we closed two plastics facilities in Georgia and transferred production
from these facilities to a new facility in Atlanta, Georgia in 2002; and
- we closed our lithography facility located in Burns Harbor, Indiana in
the fourth quarter of 2002.
While the majority of the restructuring programs were completed in 2002,
certain portions of the programs will not be completed until 2003, and we do not
expect to realize the full benefits until 2004. Certain long-term liabilities
(approximately $3.7 million as of June 29, 2003) resulting from these programs,
consisting primarily of employee termination costs and future ongoing facility
carrying costs, will be paid over several years. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
COMPETITIVE STRENGTHS
We believe that we are well-positioned within the global container industry
due to a number of competitive strengths, which include our:
- Market Leadership. Domestically, we hold the number one market position
in our steel aerosol can lines and the number two market position in our
steel paint product lines. In Europe, we are
43
the second largest manufacturer of steel aerosol cans. Collectively, our
steel aerosol can and paint and general line product lines represent
approximately 70% of our annual sales. We believe our product quality,
customer service, low cost position and technological innovation have
resulted in an approximately 55% share of the U.S. steel aerosol
container market in 2002.
- Long-Standing Customer Relationships. We have long-standing
relationships with many of our customers and have been able to expand our
market share with many key customers. Our market share makes us an
important supplier to the leading users of steel aerosol and paint cans,
while our scale allows us to respond quickly to customer demands. We
believe our long-standing customer relationships have developed as a
result of our ability to provide high quality, competitively priced
products and global supply services to multi-national consumer products
companies.
- Improved Cost Position. Since 2001, we initiated several restructuring
programs designed to improve both efficiencies in our production
capability and our cost structure. Specifically, we have closed five
manufacturing facilities, consolidated two other facilities into one new
facility, implemented a voluntary termination program for corporate
salaried employees, and taken action to improve inventory management at a
number of our manufacturing facilities. When fully realized in 2004, we
believe these restructuring programs collectively will provide additional
gross profit of approximately $20 million to $22 million on an annualized
basis. These initiatives, together with earlier capacity rationalization
programs and investments in new technology, have resulted in a
significantly lower-cost, more efficient manufacturing base and have
allowed us to improve product quality and customer service. We expect
that these initiatives will continue to enhance our manufacturing
efficiencies and our customer service capabilities, further improving our
cost position.
- Strategically-Located, Efficient Manufacturing Facilities. We operate our
business through a number of strategically-located manufacturing
facilities, with 13 facilities in the United States and eight facilities
in Europe. We believe our U.S. and European presence allows us to reduce
costs, improve delivery times and meet our customers' growing needs for
global supply solutions. We also supply steel aerosol cans to customers
in Latin America from two facilities through our Argentinean joint
venture. Over the last several years, we have invested in manufacturing
equipment and systems in order to improve our manufacturing quality and
efficiency. We believe that these investments will improve the quality of
our products and lower our production costs.
- Focused and Disciplined Management Team. Our management team consists of
highly qualified senior managers with significant industry experience. In
February 2003, we appointed John Workman to the position of Chief
Executive Officer and Sandra Vollman to the position of Chief Financial
Officer. In addition, we implemented a team-oriented and integrated
reporting structure to give our management team added visibility to
customer needs. We expect this enhanced structure to increase our
operational performance and continue to allow our management to focus on
improving earnings and cash flow, reducing debt levels and increasing our
financial flexibility.
BUSINESS STRATEGY
We believe we are well-positioned to improve our profitability and cash
flow through a focused strategy based on the following:
- Improving Operating Efficiencies and Cost Structure. We plan to continue
to reduce manufacturing costs and enhance operating efficiencies by
further reconfiguring our manufacturing base, improving our efficiency in
purchasing, investing in new equipment and technology and focusing our
resources on our key product lines. Operating efficiency improvements are
an on-going part of the competitive nature of the container manufacturing
industry, and we continually evaluate all areas of our operations for
ways to improve profitability and overall performance, including, among
other things, acquisitions, divestitures, capacity realignments and
alternative capital structures. We believe our program of continuous
operational improvements will better enable us to compete in the
marketplace.
44
- Focusing on Customer Service. By providing enhanced customer service and
support, we believe that we can enhance our market share with existing
customers and further distinguish ourselves in the container and
packaging industry. We are currently implementing new systems and
technology, including just-in-time delivery, custom order tracking and
demand forecasting that will further enhance our value-added service
offerings.
- Leveraging our Market-Leading Positions. We believe that we can improve
our financial and operational results by expanding on our leadership
positions in certain key businesses, including steel aerosol cans and
steel paint cans in the United States, where we hold leading market
positions, and steel aerosol cans in Europe, where we hold the number two
market position. These product and market segments have historically
provided the most opportunity for growth and profitability in our
business, and we believe that our continued focus in these areas will
yield additional growth and profit improvement opportunities.
- Reducing Indebtedness. We are focused on managing our business to
increase cash flow and operating income and reduce our indebtedness. We
believe further debt reduction will provide us with increased financial
flexibility and allow us to manage our business more effectively and
improve our overall operating performance.
PRODUCTS
We believe that we offer the widest range of aerosol, round, general line
and specialty metal containers in the U.S. general packaging industry. In 2002,
we produced approximately 4.1 billion metal cans. We emphasize quality and
breadth of product line in marketing our steel aerosol cans. We offer full-
color, quality lithographed cans in a wide range of styles and sizes. Our
necked-in cans (aerosol cans where the plastic cap is flush with the metal
exterior of the can) offer a distinctive look and feel to our customers'
products. Our barrier packaging cans (cans that separate the product from the
can's propellant) provide our customers with an effective solution for
delivering a complex product.
Our European operations produced over 30% of the estimated 2.8 billion
steel aerosol cans produced in Europe in 2002. These aerosol cans cover the most
popular size diameters in Europe and, when supplemented by various heights,
enable our European subsidiaries to offer customers a full range of cost
efficient sizes.
We offer round paint cans, oblong containers, plastic pails and specialty
containers in the industry's widest choice of sizes. Our containers range from
one-quarter pint to six and one-half gallons, and feature a variety of interior
linings, making them suitable for a wide variety of applications. Our general
line product offerings also include a wide range of open-top and AccuPor metal
cans used primarily for automotive products. Additionally, we offer plastic
paint cans, open head pails, screw top pails and drums.
Our custom and specialty products consist of a wide array of functional and
decorative containers, tins, metal housewares and collectible items. We also
provide containers for the cosmetic and retail accessory markets. We believe
that we offer the industry's widest range of related products within this
product grouping.
We also provide tin-plated packaging for the European food market. We
produce packaging in various sizes for whipped cream, pet food, snack products,
ready-to-serve soups and other meals, meat products and fruits and vegetables.
Our food containers are specially coated to maintain the quality of their
contents.
CUSTOMERS AND SALES FORCE
As of June 29, 2003, we had approximately 5,100 customers worldwide, with
our largest customer accounting for 8.6% of our total net sales in 2002. To the
extent possible, we enter into one-year or multi-year supply agreements with our
major customers. Some of these agreements specify the number of containers a
customer will purchase (or the mechanism for determining such number), pricing,
volume discounts (if any) and, in the case of many of our domestic and some of
our international multi-year
45
supply agreements, a provision permitting us to pass through price increases in
certain raw material and other costs.
Our relationships with our customers are critical to our business. A
significant portion of our annual net sales is attributable to repeat customers.
Set forth below is a representative sampling of our customers and their
products.
<Table>
<Caption>
SEGMENT CUSTOMER CUSTOMER PRODUCTS
- ------- --------------------------- ---------------------------
Aerosol Products.......................... Reckitt Benckiser Wizard Air Freshener, Easy-
Off Oven Cleaner, Resolve
Carpet Cleaner, Lysol
Disinfectant
Unilever Finesse, Aqua Net, and
Suave Hair Sprays, Suave
Deodorant
SC Johnson Scrubbing Bubbles, Shout,
Pledge and Edge Shave Gel
Sherwin Krylon Spray Paint
Williams/Diversified Brands
Spectrum Cutter Outdoorsman insect
repellent, Hot Shot and
Real Kill insecticides
RPM Companies Rustoleum
CCL Custom Manufacturing Contract filler for
products such as Secret
deodorant, Crisco, Niagara
spray starch, Woolite
products
International............................. McBride/APL/Yplon Private label consumer
products
Henkel/Schwarzkopf Taft hairspray
L'Oreal Mennen shave foam, Graphic
hairspray
Masterfoods Sheba and Whiskas cat food,
Pedigree dog food
Felix Ultje brand nuts
Paint, Plastic and General Line
Products................................ Behr Process Corporation Behr paints
Arch Chemical Olin pool chemicals
W M Barr Solvents and strippers
Valspar Corporation Paints sold at leading home
improvement centers
Custom and Specialty Products............. Liz Claiborne Cosmetics Curve Fragrance gift boxes
Wyeth Nutritionals Infant formula
Weaver Popcorn Company Popcorn tins
</Table>
We market our products primarily through a sales force comprised of inside
and outside sales representatives dedicated to each segment. As of June 29,
2003, we had 68 sales representatives in the United States and 19 sales
representatives in Europe. Each sales representative is responsible for growing
sales in a specific geographic region and is compensated by a salary and a bonus
based on sales volume targets.
46
COMPETITION
Quality, service and price are the principal methods of competition in the
rigid metal and plastic container industry. To compete effectively, we must
strategically locate supply facilities to reduce the added cost of shipping cans
long distances and accordingly, we maintain East Coast, Midwest, Southern and
West Coast manufacturing facilities. In addition, price competition and
overcapacity in our industry may limit our ability to raise prices for many of
our top products.
In the U.S. steel aerosol can market, we compete primarily with Crown Cork
& Seal and BWAY Corporation. Our European subsidiaries compete with Crown Cork &
Seal, Impress Metal Packaging and a group of other smaller regional producers.
Crown Cork & Seal and Impress are larger and may have greater financial
resources than we do. Because steel aerosol cans are pressurized and are used
for personal care, household and other packaged products, they are more
sensitive to quality, can decoration and other consumer-oriented features than
some of our other products.
In metal paint and general line products, we compete primarily with BWAY
Corporation and one smaller, regional manufacturer. Our plastic products line
competes with many regional companies.
Our custom and specialty products compete with a large number of container
manufacturers, but we do not compete across the entire product spectrum with any
single company. Competition is based principally on quality, service, price,
geographical proximity to customers and production capability, with varying
degrees of intensity according to the specific product category.
We also face competition from substitute products, such as aluminum, glass
and plastic containers.
RAW MATERIALS
Our principal raw materials are tin-plated steel, referred to as tin-plate,
and coatings and inks used to print our customers' designs and logos onto
tin-plate. Tin-plate represents our largest raw material cost. Our domestic
operations purchase tin-plate principally from domestic steel manufacturers,
with a smaller portion purchased from foreign suppliers. Our European operations
purchase tin-plate principally from European suppliers. Our largest domestic
steel suppliers are United States Steel, Weirton Steel and Wheeling-Pitt, while
Corus, Arcelor and Rasselstein supply the largest volume in Europe.
The President of the United States imposed 30% ad valorem tariffs under
Section 201 of the Trade Act of 1974 on tin mill imports from most foreign
producers effective March 20, 2002. These tariffs are scheduled to remain in
effect for three years, declining to 24% in the second year and 18% in the third
year. Tin mill imports from Canada, Mexico and certain developing countries are
excluded from the tariffs. We purchase the vast majority of our domestic steel
from domestic sources and since the tariffs curtail foreign competition, a
negative impact to us could arise from price increases from domestic suppliers.
In response to the U.S. tariffs imposed under Section 201 of the Trade Act
of 1974, in March of 2002 the European Union established a steel safeguard
initiative whereby imports of steel into the European Union from designated
countries are assessed a duty of 17% versus the previous duty of 1%. The new
duty on some European imports remains in effect for the duration of the U.S.
imposed tariffs under Section 201. Due to the fact that our European operations
do not import steel from any of the countries affected by the new European duty,
in 2002 our international operations were not affected by the new duty.
Likewise, we do not anticipate the duty will affect our operations in 2003 as we
have no plans to begin purchasing steel from these countries.
Our domestic and European operations purchase approximately 400,000 tons of
tin-plate annually. We believe that adequate quantities of tin-plate will
continue to be available from steel manufacturers, however, potential seasonal
shortages may occur from domestic suppliers as foreign sourcing is effectively
no longer available due to the tariffs.
Tin-plate prices have increased slightly over the last five years. While
there is some long-term variability, tin-plate prices have generally been stable
and price increases have historically been announced several months before
implementation. This stability has enhanced our ability to communicate and
47
negotiate required selling price increases with our customers and minimizes
fluctuations of our gross margins. Many of our domestic and some of our
international multi-year supply agreements with our customers permit us to pass
through tin-plate price increases and, in some cases, other raw material costs.
The tariffs implemented in 2002 did not have a material effect on our costs for
the year but we have experienced increases in steel costs in 2003 that we
believe to be a result of the tariffs. We cannot assess the impact of the
tariffs on our steel prices in 2004 or later years. We have not always been able
to immediately offset increases in tin-plate prices with price increases on our
products. Further, the tariffs could jeopardize this pricing stability, and
could negatively impact our gross margins as we may not have the ability to
immediately or fully pass through tinplate price increases to all of our
customers. We are unable to determine the long term effects the tariffs will
have on steel prices or resource availability. However, we will continue to
explore other sourcing alternatives to limit any potential negative impact of
the tariffs.
Coatings and inks, which are used to coat tin-plate and print designs and
logos, represent our second largest raw material expense. We purchase coatings
and inks from regional suppliers in the United States and Europe. These products
historically have been readily available, and we expect to be able to meet our
needs for coatings and inks in the foreseeable future.
Our plastic products are produced from two main types of resins, which are
petroleum or natural gas-based products. High-density polyethylene resin is used
to make pails, drums and agricultural products. We use 100% post-industrial and
post-consumer use, recycled polypropylene resin in the production of the
Plastite(R) line of paint cans. The price of resin fluctuates significantly, and
we believe that it is standard industry practice, as well as a provision of many
of our customer contracts, to pass on increases and decreases in resin prices to
our customers.
SEASONALITY
Our business has some seasonal variations. Quarterly sales and earnings
tend to be slightly stronger starting in early spring (second quarter) through
late summer (third quarter). Aerosol sales have minor increases in the spring
and summer related to increased sales of containers for household products and
insect repellents. Paint container sales tend to be stronger in spring and early
summer due to the favorable weather conditions. Portions of the Custom and
Specialty products line tend to vary seasonally, because of holiday sales late
in the year. May's food can sales generally peak in the third and fourth
quarters.
LABOR
As of June 29, 2003, we employed approximately 2,400 salaried and hourly
employees in the United States. Of our total U.S. workforce, approximately 1,550
employees, or 65%, were members of various labor unions, including the United
Steelworkers of America, the International Association of Machinists and the
Graphic Communications International Union. Labor agreements covering
approximately 400 employees were successfully negotiated in 2002.
On June 4, 2003, the National Labor Relations Board, Region Six issued a
Notice of Representation Hearing, Case 6-BC-12232, indicating that the Graphic
Communications International Union, Local 24, or the GCIU, was seeking to
organize 31 full and regular part-time production and maintenance employees at
our New Castle, Pennsylvania facility. On August 7, 2003, these employees
elected the GCIU as their exclusive bargaining representative. We formally
objected to the representation election on the grounds that representation by
the GCIU, which is currently seeking another union to merge with, raises
questions regarding continuity of representation. The objection is currently
pending before the National Labor Relations Board. The GCIU may not act as the
bargaining representative until the objection is resolved.
As of June 29, 2003, our European subsidiaries employed approximately 1,300
people. In line with common European practices, all plants are unionized.
We have followed a labor strategy designed to enhance our flexibility and
productivity through constructive relations with our employees and collective
bargaining units. Our practice is to deal directly
48
with labor unions on employment contract issues and other employee concerns. We
believe that we and our employees have benefited from this approach, and we
intend to continue this practice in the future. This practice also has the
effect of staggering renewal negotiations with the various bargaining units.
As discussed previously, the restructuring programs initiated in 2001 have
resulted in a reduction of the salaried and hourly work force. We have worked
closely with the various labor unions and their collective bargaining units to
ensure provisions for termination, severance and pension eligibility were in
accordance with the respective collective bargaining agreements. Our
relationship with represented employees is generally good and there have been no
labor strikes, slow-downs, work stoppages or other material labor disputes
threatened or pending against us for at least the past ten years.
PROPERTIES
We have 13 facilities located in the United States, many of which are
strategically positioned near principal customers and suppliers. Through our
European subsidiaries, we also have production locations in the largest regional
markets in Europe, including Denmark, France, Germany, Italy, Spain and the
United Kingdom. The following table sets forth certain information with respect
to our principal plants as of June 29, 2003.
<Table>
<Caption>
LOCATION SIZE (IN SQ. FT.) STATUS
- -------- ----------------- ---------
UNITED STATES
Commerce, CA............................................... 215,860 Leased
Newnan, GA................................................. 185,122 Leased
Tallapoosa, GA............................................. 249,480 Owned(1)
Danville, IL............................................... 100,000 Owned(1)
Elgin, IL.................................................. 481,346 Owned(1)
Elgin, IL,................................................. 144,578 Leased
Baltimore, MD.............................................. 232,172 Leased
Baltimore, MD.............................................. 137,000 Owned(1)
Alliance, OH............................................... 52,000 Leased
Hubbard, OH................................................ 174,970 Owned(1)
Horsham, PA................................................ 132,000 Owned(1)
New Castle, PA............................................. 22,750 Owned(1)
Weirton, WV................................................ 108,000 Leased
EUROPE
Esbjerg, Denmark........................................... 66,209 Owned
Laon, France............................................... 220,000 Owned
Erfstadt, Germany.......................................... 369,000 Leased
Itzehoe, Germany........................................... 80,730 Owned
Schwedt, Germany........................................... 35,500 Leased
Voghera, Italy............................................. 45,200 Leased
Reus, Spain................................................ 182,250 Owned
Merthyr Tydfil, United Kingdom............................. 320,000 Leased(2)
</Table>
- ---------------
(1) The plants that we own in the United States (a) are subject to a lien in
favor of Bank of America, N.A., as collateral agent for the lenders under
the senior secured credit facility and (b) will be subject to a second
priority lien in favor of the trustee, as collateral agent for the holders
of the exchange notes.
(2) The property at Merthyr Tydfil is subject to a 999-year lease with a
pre-paid option to buy that becomes exercisable in January 2007. Up to that
time, the landowner may require us to purchase the
49
property for a payment of one Pound Sterling. Currently, the leasehold
interest in, and personal property located at, Merthyr Tydfil is subject to
a pledge to secure amounts outstanding under a credit agreement with General
Electric Capital Corporation.
In connection with our restructuring initiatives, we have closed several
manufacturing facilities, some which have been subleased. We have reserved for
on-going costs associated with these closed facilities and they are not included
in the above listing.
We believe our facilities are adequate for our present needs and that our
properties are generally in good condition, well-maintained and suitable for
their intended use. We continuously evaluate the composition of our various
manufacturing facilities in light of current and expected market conditions and
demand, and may further consolidate our plant operations in the future.
ENVIRONMENTAL MATTERS
Our operations are subject to environmental laws in the United States and
abroad, including the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act and similar state and foreign laws. Our capital
and operating budgets include costs and expenses associated with complying with
these laws, including the acquisition, maintenance and repair of pollution
control equipment, and routine measures to prevent, contain and clean up spills
of materials that occur in the ordinary course of our business. In addition, our
production facilities require environmental permits that are subject to
revocation, modification and renewal. We believe that we are in substantial
compliance with environmental laws and our environmental permit requirements,
and that the costs and expenses associated with such compliance are not material
to our business. However, additional operating costs and capital expenditures
could be incurred if, among other developments, additional or more stringent
requirements relevant to our operations are promulgated.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), and similar state statutes, an
owner or operator of real property or a person who arranges for disposal of
hazardous substances may be liable for the costs of removing or remediating
hazardous substance contamination. Liability may be imposed under these statutes
regardless of whether the owner or operator owned or operated the real property
at the time of the release of the hazardous substances and regardless of whether
the release or disposal was in compliance with law at the time of the
occurrence. We are not aware of any current material claims under CERCLA or
similar state statutes against us. We have been, however, designated as a
potentially responsible party ("PRP") at various superfund sites in the United
States. As a potentially responsible party, we are or may be legally
responsible, strictly, jointly and severally with other members of the PRP
group, for the cost of environmental remediation of these sites. Based on
currently available data, we believe our contribution to these sites was, in
most cases, minimal.
We have been named as a PRP for costs incurred in the clean-up of a
regional groundwater plume partially extending underneath a property located in
San Leandro, California, formerly a site of one of our can assembly plants. We
have indemnified the owner of the property with respect to this matter.
Extensive soil and groundwater investigative work has been performed at this
site. We, along with other PRPs, participated in a coordinated sampling event in
1999. In November 2002, as part of a larger sampling scheme, the State of
California requested that we sample existing monitoring wells at the San Leandro
property. We completed the sampling in December 2002. The 2002 sampling results
generally show that the concentration of contamination is declining, which we
view as a positive development. While the State has not yet commented on either
the 1999 or the 2002 sampling results, we believe that the source of
contamination is unrelated to our past operations.
Through corporate due diligence and our compliance management system, we
identified potential noncompliance with the environmental laws at our New
Castle, Pennsylvania facility related to the possible use of a coating or
coatings inconsistent with the conditions in the facility's Clean Air Act Title
V permit. In February 2001, we voluntarily self-reported the potential
noncompliance to the Pennsylvania Department of Environmental Protection
("PDEP") and the Environmental Protection Agency ("EPA")
50
in accordance with PDEP's and EPA's policies. We undertook a full review and
determined that we had not exceeded our emissions cap for any reporting year. In
September 2001, we reported to PDEP and EPA certain deviations from the
requirements of our Title V permit related to the use of non-compliant coatings
and corresponding recordkeeping and reporting obligations, and certain
recordkeeping deviations stemming from the malfunction of the temperature
recorder for an oxidizer. On May 21, 2002, we met with PDEP officials and
reached an agreement to resolve the past reported deviations by entering into a
Consent Assessment of Civil Penalty for $30,000. We and PDEP signed a definitive
agreement in October 2002. We paid the first installment of the penalty in
October 2002 and the final installment in April 2003, which resolves this
matter.
LITIGATION
We are involved in litigation from time to time in the ordinary course of
our business. In our opinion, none of this litigation is material to our
financial condition or results of operations.
Walter Schmidt, former finance director at May sued for unfair dismissal
following termination of his employment contract. The contract had a five-year
term and Schmidt remains in pay status through its notice period, ending January
31, 2005. Mr. Schmidt claims that he also is due a severance settlement of five
years' salary at the end of the notice period. In July 2002, the labor courts of
first instance ruled that Mr. Schmidt's notice date and termination should be
effective December 31, 2005, and that the severance settlement is due at that
time. On January 7, 2003, May appealed this ruling. In June 2003, a German
appeals court heard the appeal and advised the parties that it would rule in
Schmidt's favor. In August 2003, the appeals court issued an opinion finding
that the judgment could not be overturned. We currently are evaluating the
appeals court opinion to determine whether grounds for further review exist.
51
MANAGEMENT
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age as of June 29, 2003 and
position of each of our directors, executive officers and other key employees.
Each of our directors will hold office until the next annual meeting of
shareholders or until his successor has been elected and qualified. Our officers
are elected by our Board of Directors and serve at the discretion of the Board
of Directors.
<Table>
<Caption>
NAME AGE POSITION
- ---- --- -----------------------------------------------------------------
Carl Ferenbach....... 61 Director, Chairman of the Board
John L. Workman...... 51 Director, Chief Executive Officer
Thomas A. Scrimo..... 55 Executive Vice President and General Manager, Aerosol, Paint and
General Line
Larry S. Morrison.... 49 Senior Vice President and General Manager, Plastics, Lithography
and Specialty Products
James J. Poehling.... 56 Senior Vice President, North American Sales and Channel
Development
Francois J. 43 Senior Vice President, International and President of European
Vissers............ Operations
Sandra K. Vollman.... 45 Senior Vice President and Chief Financial Officer
W. Brien Berberich... 53 Vice President, Supply Chain Management
Sarah T. Macdonald... 38 Vice President, Global Accounts
Emil P. Obradovich... 56 Vice President and Chief Technical Officer
Thomas J. Olander.... 54 Vice President, Human Resources
Sheleen Quish........ 54 Chief Information Officer and Vice President, Corporate Marketing
George V. Bayly...... 61 Director
Richard K. Lubin..... 57 Director
Philip R. Mengel..... 58 Director
Francisco A. Soler... 57 Director
Louis B. Susman...... 65 Director
</Table>
CARL FERENBACH. Mr. Ferenbach became our Chairman of the Board in October
2002. Mr. Ferenbach, who was one of our founding directors in 1983 and served as
a member of our Board of Directors until February 2000, was elected as a
Director at the time of the recapitalization. Mr. Ferenbach is also a Managing
Director of Berkshire Partners, which he co-founded in 1986. He has been a
director of many of Berkshire Partners manufacturing, transportation and
telecommunications investments and serves as a director of Crown Castle
International Corporation, of which he was formerly Chairman, and is currently
Chairman of English, Welsh & Scottish Railway.
JOHN L. WORKMAN. Mr. Workman was named our Chief Executive Officer in
February 2003. Mr. Workman served as our Chief Operating Officer from October
2002 to February 2003. From August 1998 to October 2002, Mr. Workman served as
our Executive Vice President and Chief Financial Officer. Prior to joining our
company, Mr. Workman served as Executive Vice President and Chief Restructuring
Officer at Montgomery Ward Holding Corporation. Montgomery Ward was one of the
nation's largest privately-held retailers. Mr. Workman joined Montgomery Ward in
1984 as a general auditor and held a variety of financial positions with
Montgomery Ward, including Vice President -- Controller, Vice
President -- Finance and Chief Financial Officer. Prior to joining Montgomery
Ward, Mr. Workman was a partner in Main Hurdman, a CPA firm that subsequently
merged with KPMG.
THOMAS A. SCRIMO. Mr. Scrimo became our Executive Vice President and
General Manager for Aerosol, Paint and General Line in February 2003. From
November 2002 to February 2003, Mr. Scrimo served as our Senior Vice President
and General Manager of Operations, Americas. Mr. Scrimo served as
52
our Senior Vice President and General Manager, Aerosol Operations and Business
Support from February 2000 to November 2002. From August 1998 to February 2000,
Mr. Scrimo served as our Vice President, Business Support Operations. Prior to
joining our company, he served as Vice President of Operations for Greenfield
Industries, Inc., an international tool manufacturer, from January 1997 to
August 1998.
LARRY S. MORRISON. Mr. Morrison became our Senior Vice President and
General Manager for Plastics, Lithography and Specialty Products in February
2003. From June 2002 to February 2003, Mr. Morrison served as our Vice President
of Specialty Products and Litho Services. From February 2000 to June 2002, Mr.
Morrison served as our Vice President, Operational Excellence. From 1998 to
February 2000, Mr. Morrison served as our Vice President and General Manager,
Custom & Specialty Products. From July 1995 to 1998, Mr. Morrison served as our
Vice President of Manufacturing of Custom & Specialty Products.
JAMES J. POEHLING. Mr. Poehling was named our Senior Vice President, North
American Sales and Channel Development in February 2003. From May 2002 to
February 2003, Mr. Poehling served as our Senior Vice President, North American
Sales and Marketing. From September 2001 to May 2002, Mr. Poehling served as our
Senior Vice President North American Sales and Channel Development. From 1990
until joining our company in September 2001, Mr. Poehling held senior management
positions of Vice President Sales and Marketing and Vice President and General
Manager Indexable Cutting Tools for Greenfield Industries, Inc., an
international tool manufacturer. Prior to working for Greenfield Industries,
Inc., Mr. Poehling spent 21 years with General Electric in various sales and
marketing assignments.
FRANCOIS VISSERS. Mr. Vissers was named our Senior Vice President,
International and President of European Operations in February 2003. From
September 2002 to February 2003, Mr. Vissers served as Vice President Europe and
Managing Director May Verpackungen. From May 2001 to September 2002, Mr. Vissers
served as our Vice President, Aerosol Division -- Europe. Before joining our
company in May 2001, he held various senior management positions with GE
Plastics in Europe, a plastics manufacturing company based in Europe, including
General Manager for the European ABS business from 2000 through May 2001,
European productivity leader from 1999 through 2000 and global process
improvement leader from 1997 through 1999.
SANDRA K. VOLLMAN. Ms. Vollman was named our Senior Vice President and
Chief Financial Officer in February 2003. Ms. Vollman served as our Primary
Financial Officer from October 2002 to February 2003. From February 2002 to
October 2002, Ms. Vollman served as our Senior Vice President -- Finance. She
joined our company in July 1999 as Vice President -- Business Development and
was named Vice President -- Finance in September 2000. From 1997 to 1999, Ms.
Vollman was Vice President and Corporate Controller for Montgomery Ward and Co.,
a privately held retailer.
W. BRIEN BERBERICH. Mr. Berberich has served as our Vice President, Supply
Chain Management since September 2001. Prior to joining our company in September
2001, Mr. Berberich held various positions with Emerson Electric Company, a
manufacturer of electrical products and systems, in St. Louis, Missouri from
1993 through 2001. He was Director, Material and Logistics from 1998 through
2001 and Manager, Materials and Logistics from 1995 through 1998 and Manager of
Material Planning from 1993 through 1995.
SARAH T. MACDONALD. Ms. Macdonald has been our Vice President, Global
Accounts since May 2001. From August 2000 to May 2001, she served as our Vice
President, Marketing, Aerosol and Paint, Plastic & General Line and our Vice
President, Marketing, Paint, Plastic & General Line from December 1999 to August
2000. From October 1998 to December 1999, Ms. Macdonald served as the Sales and
Marketing Director of our U.K. operations. Before joining our company, Ms.
Macdonald held a number of different sales and marketing positions with Crown,
Cork & Seal and Carnaud Metalbox, each of which are container manufacturers.
EMIL P. OBRADOVICH. Mr. Obradovich has served as our Vice President and
Chief Technical Officer since February 2000. From 1996 to February 2000, Mr.
Obradovich served as our Managing Director of Technical Services.
53
THOMAS J. OLANDER. Mr. Olander became our Vice President Human Resources
in March 2003. From December 1999 to March 2003, Mr. Olander served as our Vice
President Organization & Staffing, Compensation & Benefits. Prior to joining our
company in December 1999, Mr. Olander held positions as Vice President Human
Resources for Draper and Kramer, Inc., a Chicago-based real estate firm from
1996 through 1999.
SHELEEN QUISH. Ms. Quish was named our Chief Information Officer and Vice
President, Corporate Marketing in February 2003. From December 2000 to February
2003, Ms. Quish served as our Vice President and Chief Information Officer.
Prior to joining our company in December 2000, Ms. Quish served as Managing
Director of Leapnet, an Internet company, from June 2000 to December 2000, and
as Senior Vice President of Administration and Systems of Unitrin, an insurance
and financial services company, from 1998 through 2000. From 1996 through 1998,
Ms. Quish served as Executive Vice President, Corporate Planning and Information
Services of Signature Financial/Marketing Inc., a direct response marketing
company.
GEORGE V. BAYLY. Mr. Bayly has served as a Director since August 1, 2003.
Mr. Bayly has been a principal of Whitehall Investors, LLC, a consulting and
venture capital firm, since 2002. From 1991 to 2002, Mr. Bayly served as
Chairman, President and Chief Executive Officer of Ivex Packaging Corporation, a
container and packaging manufacturer. Mr. Bayly is also a director of General
Binding Corporation, Packaging Dynamics Inc. and Huhtamaki.
RICHARD K. LUBIN. Mr. Lubin has served as a Director since the
recapitalization. Mr. Lubin is a Managing Director of Berkshire Partners, which
he co-founded in 1986. He has been a director of many of Berkshire Partners'
manufacturing, retailing and transportation investments and currently serves as
a director of The Holmes Group, Inc., English Welsh & Scottish Railway and Fresh
Start Bakeries, Inc.
PHILIP R. MENGEL. Mr. Mengel was elected a Director in 2001. Mr. Mengel
has been the Chief Executive Officer of English Welsh & Scottish Railway, a rail
freight operator in Britain, since January 2000. From 1996 to January 2000 Mr.
Mengel was the Chief Executive Officer of Ibstock plc, an international building
products company. Mr. Mengel is also a director of The Economist Newspaper
Group.
FRANCISCO A. SOLER. Mr. Soler has served as a Director since 1983. Since
1985, Mr. Soler has served as the Chairman of International Bancorp of Miami,
Inc., the holding company for The International Bank of Miami, N.A. Mr. Soler is
also President of Harbour Club Milano Spa and a director of various industrial
and commercial companies in the United Kingdom and El Salvador.
LOUIS B. SUSMAN. Mr. Susman has served as a Director since 1998. Mr.
Susman is a Vice Chairman of Investment Banking and a Managing Director of
Citigroup Global Markets Inc. (formerly known as Salomon Smith Barney Inc.) and
Chairman of the Citigroup North American Customer Committee. Prior to joining
Salomon Brothers Inc (one of the predecessors of Citigroup Global Markets Inc.)
in June 1989, Mr. Susman was a senior partner at the St. Louis-based law firm of
Thompson & Mitchell. Mr. Susman is a Director of Drury Inns and has previously
served on the boards of the St. Louis National Baseball Club, Inc., Silver
Eagle, Inc., Hasco International, PennCorp Financial, Avery, Inc. and other
publicly-held corporations.
COMPENSATION OF DIRECTORS
Directors Fees
Each outside director of U.S. Can receives an annual retainer of $30,000
and full Board meeting fees of $1,500 for meetings attended in person or
telephonically. Directors are also reimbursed for reasonable expenses incurred
in the course of their service. There are five regularly scheduled full Board
meetings each year and at least one regularly scheduled board meeting is held
each quarter.
54
Committee Fees
The Board of Directors has standing Audit, Compensation and Nominating
Committees. Each outside director serving on a committee receives meeting fees
of $1,000 for meetings attended in person and $500 for meetings attended
telephonically. Committee members are also reimbursed for reasonable expenses
incurred in the course of their service.
EXECUTIVE COMPENSATION
The following tables set forth information concerning compensation paid to
our Chief Executive Officer and our other four most highly compensated executive
officers, who we refer to as the named executive officers in this prospectus,
during fiscal years 2002, 2001 and 2000. Information is also included for our
former Chief Executive Officer, who would have been among the most highly
compensated officers but for his resignation in October 2002.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
ANNUAL COMPENSATION
-----------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- ---- -------- -------- ------------
John L. Workman......................... 2002 $424,723 $ 45,000 $7,215
Chief Executive Officer 2001 412,915 20,000 7,215
2000 398,088 39,000 7,521
Thomas A. Scrimo........................ 2002 252,677 35,000 5,506
Executive Vice President and G.M., 2001 245,754 12,000 5,506
Aerosol, Paint & Business Support 2000 225,919 22,000 6,685
James J. Poehling(f).................... 2002 242,292 80,000 5,506
Senior Vice President, North American 2001 71,282 35,000 2,169
Sales and Channel Development
Francois Vissers(f)..................... 2002 270,948 31,209 5,457
Senior Vice President, International 2001 240,085 20,530 3,291
and President of European Operations
Roger B. Farley(g)...................... 2002 249,569 24,500 6,194
Senior Vice President, 2001 244,877 12,000 6,194
Human Resources 2000 234,992 22,600 7,521
Paul W. Jones(h)........................ 2002 625,292 112,100 6,105
Former President and 2001 653,108 32,500 7,215
Chief Executive Officer 2000 614,473 122,000 7,521
<Caption>
LONG TERM COMPENSATION
------------------------------------
AWARDS PAYOUT
--------------------- ------------
SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION OPTIONS/SARS(#)(C) COMPENSATION
- --------------------------- --------------------- ------------
John L. Workman......................... none $ 24,148(a)
Chief Executive Officer none 46,600(b)
353.669 1,055,782(d)
Thomas A. Scrimo........................ none 14,478(a)
Executive Vice President and G.M., none 22,016(b)
Aerosol, Paint & Business Support 339.522 360,548(d)
James J. Poehling(f).................... none 87,461(a)
Senior Vice President, North American 50.000 9,751(b)
Sales and Channel Development
Francois Vissers(f)..................... none --(e)
Senior Vice President, International 25.000 --(e)
and President of European Operations
Roger B. Farley(g)...................... none 22,962(a)
Senior Vice President, none 35,398(b)
Human Resources none 771,785(d)
Paul W. Jones(h)........................ none 157,186(a)
Former President and none 103,098(b)
Chief Executive Officer 212.202 2,351,037(d)
</Table>
- ---------------
(a) 2002 amounts shown for Messrs. Jones, Workman, Scrimo, Poehling and Farley
include contributions or payments for their benefit to U.S. Can
Corporation's Salaried Employee Savings and Retirement Accumulation Plan
(the "SRAP") and pursuant to nonqualified retirement plans ($41,660,
$24,148, $14,478, $8,423 and $15,327 respectively). Amounts for Mr. Jones
and Mr. Farley include the cost of life insurance in excess of our standard
benefit of $3,934 and $5,635, respectively and payments for personal
financial planning of $5,150 and $2,000, respectively. The 2002 amount for
Mr. Jones also includes payments made by us of $106,442 to Mr. Jones in
accordance with his Severance Agreement. The 2002 amount shown for Mr.
Poehling includes reimbursement for relocation expenses claimed under his
Employment Agreement of $79,038.
(b) 2001 amounts shown for Messrs. Jones, Workman, Scrimo, Poehling and Farley
include contributions or payments for their benefit to the SRAP and pursuant
to nonqualified retirement plans ($92,995,
55
$46,600, $22,016, $987 and $27,036 respectively). Amounts for Mr. Jones and
Mr. Farley include the cost of life insurance in excess of our standard
benefit of $5,803 and $6,362, respectively and payments for personal
financial planning of $4,300 and $2,000, respectively. The amount for Mr.
Poehling represents reimbursements for relocation expenses claimed under his
employment agreement of $8,764, respectively.
(c) Options granted in 2000 exclude options for 50.000, 30.000 and 20.000 shares
issued to Messrs. Jones, Workman and Scrimo, respectively, under the plans
in effect prior to the recapitalization. All of the foregoing options were
cancelled at the time of the recapitalization, and each holder received a
cash payment equal to the product of (i) the $20.00 price per share paid to
shareholders in connection with the recapitalization less the exercise price
of the option and (ii) the number of shares of common stock subject to the
option. Options reflected in this table for 2000 were granted on October 4,
2000 under the U.S. Can Corporation 2000 Equity Incentive Plan in connection
with the recapitalization and were restated for the reverse stock split.
(d) The 2000 amounts include one-time bonuses in connection with the
recapitalization of $697,500, $309,000, $103,400 and $226,100 for Messrs.
Jones, Workman, Scrimo and Farley respectively, cash proceeds from the
cancellation of employee stock options in the recapitalization of
$1,291,312, $624,713, $208,945 and $470,437 for Messrs. Jones, Workman,
Scrimo and Farley respectively, distribution of cash from U.S. Can
Corporation's executive deferred compensation program to the extent not
reported as 1999 bonuses, of $124,384, $38,852, $13,462 and $23,712 for
Messrs. Jones, Workman, Scrimo and Farley, respectively, contributions or
payments for their benefit to U.S. Can Corporation's Salaried Employee
Savings and Retirement Accumulation Plan ("SRAP") of $10,200 for each named
executive officer and $214,538, $68,614, $24,541 and $33,201 for Messrs.
Jones, Workman, Scrimo and Farley respectively, pursuant to nonqualified
retirement plans. The 2000 amounts shown for Mr. Jones and Mr. Farley
include the cost of life insurance in excess of our standard benefit ($5,803
and $5,635, respectively) and the imputed value of Mr. Workman's
company-provided life insurance benefit of $810. The 2000 amounts shown for
Messrs. Jones, Workman and Farley include payments for personal financial
planning of $7,300, $3,593 and $2,500, respectively.
(e) Mr. Vissers is compensated partially in euros and partially in British
pounds. The amounts shown for Mr. Vissers have been converted to U.S.
dollars at the applicable exchange rate in effect as of the calendar
year-end for the year in which payment was made. During 2002 and 2001, we
did not make any contributions for the benefit of Mr. Vissers to any type of
executive retirement plan or overseas employee benefit trust. All such
contributions are made by Mr. Vissers through salary deductions.
(f) Mr. Poehling joined us in September 2001. Mr. Vissers joined us in May 2001.
(g) Mr. Farley retired on April 1, 2003.
(h) Mr. Jones' employment terminated on October 24, 2002.
OPTION GRANTS
There were no option or stock appreciation right grants to the named
executive officers in 2002.
56
AGGREGATED OPTION/SAR EXERCISES IN 2002 AND 2002-END OPTION/SAR VALUES
No shares were acquired as a result of option exercises by the named
executive officers during 2002. The numbers shown in the below table are after
the reverse stock split on December 20, 2002.
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
2002-YEAR END(#) 2002-YEAR END($)(A)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
John L. Workman........................... 28.294/325.375 $0/$0
Thomas A. Scrimo.......................... 90.540/248.983 $0/$0
James J. Poehling......................... 10.000/50.000 $0/$0
Francois Vissers.......................... 5.000/20.000 $0/$0
Roger B. Farley........................... 0.000/0.000 $0/$0
Paul W. Jones............................. 28.294/56.587 $0/$0
</Table>
- ---------------
(a) There was no established trading market for U.S. Can's common stock as of
December 31, 2002. Management has determined that the fair market value of
the common stock underlying these options did not exceed $1,000.00 (the
exercise price of these options) and, accordingly, none of the options were
in-the-money.
TRANSACTIONS WITH MANAGEMENT
Executive Severance Plan
Several of our executive officers are eligible to participate in our
executive severance plan. The executive severance plan provides an executive
with a severance payment equal to 12 months (18 months for certain executives)
of the executive's base salary in the event the executive is terminated without
cause or leaves for good reason. In the cases of Messrs. Scrimo and Workman, the
executive severance plan will not provide a severance benefit if these
executives are entitled to receive a severance benefit under their change in
control agreements (described below).
U.S. Can Corporation 2000 Equity Incentive Plan
In connection with the recapitalization, the Board of Directors and
stockholders of U.S. Can approved the U.S. Can Corporation 2000 Equity Incentive
Plan. The Board of Directors administers the plan and may, from time to time,
grant option awards to directors of U.S. Can, including directors who are not
employees of U.S. Can, all executive officers of U.S. Can and its subsidiaries,
and other employees, consultants, and advisers who, in the opinion of the Board,
are in a position to make a significant contribution to the success of our
company. The Board of Directors may grant options that are time-vested and
options that vest based on the attainment of performance goals specified by the
Board of Directors.
Change in Control Agreements
Mr. Obradovich is a party to a change in control agreement. The agreement
with Mr. Obradovich provides that upon termination by us or constructive
termination by Mr. Obradovich within two years of a change in control, he will
be entitled to:
- a severance payment equal to one times the greater of his current annual
base salary or the annual base salary immediately before the change in
control;
- a pro-rated bonus based on the target bonus; and
- continuation of health and welfare benefits for one year following
termination.
57
Employment Agreements with Messrs. Scrimo, Workman and Farley
In October of 2002, we renewed our existing employment agreements with
Messrs. Scrimo, Workman and Farley, referred to as the executives, for an
additional year. Under the terms of these employment agreements, Messrs. Scrimo,
Workman and Farley will be paid an annual base salary of at least $220,000,
$390,000 and $226,000 respectively, which have been adjusted to $285,000,
$525,000 and $245,000, respectively. Each executive's base salary and other
compensation will be reviewed annually by that executive's supervisor. Each
executive also participates in our management incentive plan with an opportunity
to receive a bonus payment equal to 50% of his or her base salary. We also
agreed to provide each executive with term life insurance coverage with death
benefits at least equal to twice his or her base salary, an automobile allowance
and employee benefits comparable to those provided to our other senior
executives.
In the event of the termination of an executive's employment with us due to
his death or permanent disability, we will pay him or his estate:
- an amount equal to one year's base salary reduced by any amounts received
from any life or disability insurance provided by us; and
- if the executive is entitled to receive a bonus payment under the
management incentive plan, a bonus payment prorated to reflect any
partial year of employment.
In the event an executive terminates his employment for good reason or we
terminate his employment without cause, we will pay him:
- his base salary and benefits for the earliest to occur of 18 months, his
death or the date that he breaches the provisions of his employee
agreement (relating to non-competition, confidentiality and inventions);
and
- if the executive is entitled to receive a bonus payment under the
management incentive plan, a bonus payment prorated to reflect any
partial year of employment.
If an executive's employment is terminated for cause or by voluntary
resignation, he will receive no further compensation.
Separation Agreement with Mr. Jones
We entered into a severance agreement with Mr. Jones on November 26, 2002,
who resigned on October 24, 2002. We refer to the date of Mr. Jones's
resignation as the separation date. Under the terms of this severance agreement,
we agreed to provide to Mr. Jones severance benefits, including:
- his salary for a period of 18 months after the separation date;
- an award, if any, to him under our Management Incentive Plan for the
performance period in which the separation date occurred, subject to a
pro rata reduction for the period following the separation date;
- an extension of his ability to exercise vested options beyond the period
provided for in our 2000 Equity Incentive Plan;
- an aggregate of $10,000 for reasonable attorneys' fees, costs and
expenses;
- up to $25,000 for reasonable outplacement services until he obtains other
employment;
58
- continuing his participation and that of his eligible dependents in our
medical and dental plans for 18 months following the separation date, if
he was enrolled as of the separation date, at a level of coverage no less
favorable than that offered to our other executives; and
- waiving our exercise of the call right of any securities held by him on
the separation date.
Mr. Jones also agreed to standard confidentiality, nonsolicitation,
nondisparagement and release provisions.
Separation Agreement with Mr. Farley
We entered into a severance agreement with Mr. Farley on March 27, 2003,
under which he resigned on April 1, 2003. We refer to the date of Mr. Farley's
resignation as the separation date. Under the terms of this severance agreement,
we agreed to provide to Mr. Farley severance benefits, including:
- his salary for a period of 18 months after the separation date;
- an award, if any, to him under our Management Incentive Plan for the
performance period in which the separation date occurred, subject to a
pro rata reduction for the period following the separation date;
- an aggregate of $5,000 for reasonable attorneys' fees, costs and
expenses;
- continuing his participation in our medical and dental plans for 9 months
following the separation date, if he was enrolled as of the separation
date, at a level of coverage no less favorable than that offered to our
other executives; and
- waiving our exercise of the call right of any securities held by him on
the separation date.
Mr. Farley also agreed to standard confidentiality, nonsolicitation,
nondisparagement and release provisions.
59
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
U.S. Can owns all of the shares of issued and outstanding common stock of
the Company.
On December 20, 2002, U.S. Can amended its certificate of incorporation to
(i) effect a reverse stock split which, upon filing with the Secretary of State
of the State of Delaware, reclassified and converted each preexisting share of
common stock and Series A preferred stock into 1/1000th of a share of common and
preferred stock, respectively, and (ii) a corresponding reduction in the number
of its authorized shares of common stock from 100,000,000 shares to 100,000
shares and in the number of its authorized shares of preferred stock from
200,000,000 shares to 200,000 shares. The reverse stock split did not affect the
relative percentages of ownership for any shareholders.
U.S. Can's preferred stock, which has no voting rights other than those
provided by Delaware law, is owned by Berkshire Partners and its co-investors,
Citigroup and affiliates of Francisco Soler.
The following table sets forth information, as of August 22, 2003,
regarding the beneficial ownership, after giving effect to the reverse stock
split, of U.S. Can's common stock by:
- each person or "group," as that term is defined in Section 13(d)(3) of
the Securities Exchange Act, that beneficially owns more than 5% of the
outstanding common stock;
- each of U.S. Can's directors;
- each of U.S. Can's named executive officers; and
- all of U.S. Can's directors and executive officers as a group.
Unless otherwise indicated below, the address for each listed director and
executive officer is c/o U.S. Can Corporation, 700 E. Butterfield Road, Suite
250, Lombard, IL 60148. Beneficial ownership shown is determined in accordance
with the rules of the Commission and, as a result, includes voting and
investment power with respect to shares. The information in the table was
furnished by the persons listed. The stockholders agreement governs the
stockholders' exercise of their voting rights with respect to the election of
directors and other material events. See "Certain Relationships and Related
Party Transactions -- Stockholders Agreement." The percentage of ownership of
common stock for each stockholder is based on 53,333.333 shares of U.S. Can
common stock outstanding as of August 22, 2003. The number of shares of U.S. Can
common stock outstanding used in calculating the percentage for each listed
person includes the shares of U.S. Can common stock underlying the options,
warrants or convertible exchange notes beneficially owned by that person that
are exercisable within 60 days following August 22, 2003.
<Table>
<Caption>
PERCENT
BENEFICIAL OWNER NUMBER OF SHARES OWNERSHIP
- ---------------- ---------------- ---------
Berkshire Partners LLC(1).................................. 41,229.278 77.30%
Paul W. Jones(2)........................................... 1,961.628 3.68
John L. Workman(3)......................................... 1,042.440 1.95
Roger B. Farley(4)......................................... 533.333 1.00
Thomas A. Scrimo(5)........................................ 349.143 *
James J. Poehling(6)....................................... 20.000 *
Francois Vissers(6)........................................ 10.000 *
George V. Bayly............................................ -- *
Carl Ferenbach(7).......................................... 41,229.278 77.30
Richard K. Lubin(7)........................................ 41,229.278 77.30
Philip R. Mengel........................................... -- *
Francisco A. Soler(8)...................................... 951.485 1.78
Louis B. Susman(9)......................................... 2,613.332 4.90
All officers and directors as a group (16 persons)(10)..... 46,420.904 87.04
</Table>
60
- ---------------
* Less than 1%.
(1) Includes 25,847.737 shares of common stock held by Berkshire Fund V Limited
Partnership; 2,584.771 shares of common stock held by Berkshire Investors
LLC; and 12,796.770 shares of common stock held by Berkshire Fund V
Coinvestment Fund, Limited Partnership. The address of Berkshire Partners
LLC is One Boston Place, Suite 3300, Boston, Massachusetts 02108.
(2) Includes 28.294 shares subject to currently exercisable options.
(3) Includes 42.440 shares subject to currently exercisable options and 14.147
options that are exercisable within 60 days following August 22, 2003.
(4) Roger B. Farley retired on April 1, 2003.
(5) Includes 90.540 shares subject to currently exercisable options and 45.270
options that are exercisable within 60 days following August 22, 2003.
(6) Number of shares represents currently exercisable options and options that
are exercisable within 60 days following August 22, 2003.
(7) Mr. Ferenbach and Mr. Lubin are Managing Directors of Berkshire Partners
LLC.
(8) Mr. Soler beneficially owns 951.485 shares of common stock as a result of
his relationship to (i) Windsor International Corporation, a company of
which Mr. Soler is a director and executive officer and which is the record
holder of 424.460 shares, (ii) Atlas World Carriers S.A., a company of
which Mr. Soler is a director and executive officer and which is the record
holder of 250.172 shares, (iii) The World Financial Corporation S.A., a
company of which Mr. Soler is a director and executive officer and which is
the record holder of 250.172 shares, and (iv) Scarsdale Company N.V., Inc.,
a company of which Mr. Soler is an executive officer and which is the
record holder of 26.681 shares.
(9) Mr. Susman beneficially owns 2,613.332 shares of common stock as a result
of his relationship to Citigroup. Mr. Susman is a Vice Chairman of
Investment Banking and Managing Director of Citigroup Global Markets Inc.
Citigroup and its affiliates are the record holder of 2,613.332 shares of
common stock.
(10) Includes 271.983 shares subject to currently exercisable options and
141.492 options that are exercisable within 60 days following August 22,
2003.
61
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
RELATIONSHIP WITH BERKSHIRE PARTNERS
Berkshire Partners has been actively involved in our company through Carl
Ferenbach, a founding partner of Berkshire Partners. Mr. Ferenbach was one of
our founding directors in 1983 and served as a member of our Board of Directors
until February 2000. In addition, Mr. Lubin is a managing director of Berkshire
Partners and Mr. Mengel is Chief Executive Officer of a Berkshire Partners
portfolio company. Upon the completion of the recapitalization, Berkshire
Partners received a fee of $2.0 million. In addition, Berkshire Partners
receives a management fee of $750,000 per year.
The second amendment to our senior secured credit facility includes an
additional Tranche C term loan of up to $25.0 million, of which $20.0 million is
presently outstanding. Under certain circumstances, Berkshire Partners may be
required to cash collateralize and ultimately purchase a participation in the
Tranche C term loan facility. In consideration for Berkshire's agreement to
purchase a participation in the Tranche C term loan under certain circumstances,
we have agreed to accrue for and pay to Berkshire an annual fee of 2.75% of the
amount of the Tranche C term loan then outstanding, which initially was
$550,000. This fee is payable in advance, is non-refundable and may not be paid
in cash (without the requisite senior lenders' consent) so long as our current
senior bank debt is outstanding. If Berkshire were required to purchase a
Tranche C term loan participation in the future, we would be required to pay
Berkshire the amount of such Tranche C term loan, plus accrued interest, to the
extent of Berkshire's participation. We also agreed to reimburse Berkshire's
out-of-pocket costs and expenses incurred in connection with the purchase
agreement and the second amendment to the credit agreement.
RELATIONSHIP WITH CITIGROUP
Citigroup Inc. and its affiliates currently beneficially own 4.90% of our
common stock and provide investment banking and financial advisory services to
us from time to time. Citigroup Global Markets Inc. (formerly known as Salomon
Smith Barney Inc.) was paid $2.0 million in fees for financial advisory services
provided in connection with our September 2000 recapitalization and received
customary compensation as an initial purchaser of our 12 3/8% senior
subordinated notes that were offered in connection with the recapitalization. In
addition, Citibank, N.A. was an agent under our senior secured credit facility,
for which it received customary compensation. Mr. Susman is a Vice Chairman of
Investment Banking and Managing Director of Citigroup Global Markets Inc. Other
than for customary fees and payments under our senior secured credit facility,
we did not make any payments to Citigroup in 2001 or 2002 and have not agreed to
make any payments to it in 2003, other than for such customary fees and payments
and compensation as the initial purchaser in connection with the original
offering of the notes.
STOCKHOLDERS AGREEMENT
In connection with the recapitalization that was completed on October 4,
2000, we entered into a stockholders agreement with stockholders which provides
for, among other things, certain restrictions and rights related to the
transfer, sale or purchase of common stock and preferred stock. The stockholders
agreement has the following provisions:
- Prior to October 4, 2003, no stockholder may transfer shares of U.S. Can
capital stock (other than limited exceptions including permitted
transfers to an affiliate or in connection with estate planning).
- After October 4, 2003, a stockholder may only transfer shares of U.S. Can
capital stock (other than limited exceptions including permitted
transfers to an affiliate or in connection with estate planning) after
the transferring stockholder first gives U.S. Can, and then the other
stockholders on a pro rata basis, a right of first refusal to purchase
all or a portion of the shares at the same price.
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- U.S. Can has the right to purchase U.S. Can equity securities held by a
management stockholder (as defined) in the event the management
stockholder's employment with U.S. Can is terminated for any reason.
- If a management stockholder's employment with U.S. Can is terminated by
virtue of death, disability or retirement in accordance with U.S. Can
policy, the management stockholder will have the right to require U.S.
Can to purchase his or her equity securities of U.S. Can.
- If, at any time, specified stockholders holding 75% of the outstanding
common stock equivalents (as defined) (i.e., Berkshire Partners, its
affiliates and another stockholder) elect to consummate the sale of 50%
or more of the common stock of U.S. Can to an unaffiliated third party,
the remaining stockholders will be obligated to consent to and take all
actions necessary to complete the proposed sale of the same proportion of
their stock on the same terms.
- After October 4, 2003, a stockholder (or a group of stockholders
together) owning more than 4% of the outstanding shares of U.S. Can
capital stock may only (other than in connection with estate planning
transfers) transfer the shares to an unaffiliated third party, so long as
other stockholders are given the option to participate in the proposed
transfer on the same terms and conditions on a pro rata basis (except in
connection with transfers permitted by the stockholders agreement).
- The stockholders have agreed to elect directors of U.S. Can such that the
Board of Directors will consist of two designees of Berkshire and its
affiliates so long as the Berkshire stockholders maintain ownership of at
least 25% of the U.S. Can common stock, two designees of management
stockholders, Louis Susman, Ricardo Poma, Francisco Soler (or another
designee of the Scarsdale Group if Francisco Soler and Ricardo Poma both
no longer serve on the Board of Directors so long as the Scarsdale Group
owns at least 5% of the U.S. Can common stock) and up to two other
independent directors acceptable to the other directors. Mr. Poma
resigned from membership on the Board in April 2001 and chose not to
designate a replacement.
- Following an initial public offering of U.S. Can common stock, specified
stockholders will have either one or two demand registration rights. The
stockholders will be entitled to "piggy-back" registration rights on all
registrations of U.S. Can common stock by U.S. Can or any other
stockholder, subject to customary underwriter cutback.
- So long as U.S. Can is not paying default interest under any of its
financing arrangements, an 80% vote of the common stockholders will be
required to approve and adopt mergers, acquisitions, charter or bylaw
amendments, extraordinary borrowings, dividends, stock issuances and
other specified matters. An 80% vote will be required at all times for a
financial restructuring that treats the management stockholders
differently and adversely from the rest of the common stockholders.
- Stockholders have pre-emptive rights to subscribe for newly issued shares
on a pro rata basis, subject to certain exclusions.
Most of the restrictions contained in the stockholders agreements terminate
upon consummation of a qualified initial public offering of common stock by U.S.
Can or specified changes in control of U.S. Can.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR SECURED CREDIT FACILITY
As part of the refinancing, we amended our senior secured credit facility
with Bank of America, N.A., Citicorp North America, Inc. and certain other
lenders. The description of the terms senior secured credit facility reflects
this amendment. In addition, certain specific terms of the amendment are more
fully described below in "-- Specific Terms of the Amendment of the Senior
Secured Credit Facility."
General. After giving effect to the refinancing, as of June 29, 2003,
there would have been approximately $245.8 million (including $11.7 million of
letters of credit) of outstanding indebtedness under the senior secured credit
facility and approximately $55.7 million of unused commitment under the senior
secured credit facility for working capital and other corporate purposes. As of
June 29, 2003, after giving affect to the refinancing, the amounts outstanding
under the senior secured credit facility included the following:
- $40.7 million of borrowings outstanding under the Tranche A term loan;
- $130.8 million of borrowings outstanding under the Tranche B term loan;
- $20.0 million of borrowings outstanding under the Tranche C term loan;
and
- $42.6 million of borrowings outstanding under the $110.0 million
revolving credit facility.
Subject to certain conditions, up to $75.0 million of the revolving credit
facility may be made available in certain foreign currencies, including British
Pounds Sterling, Euros and other foreign currencies approved by the lenders for
borrowings by certain of our foreign subsidiaries.
Interest. Amounts outstanding under the senior secured credit facility
bear interest, at our option, at a rate per annum equal to either: (1) the base
rate (as defined in the senior secured credit facility) or (2) the LIBOR rate
(as defined in the senior secured credit facility), in each case, plus an
applicable margin. The applicable margins were increased in connection with the
2001 amendments to the senior credit facility and are subject to future
reductions based on the achievement of certain leverage ratio targets and on the
credit rating of the senior secured credit facility. As of June 29, 2003, our
borrowings under the senior secured credit facility bear interest at rates
ranging from 2.85% to 7.00%. The interest rate otherwise payable under the
senior secured credit facility will increase by 2% per annum during the
continuance of a payment default or any other event of default for which the
requisite number of lenders have taken affirmative action.
Maturity and Mandatory Prepayments. Borrowings under the Tranche A term
loan are due and payable in quarterly installments of approximately $4.0 million
for the first three quarters of 2005 and one installment of $8 million due
December 31, 2005. The final balance is due on January 4, 2006. Borrowings under
the Tranche B term loan are due and payable in quarterly installments (the
quarterly payments due on and before December 31, 2005 being in nominal
amounts), with the final balance due on January 4, 2006. Borrowings under the
Tranche C term loan are due and payable on January 4, 2006. The revolving credit
facility is available until January 4, 2006. In addition, we are required to
prepay the facilities under the senior secured credit facility in an amount
equal to:
- 100% of the net cash proceeds from certain asset sales by us subject to
certain baskets and reinvestment provisions;
- 75% (if our senior debt/EBITDA ratio is equal to or greater than 3.0:1.0)
or 50% (if our senior debt/EBITDA ratio is less than 3.0:1.0) of excess
cash flow (as defined);
- 100% of the net cash proceeds from the issuance of any debt by us,
subject to certain exceptions; and
- 50% of the net cash proceeds from our issuance of equity, excluding,
among other things, (i) any equity invested by Berkshire Partners and the
rollover stockholders and (ii) equity invested in connection with a
permitted acquisition.
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Security and Guarantees. Subject to certain exceptions and permitted
liens, the senior secured credit facility is secured by a first priority
security interest in all our existing and after-acquired assets and all of our
direct and indirect domestic subsidiaries' existing and after-acquired assets,
including, without limitation, real property and all of the capital stock owned
by us and our direct and indirect domestic subsidiaries (including 65% of the
capital stock of their direct foreign subsidiaries). In addition, any loans made
to our foreign subsidiaries under the senior secured credit facility are secured
by the existing and after-acquired assets of certain of our foreign
subsidiaries. All of our obligations under the senior secured credit facility
are fully and unconditionally guaranteed by U.S. Can, our parent company, and
all of our present and future domestic subsidiaries. In addition, U.S. Can, our
company, each guarantor and, to the extent permitted by law, each subsidiary and
parent of any foreign subsidiary authorized to borrow amounts under the senior
secured credit facility guarantee any borrowings by any designated foreign
subsidiaries permitted to borrow amounts under the senior secured credit
facility.
Covenants. The senior secured credit facility requires us to meet certain
financial tests, including, without limitation:
- minimum interest coverage;
- minimum EBITDA;
- minimum fixed charge coverage; and
- maximum leverage.
The senior secured credit facility contains certain covenants which, among
other things, limit:
- the incurrence of additional debt;
- investments;
- dividends;
- transactions with affiliates;
- capital expenditures;
- asset sales;
- acquisitions, mergers and consolidations;
- prepayments of other debt (including the exchange notes);
- amendments to the terms of any debt (including the exchange notes) that
would be adverse to the lenders; and
- liens, encumbrances and negative pledges.
Events of Default. The senior secured credit facility contains customary
events of default, including, among other things:
- payment defaults;
- breaches of representations and warranties;
- covenant defaults;
- cross-defaults to certain other debt (including the exchange notes);
- certain events of bankruptcy and insolvency;
- failure of the subordination provisions in our outstanding 12 3/8% senior
subordinated notes due 2010 to be effective;
- failure of the intercreditor agreement to be effective;
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- judgment defaults;
- failure of any guarantee or security document supporting the senior
secured credit facility to be in full force and effect; and
- a change of control of the Company or U.S. Can, our parent company.
Waiver and Modification. The terms of our senior secured credit facility
may be waived or modified upon approval by the Company and the required
percentage of the senior lenders and without the consent of the holders of the
exchange notes.
Specific Terms of the Amendment of the Senior Secured Credit Facility. The
amendment to our senior secured credit facility also:
- permitted the issuance of the notes and the second-priority liens
securing the notes;
- amended the levels we must achieve under our financial covenants relating
to our leverage ratio, interest coverage ratio, fixed charge coverage
ratio and minimum EBITDA;
- allowed us to apply the proceeds from the original offering of the notes
to make the required prepayment of our Tranche A term loan in direct
order of maturity;
- allowed us to apply up to $55 million of the proceeds from the original
offering of the notes to the repayment of our revolving credit facility
instead of our term loans; and
- permits us to re-borrow a portion of the aforementioned $55 million
repayment for potential repurchases of our outstanding 12 3/8% senior
subordinated notes due 2010.
12 3/8% SENIOR SUBORDINATED NOTES DUE 2010
The 12 3/8% senior subordinated notes due 2010 in the aggregate principal
amount of $175.0 million are our unsecured obligations. The 12 3/8% senior
subordinated notes will mature on October 1, 2010. Interest is payable
semi-annually on April 1 and October 1 of each year. The 12 3/8% senior
subordinated notes may be redeemed at any time after October 1, 2005 at
specified prices and do not have the benefit of any sinking fund. In addition,
the 12 3/8% senior subordinated notes are guaranteed by U.S. Can and all of the
Company's domestic restricted subsidiaries.
We currently have $175.0 million of these securities outstanding. The
indenture governing the 12 3/8% senior subordinated notes contains customary
covenant provisions that include, among others, a limitation on our ability to
incur debt, pay dividends and make other distributions, grant liens and sell
assets or consolidate or merge with or into other companies.
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DESCRIPTION OF THE EXCHANGE NOTES
For purposes of this section of the prospectus, United States Can Company
is referred to as the "Company." Other capitalized terms used in this section of
the prospectus are defined later under the heading "Definitions."
The exchange notes will be issued under an indenture to be dated July 22,
2003 (the "Indenture") among the Company, the Parent Guarantor, the Subsidiary
Guarantors and Wells Fargo Bank Minnesota, National Association, as trustee (the
"Trustee").
The terms of the exchange notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939. The exchange notes are subject to all such terms, and reference is made to
the Indenture and the Trust Indenture Act for a statement of those terms. Copies
of the Indenture and the form of exchange notes are available upon request to
the Company at the address set forth under the heading "Where You Can Find More
Information," appearing later in this prospectus.
The form and terms of the exchange notes are identical in all material
respects to the form and terms of the notes issued in the original offering,
except that:
- the exchange notes will bear a Series B designation;
- the exchange notes have been registered under the Securities Act and,
therefore, will generally not bear legends restricting their transfer;
and
- the holders of the exchange notes will not be entitled to certain rights
under the registration rights agreement dated as of July 22, 2003 by and
among the Company, U.S. Can, May and Citigroup Global Markets Inc.,
including the provision providing for liquidated damages in certain
circumstances relating to the timing of the exchange offer.
The exchange notes will evidence the same debt as the notes issued in the
original offering and will be entitled to the benefits of the Indenture. The
exchange notes will rank equally with the notes issued in the original offering
if all of these notes are not exchanged pursuant to the exchange offer and will
vote together with the notes on all matters voted upon under the Indenture.
GENERAL
The exchange notes are senior secured obligations of the Company and will
initially be limited to $125 million aggregate principal amount. The exchange
notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Except in limited
circumstances, the exchange notes will be issued as a global note. See "-- Book
Entry Form" below. No service charge will be made for any registration of
transfer of exchange notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
The payment of principal, premium, if any, and interest on the exchange
notes is unconditionally guaranteed on a senior secured basis by the Parent
Guarantor (the "Parent Guarantee") and the Subsidiary Guarantors (the
"Subsidiary Guarantees" and, together with the Parent Guarantee, referred to as
the "Guarantees"). The Parent Guarantor and the Subsidiary Guarantors are
collectively referred to as the "Guarantors" and are individually referred to as
a "Guarantor." See "-- Parent and Subsidiary Guarantees."
The exchange notes will be secured, on a second-priority basis, by liens on
substantially all of our, our domestic subsidiaries' and our parent's existing
and after-acquired assets for which a first priority lien has been granted to
the lenders under our senior secured credit facility. See "-- Security."
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ADDITIONAL EXCHANGE NOTES
The Company may, without the consent of the Holders of exchange notes,
create and issue additional notes ranking equally with the exchange notes in all
respects. These additional notes will be consolidated with the exchange notes
and form a single series with the exchange notes and will have the same terms as
to status, security, redemption or otherwise as the exchange notes. The issuance
of additional notes from time to time is subject to the limitations set forth in
the Indenture, including those set forth under "-- Covenants -- Limitation on
Indebtedness" and "-- Limitation on Liens."
PAYMENT TERMS
The exchange notes will mature on July 15, 2010 and will bear interest at a
rate of 10 7/8% per annum until maturity. The Company will pay interest
semiannually on January 15 and July 15 of each year, beginning January 15, 2004,
to the persons who are registered Holders of the exchange notes at the close of
business on January 1 or July 1 immediately preceding such interest payment
date. The Company will pay interest on overdue principal at 1% per annum in
excess of such rate, and it will pay interest on overdue installments of
interest at such higher rate to the extent lawful.
The Indenture provides that interest on the exchange notes will be computed
on the basis of a 360-day year of twelve 30-day months. Initially, the Trustee
will act as Paying Agent and Registrar. Principal and interest will be payable
initially at the Trustee's offices within the City and State of New York but, at
the Company's option, interest may be paid by check mailed to the Holders at
their addresses as they appear in the exchange notes register; provided that the
Company will be required to make, by wire transfer of immediately available
funds to the accounts specified by a Holder of at least $5 million aggregate
principal amount of exchange notes, all payments of principal of, premium, if
any, and interest with respect to such Holder's exchange notes if such Holder
has given wire transfer instructions to the Company. The exchange notes may be
presented for registration of transfer and exchange at the Registrar's offices,
which initially will be the Trustee's offices.
The interest rate on the exchange notes is subject to increase in certain
circumstances if the Company and the Guarantors do not file a registration
statement relating to the exchange offer on a timely basis, if the registration
statement is not declared effective on a timely basis or if certain other
conditions are not satisfied, all as further described under "-- Exchange Offer;
Registration Rights."
RANKING
The exchange notes will be:
- senior secured obligations of the Company;
- secured by a second priority lien, subject to certain exceptions and
Permitted Liens, on the Collateral described below under "-- Security";
- guaranteed on a senior secured, second priority lien basis by the
Guarantors;
- pari passu in right of payment with all existing and future senior
Indebtedness of the Company;
- senior in right of payment to all existing and future Indebtedness of the
Company that by its terms is junior or subordinated in right of payment
to the exchange notes;
- effectively junior in right of payment to all existing and future First
Lien Indebtedness, including the obligations of the Company and the
Guarantors under the Credit Agreement, to the extent of the proceeds from
the Collateral; and
- effectively junior in right of payment to all existing and future debt
and other liabilities of the Company's Subsidiaries that are not
Subsidiary Guarantors.
Each Guarantee at will be secured by a second priority lien, subject to
certain exceptions, on the Collateral described below under "-- Security."
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As of June 29, 2003, after giving effect to the refinancing, the Company
and its Restricted Subsidiaries would have had approximately $575.5 million of
total outstanding Indebtedness, of which approximately $175.9 million would have
been subordinated to the exchange notes and approximately $270.9 million would
have been First Lien Indebtedness of the Company and the Restricted Subsidiaries
that would have been effectively senior to the exchange notes. The First Lien
Indebtedness includes approximately $234.1 million outstanding Indebtedness
under the Credit Agreement and approximately $36.8 million of outstanding
capitalized lease obligations, purchase money obligations and First Lien
Indebtedness of Foreign Restricted Subsidiaries.
The Company has only a stockholder's claim in the assets of its
Subsidiaries. This stockholder's claim is structurally junior to the claims that
creditors of the Company's Subsidiaries have against such Subsidiaries. Holders
of the exchange notes will only be creditors of the Company and of those
Subsidiaries that are Subsidiary Guarantors. In the case of Subsidiaries that
are not Subsidiary Guarantors, all the existing and future liabilities of these
Subsidiaries, including claims of trade creditors will be effectively senior to
the exchange notes. As of June 29, 2003, our Subsidiaries that are not
guarantors of the exchange notes had approximately $138.3 million of total
liabilities outstanding, including trade payables, but excluding intercompany
indebtedness. See "Risk Factors -- Risks Relating to Your Investment in the
Exchange Notes -- The exchange notes will be structurally subordinated to the
debt of our subsidiaries that are not guarantors of the exchange notes."
Subject to the covenants described below, the Company will be permitted to
issue additional senior secured debt. Under the Credit Agreement, the Company
has the capacity to borrow up to an additional $55.7 million as of June 29, 2003
after giving effect to the refinancing.
SECURITY
Pursuant to certain security agreements and pledge agreements, as amended
from time to time, among the Company, certain other grantors and the Trustee
(collectively, the "Second Priority Security Documents"), subject to Permitted
Liens, the exchange notes will be secured by a second priority security interest
in the assets of the Company and the Guarantors, other than the stock of certain
subsidiaries of the Company (collectively, the "Collateral"), that secure the
Bank Indebtedness outstanding under the Credit Agreement and obligations under
interest rate and foreign currency hedging obligations provided by lenders under
the Credit Agreement (collectively, the "First Priority Debt Obligations"). The
First Priority Debt Obligations are secured on a first priority basis pursuant
to the First Priority Security Documents. The Collateral consists of
substantially all of the personal property of the Company and the Guarantors and
certain real property owned in fee by the Company and the Guarantors. In
addition, the Company and the Guarantors have pledged (1) all the capital stock
of their directly owned domestic subsidiaries and (2) 65% of the capital stock
of their directly owned foreign subsidiaries, in each case to the extent that
such pledge of stock would not require the presentation of separate audited
financial statements for such subsidiary under applicable Commission rules and
regulations. Subject to the foregoing limitation on stock pledges, the Indenture
and the Second Priority Security Documents require that the Trustee be granted a
second priority lien on any additional assets that secure the First Priority
Debt Obligations after the date hereof.
In addition to borrowings under the Credit Agreement, the Company and its
Restricted Subsidiaries finance a portion of their business and operations with
other First Lien Indebtedness. As of June 29, 2003, the Company and its
Restricted Subsidiaries had approximately $36.8 million of such other First Lien
Indebtedness, including outstanding capital leases, other purchase money
indebtedness, mortgages and First Lien Indebtedness of Foreign Restricted
Subsidiaries. These obligations are generally secured by a first priority lien
on the underlying assets relating to such obligations and in some instances, a
second priority lien has been granted for the benefit of the lenders under the
Credit Agreement. As a result, the exchange notes will be secured by a third
priority security interest in such assets.
The Company is generally permitted to issue additional debt or other
obligations secured by the Collateral, subject to the covenants described below
under "-- Covenants -- Limitation on Indebtedness"
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and "-- Limitation on Liens" and subject to compliance with the terms of the
Credit Agreement and other debt that may be secured by the Collateral. The
second priority liens securing the exchange notes are junior to the first
priority liens securing the First Priority Debt Obligations and to certain
Permitted Liens. The persons holding liens under the First Priority Security
Documents and the holders of certain Permitted Liens are entitled to control the
remedies and other actions relating to the Collateral, including the sale or
other disposition thereof, and such persons and holders of Permitted Liens may
have rights and remedies with respect to the Collateral that, if exercised,
could adversely affect the value of the Collateral or the ability of the Trustee
on behalf of the Holders of the exchange notes to realize or foreclose on the
Collateral. See "Risk Factors -- Risks Relating to Your Investment in the
Exchange Notes -- The lenders under our senior secured credit facility have the
sole right to exercise remedies against the collateral for so long as the senior
secured credit facility is outstanding, including releasing the collateral
securing the exchange notes."
Upon any foreclosure or related sale of the assets constituting the
Collateral, subject to Permitted Liens, the proceeds will first be applied to
repay First Priority Debt Obligations. Any remaining proceeds will be used to
repay obligations, including the exchange notes, secured on a second priority
basis. If such remaining proceeds are insufficient, the Holders of the exchange
notes will only have an unsecured claim against the Company and the Guarantors.
See "Risk Factors -- Risks Relating to Your Investment in the Exchange
Notes -- The value of the collateral securing the exchange notes may not be
sufficient to satisfy obligations under the exchange notes and the collateral
securing the exchange notes may be reduced or diluted under certain
circumstances."
No appraisals of any Collateral have been prepared by us or on our behalf
in connection with the exchange offer. The value of the Collateral at any time
will depend on market and other economic conditions, including the availability
of suitable buyers for the Collateral.
Liens on all or portions of the Collateral may be released under certain
circumstances, as described below in "-- Intercreditor Agreement."
Subject to certain terms and conditions in the Indenture and the Second
Priority Security Documents, the Company and the Guarantors have the right to
remain in possession and retain control of the Collateral, to freely operate the
Collateral and to collect, invest and dispose of any income therefrom.
INTERCREDITOR AGREEMENT
All rights against the Collateral are subject to the terms and provisions
of the Intercreditor Agreement among the Company, the Guarantors, the Senior
Collateral Agent and the Trustee, as collateral agent for the Holders of the
exchange notes. Pursuant to the Indenture, the Trustee has the authority to act
as the exclusive agent for each of the Holders of the exchange notes with
respect to the Collateral, including the enforcement of any remedy against the
Collateral.
For so long as the Credit Agreement (including any refinancing,
substitution or replacement of the Credit Agreement) is in effect, the decision
of whether, and to what extent, to exercise remedies against the Collateral will
be solely at the direction of the Senior Collateral Agent and the required
lenders under the Credit Agreement. Following the date on which
- all obligations under the Credit Agreement have been paid in full,
- there are no outstanding letters of credit under the Credit Agreement,
and
- the Credit Agreement has been terminated and not replaced,
the Trustee will, subject to Permitted Liens, have the exclusive right to
exercise any right or remedy with respect to the Collateral in accordance with
the Indenture and the Second Priority Security Documents.
The Trustee and the Holders of the exchange notes will not have any right
to initiate or direct the exercise of remedies against the Collateral until such
date. As a result, even during a bankruptcy
70
proceeding, neither the Trustee nor the Holders of the exchange notes will have
any right or ability to exercise or cause the exercise of remedies against the
Collateral until such date. The Trustee is permitted to file a claim of interest
in a bankruptcy proceeding with respect to the second priority liens in order to
preserve its rights in the Collateral.
If the Trustee or any Holder of the exchange notes receives any cash
proceeds or other monies in respect of the Collateral by exercise of any rights
of set-off or otherwise at any time when such proceeds or monies are required to
be delivered to the Senior Collateral Agent under the Intercreditor Agreement,
such proceeds will be applied in accordance with the terms of the Intercreditor
Agreement.
The cash proceeds of any sales of, or collections on, any Collateral
received upon the exercise of remedies will be applied pursuant to the
Intercreditor Agreement in the order and priority as stated under "-- Security."
The Intercreditor Agreement provides that the second priority liens will
automatically be released on the applicable portion of the Collateral if (1) the
Senior Collateral Agent exercises any remedies in respect of such Collateral;
(2) such Collateral is sold or otherwise disposed of as permitted by the Credit
Agreement (unless prohibited under "-- Covenants -- Limitation on Asset
Dispositions"); or (3) the Senior Collateral Agent and the Company agree to a
release of such Collateral and there is no default under the Indenture nor would
the events giving rise to such release cause a default under the Indenture and
related Second Priority Security Documents other than the general covenant
requiring the maintenance of the second priority liens.
If the lenders under the Credit Agreement enter into any amendment, waiver
or consent in respect of the First Priority Security Documents for the purpose
of adding to, or deleting from, or waiving or consenting to any departures from
any provisions of such documents in respect of the Collateral or changing in any
manner the rights of the Senior Collateral Agent or the lenders under the Credit
Agreement, then such amendment, waiver or consent shall apply automatically to
any comparable provision of the Second Priority Security Documents without the
consent of the Trustee or Holders of the exchange notes. No such amendment,
waiver or consent shall apply to the Second Priority Security Documents if it
shall (1) have the effect of removing assets subject to the second priority
liens, except to the extent that a release of such lien is permitted by the
Intercreditor Agreement, (2) modify a material remedy under the Second Priority
Security Documents, (3) secure Indebtedness or obligations owed in favor of any
other creditor or group of creditors, except as contemplated by the
Intercreditor Agreement, or (4) change the priority of or further make junior
the second priority liens. Notice of such amendment, waiver or consent must be
given, in each case, to the Trustee.
Provided that the Company has certified that there is no Event of Default
under the Indenture and the Trustee has not received a notice of any Event of
Default, then upon the release of the Liens on the Collateral securing the Bank
Indebtedness, all of the Liens securing the exchange notes and the Parent and
Subsidiary Guarantees will also be released if, and for so long as, (1) the Bank
Indebtedness continues to be unsecured and (2) the Credit Agreement includes a
revolving credit facility with (a) a minimum amount of $50 million and (b) an
initial term of no less than 364 days.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Trustee to foreclose upon and dispose of, or otherwise
exercise remedies in respect of, the Collateral upon the occurrence of an Event
of Default is likely to be significantly impaired by applicable bankruptcy law
if a bankruptcy proceeding were to be commenced by or against the Company prior
to the Trustee having repossessed and disposed of, or otherwise exercised
remedies in respect of, the Collateral. Under the United States Bankruptcy Code,
a secured creditor such as the Trustee is prohibited from repossessing its
collateral from a debtor in a bankruptcy case, or from disposing of collateral
repossessed from such debtor, without bankruptcy court approval. Moreover, the
United States Bankruptcy Code permits the debtor to continue to retain and to
use collateral even though the debtor is in default under the applicable debt
instruments, provided that the secured creditor is given "adequate protection."
The meaning of the term "adequate protection" may vary according to
circumstances, but it is intended in
71
general to protect the value of the secured creditor's interest in the
collateral and may include cash payments or the granting of additional
collateral, if and at such times as the court in its discretion determines, for
any diminution in the value of the collateral as a result of the stay of
repossession or disposition or any use of the collateral by the debtor during
the pendency of the bankruptcy case. In view of the lack of a precise definition
of the term "adequate protection" and the broad discretionary powers of a
bankruptcy court, it is impossible to predict how long payments with respect to
the exchange notes could be delayed following commencement of a bankruptcy case,
whether or when the Trustee could foreclose upon or dispose of the Collateral or
whether or to what extent Holders of the exchange notes would be adequately
compensated for any delay in payment or loss of value of the Collateral.
PARENT AND SUBSIDIARY GUARANTEES
Each of the Parent Guarantor and the Subsidiary Guarantors unconditionally
guarantees, jointly and severally, on a senior secured basis to each Holder and
the Trustee, the full and prompt performance of the Company's obligations under
the Indenture and the exchange notes, including the payment of principal of, and
interest on, the exchange notes. As of the Issue Date, USC May Verpackungen
Holding, Inc., as the Company's only Domestic Restricted Subsidiary, is the only
Subsidiary Guarantor. In the future, each (1) Domestic Restricted Subsidiary
created or acquired by the Company that has at any time a Fair Market Value of
more than $500,000 and (2) Foreign Restricted Subsidiary created or acquired by
the Company that Guarantees any Indebtedness of the Company, the Parent
Guarantor or any Domestic Restricted Subsidiary, is, in each case, required to
become an additional Subsidiary Guarantor; provided that the aggregate Fair
Market Value of Domestic Restricted Subsidiaries that are not Subsidiary
Guarantors will not at any time exceed $1.5 million. See "-- Covenants -- Future
Subsidiary Guarantors."
The Parent and Subsidiary Guarantees will be:
- senior secured obligations of the Parent Guarantor and the Subsidiary
Guarantors;
- pari passu in right of payment with all unsubordinated Indebtedness of
the Parent Guarantor and the Subsidiary Guarantors; and
- senior in right of payment to all future Indebtedness of the Parent
Guarantor and Subsidiary Guarantors that by its terms is junior or
subordinated in right of payment to the Guarantees.
The obligations of each Guarantor are limited to the maximum amount which,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Parent Guarantee or Subsidiary Guarantee, as the case may
be, or pursuant to its contribution obligations under the Indenture, will result
in the obligations of such Guarantor under its Parent Guarantee or Subsidiary
Guarantee, as the case may be, not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. Some, but not all of the
Company's subsidiaries will guarantee the exchange notes. In the event of a
bankruptcy, liquidation or reorganization of any of the non-guarantor
subsidiaries, holders of their indebtedness and their trade creditors will
generally be entitled to payment of their claims from the assets of the
non-guarantor subsidiaries before any assets are made available for distribution
to the Company.
Each Guarantor that makes a payment or distribution under a Parent
Guarantee or Subsidiary Guarantee, as the case may be, will be entitled to a
contribution from each other Guarantor in an amount pro rata, based on the net
assets of each Guarantor, determined in accordance with GAAP. Each Subsidiary
Guarantor may consolidate with or merge into or sell its assets to the Company
without limitation, or with other Persons upon the terms and conditions set
forth in the Indenture. See "-- Merger, Consolidation and Sale of Assets." In
the event the Company sells all of the capital stock of a Subsidiary Guarantor
and the sale complies with the provisions set forth in
"-- Covenants -- Limitation on Asset Dispositions," the Subsidiary Guarantor's
Subsidiary Guarantee will be released.
72
REDEMPTION
OPTIONAL REDEMPTION
Except as set forth below, the Company may not redeem the exchange notes
before July 15, 2007. On or after that date, the Company may redeem the exchange
notes, in whole at any time or in part from time to time, on at least 30 but not
more than 60 days prior notice, mailed by first-class mail to the Holders at
their registered addresses, at the redemption prices (expressed in percentages
of principal amount) specified below plus accrued and unpaid interest, if any,
through the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest on the relevant interest payment date),
if redeemed during the 12-month period beginning July 15, of the years indicated
below:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2007........................................................ 105.438%
2008........................................................ 102.719
2009 and thereafter......................................... 100.000
</Table>
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS
At any time, or from time to time, on or before July 15, 2006, the Company
may, at its option, use all or any portion of the net cash proceeds of one or
more Public Equity Offerings (as defined below) to redeem up to 35% of the
aggregate principal amount of the exchange notes issued at a redemption price
equal to 110.875% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of redemption; provided that at least 65% of the
aggregate principal amount of exchange notes initially issued remains
outstanding immediately after any such redemption. In order to effect the
foregoing redemption with the proceeds of any Public Equity Offering, the
Company will make such redemption not more than 180 days after the consummation
of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Capital Stock of the Company (other than
Disqualified Stock) pursuant to a registration statement filed with the
Commission in accordance with the Securities Act or a firm commitment private
placement of Capital Stock (other than Disqualified Stock) pursuant to an
agreement that requires the registration of the resale of such Capital Stock (or
Capital Stock issued upon conversion thereof) contemporaneously with the
issuance thereof or as soon as practical thereafter.
In the case of any partial redemption, selection of the exchange notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion will deem to be fair and
appropriate (and which complies with applicable legal and securities exchange
requirements), although no exchange note of $1,000 in original principal amount
or less will be redeemed in part. If a partial redemption is made with the
proceeds of a Public Equity Offering, selection of the exchange notes or
portions thereof for redemption will 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 (as
defined below) procedures), unless such method is otherwise prohibited. If any
exchange note is to be redeemed in part only, the notice of redemption relating
to such exchange note will state the portion of the principal amount thereof to
be redeemed. A new exchange note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original exchange note.
MANDATORY SINKING FUND
There are no mandatory sinking fund payments for the exchange notes.
CHANGE OF CONTROL
Upon a Change of Control, each Holder will have the right to require that
the Company repurchase all or any part of such Holder's exchange notes at a
repurchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, through the date of repurchase. See
73
"Risk Factors -- Risks Related to Your Investment in the Exchange Notes -- We
may be unable to raise the funds necessary to finance the change of control
offer required by our indenture." If at the time of such Change of Control the
terms of the Bank Indebtedness or other Indebtedness restrict or prohibit the
repurchase of exchange notes pursuant to this provision, then before mailing the
notice to Holders provided for in the next paragraph below, but in any event
within 30 days following any Change of Control, the Company covenants to
- repay in full all Bank Indebtedness or other Indebtedness to the extent
required to permit the repurchase of exchange notes pursuant to this
provision or
- obtain the requisite consent under the agreements governing the Bank
Indebtedness or other Indebtedness to permit the repurchase of the
exchange notes as provided for in the next paragraph.
Within 30 days following any Change of Control, the Company will send, by
first-class mail to each Holder, a notice to each Holder with a copy to the
Trustee stating:
- that a Change of Control has occurred and that such Holder has the right
to require the Company to purchase such Holder's exchange notes at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase;
- the purchase date (which will be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and
- the instructions determined by the Company, consistent with this
provision, that a Holder must follow in order to have its exchange notes
purchased, together with the information contained in the next paragraph
(and including any related materials).
Holders electing to have an exchange note purchased will be required to
surrender the exchange note, with an appropriate form duly completed, to the
Company at the address specified in the notice at least five Business Days
before the purchase date. Holders will be entitled to withdraw their election if
the Trustee or the Company receives not later than three business days prior to
the purchase date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the exchange note that was
delivered for purchase by the Holder and a statement that such Holder is
withdrawing its election to have such exchange note purchased.
On the purchase date, all exchange notes purchased by the Company under
this provision will be delivered by the Trustee for cancellation, and the
Company will pay the purchase price plus accrued and unpaid interest, if any, to
the Holders entitled thereto.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Credit Agreement. Future
Indebtedness of the Company may contain prohibitions of certain events that
would constitute a Change of Control or require such Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by the Holders of
their right to require the Company to repurchase the exchange notes could cause
a default under such Indebtedness, even if the Change of Control itself does
not, due to the financial effect of such repurchase on the Company. Finally, the
Company's ability to pay cash to the Holders upon a repurchase may be limited by
the Company's then existing financial resources.
The Company can give no assurance that sufficient funds will be available
when necessary to make any repurchases required in connection with a Change of
Control. The Company's failure to purchase the exchange notes in connection with
a Change in Control would result in a default under the Indenture that would, in
turn, constitute a default under the Credit Agreement. See "Risk
Factors -- Risks Related to Your Investment in the Exchange Notes -- We may be
unable to raise the funds necessary to finance the change of control offer
required by our indenture."
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of exchange notes pursuant to the covenant
described hereunder. To the extent that the provisions of any securities
74
laws or regulations conflict with the provisions of the covenant described
hereunder, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under such
covenant by virtue thereof.
COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, Incur any Indebtedness, unless such Indebtedness is
Permitted Indebtedness.
LIMITATION ON RESTRICTED PAYMENTS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly (each of which is hereafter referred to as a "Restricted
Payment"):
- declare or pay any dividend on, or make any distribution in respect of,
any Capital Stock of the Company or the Parent Guarantor, as the case may
be, except for dividends or distributions payable solely in Capital Stock
(other than Disqualified Stock) of the Company or the Parent Guarantor,
as the case may be;
- purchase, redeem, retire or acquire for value any Capital Stock of the
Company, the Parent Guarantor or any Subsidiary of the Company or the
Parent Guarantor (other than a Restricted Subsidiary);
- make any principal payment on, or purchase, repurchase, redeem, defease
or acquire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Obligation; or
- make any Investment (other than Permitted Investments) in any Person,
if at the time of and after giving effect to the proposed Restricted Payment:
- any Default or Event of Default has occurred and is continuing;
- the Company could not incur at least $1.00 of additional Indebtedness
pursuant to clause (1) of the definition of Permitted Indebtedness; or
- the aggregate amount expended or declared for all Restricted Payments
after the Issue Date exceeds (without duplication) the sum of
(1) 50% of the Consolidated Net Income accrued during the period (treated
as one accounting period) from the first day of the fiscal quarter in which the
notes were originally issued to the end of the most recent fiscal quarter ending
at least 30 days prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income will be a deficit, minus 100% of such deficit),
(2) 100% of the aggregate Net Cash Proceeds plus the Fair Market Value of
property other than cash received by the Company from the issuance or sale of
its respective Capital Stock (excluding the issuance or sale of Disqualified
Stock) subsequent to the Issue Date (other than an issuance or a sale to a
Subsidiary of the Company or an employee stock ownership plan or trust),
(3) the amount by which Indebtedness of the Company or the Restricted
Subsidiaries is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Subsidiary) subsequent to the Issue Date, of any
Indebtedness of the Company or the Restricted Subsidiaries that is convertible
or exchangeable, or is exchanged, for Capital Stock (other than Disqualified
Stock) of the Company,
(4) an amount equal to the net reduction in Investments resulting from
dividends, distributions, repayments of loans or advances or other transfers of
assets (to the extent not included in Consolidated
75
Net Income), in each case, to the Company or any Restricted Subsidiary, not to
exceed the amount of Investments previously made that were included as
Restricted Payments, and
(5) 50% of the gain realized by the Company or any Restricted Subsidiary
from the cash sale (other than to the Company or a Restricted Subsidiary) of
Restricted Investments made by the Company or any Restricted Subsidiary after
the Issue Date to the extent not included in Consolidated Net Income.
The foregoing limitations will not prevent the Company or a Restricted
Subsidiary from:
(A) paying a dividend on its Capital Stock within 60 days after the
declaration thereof, if, on the declaration date, the Company could have
paid such dividend in compliance with the Indenture;
(B) redeeming, repurchasing, defeasing, acquiring or retiring for
value, Subordinated Obligations in exchange for or from proceeds of
Refinancing Indebtedness permitted by clause (8) of the definition of
Permitted Indebtedness;
(C) acquiring, redeeming or retiring Capital Stock or Subordinated
Obligations of the Company in exchange for, or in connection with a
substantially concurrent issuance of, Capital Stock (other than
Disqualified Stock) of the Company;
(D) repurchasing or redeeming (or paying a dividend to the Parent
Guarantor to enable the Parent Guarantor to purchase or redeem) shares of,
or options to purchase shares of, Capital Stock of the Company or the
Parent Guarantor or stock appreciation rights from officers, directors and
employees (or the heirs of such persons) of the Company, the Parent
Guarantor or any Restricted Subsidiary whose employment has terminated or
who have died or retired or become disabled or upon the vesting of stock
appreciation rights, so long as the aggregate amount of such payments in
any fiscal year does not exceed the sum of (1) $2.5 million plus (2) the
proceeds of any "key man" life insurance policies purchased by the Company
for the specific purpose of making such repurchases or redemptions, it
being understood that the cancellation of Indebtedness owed by management
to the Company in connection with such repurchase or redemption will not be
deemed to be a Restricted Payment;
(E) any purchase of Subordinated Obligations from Excess Proceeds
remaining after an Offer made pursuant to the "Limitations on Asset
Dispositions" covenant below to the extent permitted to be used for general
corporate purposes;
(F) cash dividends to the Parent Guarantor in amounts equal to
(1) the amounts required for the Parent Guarantor to pay any
Federal, state or local income taxes to the extent that such income
taxes are attributable to the income of the Company and its
Subsidiaries,
(2) the amounts required for the Parent Guarantor to pay franchise
taxes and other fees required to maintain its legal existence,
(3) an amount not to exceed $200,000 in any fiscal year to permit
the Parent Guarantor to pay corporate expenses incurred in the ordinary
course of business, and
(4) reasonable and customary costs and expenses incident to a
public offering of the common stock of the Parent Guarantor to the
extent that the proceeds therefrom are intended to be contributed to the
Company;
(G) repurchases of Capital Stock deemed to occur upon the exercise of
employee stock options if such Capital Stock is surrendered in lieu of the
exercise price thereof;
(H) the payment of any dividend by a Restricted Subsidiary of the
Company to the holders of its equity interests on a pro rata basis;
(I) applying not in excess of $30 million (plus any purchase price
attributable to accrued interest thereon) to repurchasing, redeeming,
defeasing, acquiring or retiring for value Subordinated
76
Notes, provided that after giving pro forma effect, the Secured Debt to
Adjusted EBITDA Ratio is less than or equal to 4.5 to 1; and
(J) so long as no Event of Default will have occurred and be
continuing, other Restricted Payments not otherwise permitted pursuant to
this covenant up to $10.0 million in the aggregate.
Proceeds of Capital Stock used to make Restricted Payments described in
clause (C) of the immediately preceding paragraph will not increase the amount
available for Restricted Payments. The Restricted Payments made pursuant to
clauses (B), (C), (D)(2), (E), (F), (G), (H) and (J) of the immediately
preceding paragraph will not be included in the calculation of subsequent
Restricted Payments. Restricted Payments made pursuant to clauses (A), (D)(1)
and (I) of the immediately preceding paragraph will be included in the
calculation of subsequent Restricted Payments.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, cause to exist or become effective or enter into any
encumbrance or restriction (other than pursuant to law or regulation) on the
ability of any Restricted Subsidiary
(A) to pay dividends or make any other distributions in respect of its
Capital Stock or pay any debt or other obligation owed to the Company or any
other Restricted Subsidiary;
(B) to make loans or advances to the Company or any other Restricted
Subsidiary; or
(C) to transfer any of its property or assets to the Company or any other
Restricted Subsidiary.
Such limitation will not apply
(1) with respect to clauses (A), (B) and (C), to encumbrances and
restrictions
(a) in existence under or by reason of any agreements (not
otherwise described in clause (c)) in effect on the Issue Date,
(b) relating to Indebtedness of a Restricted Subsidiary and
existing at such Restricted Subsidiary at the time it became a
Restricted Subsidiary if such encumbrance or restriction was not created
in connection with or in anticipation of the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became
a Restricted Subsidiary or was acquired by the Company,
(c) pursuant to the Credit Agreement, provided that such
restrictions or encumbrances are not more restrictive with respect to
dividend and other payment restrictions than those contained in the
Credit Agreement as in effect on the Issue Date,
(d) pursuant to the Indenture, the exchange notes and the Security
Documents,
(e) which result from the renewal, refinancing, extension or
amendment of an agreement referred to in clauses (1)(a), (b) and (f) and
in clauses (2)(a) and (b) provided, such encumbrances or restrictions,
when taken as a whole, are no more restrictive to such Restricted
Subsidiary and are not materially less favorable to the Holders than
those under or pursuant to the agreement evidencing the Indebtedness so
extended, renewed, refinanced or replaced, or
(f) relating to Refinancing Indebtedness incurred pursuant to the
definition of Permitted Indebtedness, and
(2) with respect to clause (C) only, to
(a) any encumbrance or restriction relating to Indebtedness that is
permitted to be Incurred and secured pursuant to the provisions under
"-- Limitation on Indebtedness" and "-- Limitation on Liens" that limits
the right of the debtor to dispose of the assets or property securing
such Indebtedness,
77
(b) any encumbrance or restriction in connection with an
acquisition of property, so long as such encumbrance or restriction
relates solely to the property so acquired and was not created in
connection with or in anticipation of such acquisition,
(c) customary non-assignment and non-transfer provisions in leases,
contracts or licenses entered into in the ordinary course of business,
(d) customary restrictions contained in asset sale agreements
limiting the transfer of such assets pending the closing of such sale,
(e) Liens permitted pursuant to the provisions of "-- Limitations
on Liens" below and restrictions in the agreements creating such Liens,
(f) any agreement or instrument governing Indebtedness of a Foreign
Subsidiary now or hereafter outstanding if it constitutes Permitted
Indebtedness, and
(g) any amendments to any of the foregoing that, when taken as a
whole, are not more restrictive than those contained in the agreement
being amended.
LIMITATION ON ASSET DISPOSITIONS
The Company will not, and will not permit any Restricted Subsidiary to,
make any Asset Disposition unless
(A) the Company or such Restricted Subsidiary receives consideration at the
time of such Asset Disposition at least equal to the Fair Market Value of the
shares and assets subject to such Asset Disposition;
(B) at least 75% of the consideration thereof received by the Company or
such Restricted Subsidiary is in the form of cash or cash equivalents; provided,
however, that any securities or notes received by the Company or such Restricted
Subsidiary in connection with such Asset Disposition that are converted by the
Company or such Restricted Subsidiary into cash or cash equivalents within 10
business days of the date of such Asset Disposition will be deemed to be cash
equivalents;
(C) if such Asset Disposition involves the transfer of Collateral, (a) such
Asset Disposition complies with the applicable provisions of the Security
Documents and (b) all consideration (other than cash) received in such Asset
Disposition (including Additional Assets) shall be expressly made subject to the
Lien under the Security Documents;
(D) the Company delivers an Officers' Certificate to the Trustee certifying
that such Asset Disposition complies with clauses (A) and (B); and
(E) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary)
(1) first, to the extent the Company elects (or is required by the
terms of the Credit Agreement), to prepay, repay or purchase Bank
Indebtedness or other First Lien Indebtedness of the Company or the
Guarantors, or, if the Asset Disposition is made by a Foreign Restricted
Subsidiary, Pari Passu Indebtedness of a Foreign Restricted Subsidiary,
within 270 days from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash; provided, however that in connection
with any prepayment, repayment or purchase of Indebtedness pursuant to this
clause (1), the Company or such Restricted Subsidiary will retire such
Indebtedness and will cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased;
(2) second, to the extent of the balance of Net Available Cash after
application in accordance with clause (1), to the extent the Company or
such Restricted Subsidiary elects, to reinvest in Additional Assets
(including by means of an Investment in Additional Assets by the Company or
a Restricted Subsidiary with Net Available Cash received by the Company or
another Restricted
78
Subsidiary) within 270 days from the later of such Asset Disposition or the
receipt of such Net Available Cash; and
(3) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (1) and (2) (which balance
should constitute "Excess Proceeds"), to make an Offer (as defined) to
purchase exchange notes pursuant to and subject to the conditions of the
following paragraph.
Pending application of Net Available Cash pursuant to this provision, such
Net Available Cash will be invested in Temporary Cash Investments or used to
reduce revolving credit borrowings of Bank Indebtedness.
The Indenture provides that, when the aggregate amount of Excess Proceeds
exceeds $15 million, the Company will apply the Excess Proceeds to the repayment
of the exchange notes pursuant to an offer to purchase (an "Offer") from all
Holders in accordance with the procedures set forth in the Indenture in the
principal amount (expressed as a multiple of $1,000) of exchange notes that may
be purchased out of an amount (the "Note Amount") equal to such Excess Proceeds.
The offer price for the exchange notes will be payable in cash in an amount
equal to 100% of the principal amount of the exchange notes plus accrued and
unpaid interest, if any, to the date (the "Offer Date") such Offer is
consummated (the "Offered Price"), in accordance with the procedures set forth
in the Indenture. To the extent that the aggregate Offered Price of the exchange
notes tendered pursuant to the Offer is less than the Note Amount relating
thereto, the Company may use any remaining Excess Proceeds for general corporate
purposes. If the aggregate principal amount of exchange notes surrendered by
holders thereof exceeds the amount of Excess Proceeds, the Trustee will select
the exchange notes to be purchased on a pro rata basis. Upon the completion of
the purchase of all the exchange notes tendered pursuant to an Offer, the amount
of Excess Proceeds, if any, will be reset at zero.
Within 10 days after the Company becomes obligated to make an Offer, the
Company will deliver to the Trustee and mail to each Holder a written notice of
its Offer to purchase exchange notes in whole or in part (subject to proration
as hereinafter described in the event the Offer is oversubscribed) in integral
multiples of $1,000 of principal amount, at the applicable purchase price. The
notice will specify a purchase date not less than 30 days nor more than 60 days
after the date of such notice (the "Purchase Date") and all instructions and
materials necessary to tender such exchange notes pursuant to the Offer,
together with the information contained in the next following paragraph.
Not later than the date upon which written notice of an Offer is delivered
to the Trustee as provided below, the Company will deliver to the Trustee an
Officers' Certificate as to
- the Offered Price,
- the allocation of the Net Available Cash from the Asset Dispositions
pursuant to which such Offer is being made and
- the compliance of such allocation with the provisions of the Indenture.
On such date, the Company will also irrevocably deposit with the Trustee or
with a paying agent (or, if the Company is acting as its own paying agent,
segregate and hold in trust) in Temporary Cash Investments an amount equal to
the Offered Price to be held for payment in accordance with the provisions of
the Indenture.
If the terms of any outstanding Pari Passu Indebtedness of the Company
require the Company to make a similar offer to purchase to all holders of such
Pari Passu Indebtedness with the proceeds from any Asset Disposition, the Excess
Proceeds available to fund an Offer to the Holders of exchange notes will be
reduced on a pro rata basis to reflect the Company's offer to purchase
obligations under such Pari Passu Indebtedness.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of exchange
79
notes pursuant to the covenant described hereunder. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the covenant described hereunder, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under such covenant by virtue thereof.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, conduct any business or enter into any transaction or
series of related transactions with or for the benefit of any Affiliate, unless
(A) the terms of such transaction or series of related transactions are
- set forth in writing, and
- no less favorable to the Company or such Restricted Subsidiary than those
that could reasonably be obtained at such time in a comparable
arm's-length transaction with an unrelated third party;
(B) with respect to a transaction or series of related transactions
involving aggregate payments or value in excess of $3 million, the Board of
Directors of the Company (including a majority of the Disinterested Directors
thereof) approves such transaction or related series of transactions and, in its
good faith judgment, believes that such transaction or series of related
transactions complies with clause (A) of this paragraph, as evidenced by a
Certified Resolution delivered to the Trustee; and
(C) with respect to a transaction or series of related transactions
involving aggregate payments or value in excess of $15 million, the Company
will, prior to the consummation thereof, obtain a written opinion of a
nationally recognized accounting, appraisal or investment banking firm stating
that the transaction is fair to the Company or such Restricted Subsidiary from a
financial point of view and file the same with the Trustee.
The provisions described above will not prohibit
- any Restricted Payment permitted to be paid pursuant to "-- Limitation on
Restricted Payments" above,
- any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the
Board of Directors of the Company (including a majority of the
Disinterested Directors thereof),
- any transaction pursuant to any agreement in existence on the Issue Date
or any amendment or replacement thereof that, taken in its entirety, is
no less favorable to the Company than the agreement as in effect on the
Issue Date,
- loans or advances to employees in the ordinary course of business of the
Company, not to exceed $1 million per employee and $3 million in the
aggregate,
- the payment of indemnities provided for by the Company's charter, by-laws
and written agreements and reasonable fees to directors of the Company,
the Parent Guarantor and the Restricted Subsidiaries who are not
employees of the Company, the Parent Guarantor or the Restricted
Subsidiaries,
- any transaction between or among the Company and a Restricted Subsidiary
or between Restricted Subsidiaries,
- the making of payments to Citigroup Global Markets Inc. (formerly known
as Salomon Smith Barney Inc.) or its Affiliates for investment banking or
other financial services,
- fees, compensation, and indemnities under employment arrangements entered
into by the Company or its Restricted Subsidiaries in the ordinary course
of business, and
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- issuance of Capital Stock (other than Disqualified Stock) of the Company
and the granting of registration rights with respect thereto.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary of the Company) to be
an Unrestricted Subsidiary if
- the Subsidiary to be so designated does not own any Capital Stock or
Indebtedness of, or own or hold any Lien on any property of, the Company
or any other Restricted Subsidiary,
- the Subsidiary to be so designated is not obligated under any
Indebtedness or other obligation that, if in default, would result (with
the passage of time or the giving of notice or otherwise) in a default on
any Indebtedness of the Company or any Restricted Subsidiary and
- either (1) the Subsidiary to be so designated has total assets of $1,000
or less or (2) if such Subsidiary has assets greater than $1,000, such
designation would be permitted under "-- Covenants -- Limitation on
Restricted Payments" as a "Restricted Payment."
Unless so designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of the Company or of any Restricted Subsidiary will be classified as
a Restricted Subsidiary.
Notwithstanding the foregoing sentence, the Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary if,
immediately after giving pro forma effect to such designation,
- the Company could incur $1.00 of additional Indebtedness pursuant to
clause (1) of the definition of "Permitted Indebtedness" and
- no Default will have occurred and be continuing.
Any such designation by the Board of Directors will be evidenced to the
Trustee by promptly filing with the Trustee a copy of the Certified Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complies with the foregoing provisions.
LIMITATION ON LIENS
Each of the Company and the Parent Guarantor will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, Incur any Lien of any
kind, other than Permitted Liens, on or with respect to any property or assets
now owned or hereafter acquired or any interest therein or any income or profits
therefrom.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any Sale/ Leaseback Transaction; provided that the
Company or any Restricted Subsidiary may enter into a Sale/ Leaseback
Transaction if:
(a) the Company or such Restricted Subsidiary, as the case may be,
could have:
(i) incurred Indebtedness in an amount equal to the Attributable
Indebtedness relating to such Sale/Leaseback Transaction pursuant to the
covenant described under the caption "-- Limitation on Indebtedness,"
and
(ii) incurred a Lien to secure such Indebtedness pursuant to the
covenant described under the caption "-- Limitations on Liens"; and
(b) the gross cash proceeds of such Sale/Leaseback Transaction are at
least equal to the Fair Market Value (as conclusively evidenced by a
resolution of the Board of Directors) of the property that is the subject
of such Sale/Leaseback Transaction.
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FUTURE SUBSIDIARY GUARANTORS
The Company will cause each Domestic Restricted Subsidiary created or
acquired after the Issue Date that has at any time a Fair Market Value of more
than $500,000 to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary will Guarantee payment of the
exchange notes on the same terms and conditions as those set forth in the
Indenture; provided that the aggregate Fair Market Value of Domestic Restricted
Subsidiaries that are not Subsidiary Guarantors will not at any time exceed $1.5
million. Each Subsidiary Guarantee will be limited in amount to an amount not to
exceed the maximum amount that can be Guaranteed by the applicable Subsidiary
Guarantor without rendering such Subsidiary Guarantee voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. Notwithstanding the foregoing, if
any Foreign Restricted Subsidiary shall Guarantee any Indebtedness of the
Company, the Parent Guarantor or any Domestic Subsidiary while the exchange
notes are outstanding, then the Company will cause such Foreign Restricted
Subsidiary to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Foreign Restricted Subsidiary will guarantee payment of
the exchange notes on the same terms and conditions as those set forth in the
Indenture.
COMMISSION REPORTS
The Company will file with the Trustee and provide the Holders at the
Company's expense, within 15 days after filing them with the Commission, copies
of their annual, quarterly and other reports, documents and information that 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 Sections 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with the annual, quarterly and other reports, documents and
information specified in Sections 13 and 15(d) of the Exchange Act. The Company
also will comply with the other provisions of sec. 314(a) of the Trust Indenture
Act.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Company will not, and will not permit any Restricted Subsidiary to,
merge or consolidate with or into any other entity or sell, convey, assign,
transfer, lease or otherwise dispose of all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and the
Restricted Subsidiaries) unless
(1) the entity formed by or surviving any such consolidation or merger
(if other than the Company or such Restricted Subsidiary) or to which such
sale, transfer or conveyance is made (the "Surviving Entity") will be a
corporation organized and existing under the laws of the United States of
America or any state thereof and such corporation expressly assumes, by
supplemental indenture satisfactory to the Trustee, all obligations of the
Company or such Restricted Subsidiary, as the case may be, pursuant to the
Indenture;
(2) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis, no Default or Event of Default
(and no event that, after notice or lapse of time, or both, would become an
Event of Default) will have occurred and be continuing;
(3) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness Incurred or anticipated to be Incurred in connection with such
transaction or series of transactions), the Company or the Surviving
Entity, as the case may be, would be able to Incur at least $1.00 of
additional debt pursuant to clause (1) of the definition of Permitted
Indebtedness and
(4) the Company will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
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Notwithstanding the foregoing, no Subsidiary Guarantor will merge or
consolidate with or into any other entity or sell, convey, assign, transfer,
lease or otherwise dispose of all or substantially all of its assets (other than
to the Company or another Subsidiary Guarantor) unless the Company and its
remaining Restricted Subsidiaries are in compliance with the provisions of
subclauses (2), (3) and (4) above.
The Surviving Entity will succeed to, and be substituted for, and may
exercise every right and power of, the Company or such Restricted Subsidiary, as
the case may be, under the Indenture, but in the case of a lease, the Company or
such Restricted Subsidiary, as the case may be, will not be released from the
obligation to pay the principal of and interest on the exchange notes.
Notwithstanding the foregoing clauses (2), (3) and (4), any Domestic
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company or any other Domestic Restricted
Subsidiary, and any Foreign Restricted Subsidiary may consolidate with, merge
into or transfer all or part of its properties or assets to (A) any other
Foreign Restricted Subsidiary or (B) the Company or any Domestic Restricted
Subsidiary, provided that the surviving company or the transferee entity, as
applicable, in such consolidation, merger or transfer is the Company or such
Domestic Restricted Subsidiary.
EVENTS OF DEFAULT
An "Event of Default" occurs if:
(1) the Company and the Guarantors default in any payment of interest
on any exchange note when the same becomes due and payable, and such
default continues for a period of 30 days;
(2) the Company and the Guarantors
(A) default in the payment of the principal of any exchange note
when the same becomes due and payable at its Stated Maturity, upon
redemption, upon declaration or otherwise, or
(B) fail to redeem or purchase exchange notes when required
pursuant to the Indenture or the exchange notes;
(3) the Company or any Restricted Subsidiary fails to comply with the
provisions of "-- Merger, Consolidation and Sale of Assets" above;
(4) the Company, the Parent Guarantor or any Restricted Subsidiary, as
the case may be, fails to comply with "-- Change of Control" above, or the
covenants described under "-- Limitation on Indebtedness," "-- Limitation
on Sale/Leaseback Transactions," "-- Limitation on Restricted Payments,"
"-- Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries," "-- Limitation on Asset Dispositions,"
"-- Limitation on Transactions with Affiliates," "-- Limitation on Liens"
or "-- Future Subsidiary Guarantors" in "-- Covenants" (other than a
failure to purchase exchange notes when required under "-- Change of
Control" or "-- Covenants -- Limitation on Asset Dispositions") above and
such failure continues for 30 days after the notice specified under
"-- Acceleration" below;
(5) the Company, the Parent Guarantor or any Restricted Subsidiary
fails to comply with any of its agreements in the exchange notes, or the
Indenture (other than those referred to in (1), (2), (3) or (4) above) and
such failure continues for 60 days after the notice specified under
"-- Acceleration" below;
(6) the principal, any premium or accrued and unpaid interest of
Indebtedness of the Company, the Parent Guarantor or any Restricted
Subsidiary is not paid within any applicable grace period after final
maturity or is accelerated by the holders thereof because of a default, the
total amount of such Indebtedness unpaid or accelerated exceeds $10 million
at the time and such default continues for 10 days;
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(7) the Company, any Guarantor or any Foreign Significant Subsidiary
pursuant to or within the meaning of any bankruptcy law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors; or
takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree under
any bankruptcy law that:
(A) is for relief against the Company, any Guarantor or any Foreign
Significant Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company, any Guarantor or any
Foreign Significant Subsidiary or for any substantial part of the
Company's, any Guarantor's or any Foreign Significant Subsidiary's
property; or
(C) orders the winding up or liquidation of the Company or any
Guarantor or any Foreign Significant Subsidiary; or any similar relief
is granted under any foreign laws and the order or decree remains
unstayed and in effect for 60 days;
(9) any judgment or decree for the payment of money in excess of $10
million at the time is entered against the Company, the Parent Guarantor or
any Restricted Subsidiary and is not discharged and either
(A) an enforcement proceeding has been commenced by any creditor
upon such judgment or decree or
(B) there is a period of 60 days following the entry of such
judgment or decree during which such judgment or decree is not
discharged, waived or the execution thereof stayed and, in the case of
(A) or (B), such default continues for 10 days;
(10) the Parent Guarantee or any Subsidiary Guarantee is held to be
unenforceable or invalid or ceases to be in full force and effect; or
(11) any Second Priority Security Document or the Intercreditor
Agreement is held to be unenforceable or invalid for any reason, the
security interests purported to be created by the Second Priority Security
Documents are held to be unenforceable, invalid or impaired with respect to
a material portion of the Collateral, the Company or any Guarantor defaults
in the performance of the terms of any of the Second Priority Security
Documents or the Intercreditor Agreement in a manner which adversely
affects the enforceability or validity of the security interest on a
material portion of the Collateral or in a manner which adversely affects
the condition or value of a material portion of the Collateral, or the
Company or any Guarantor repudiates or disaffirms any of its obligations
under any of the Second Priority Security Documents or the Intercreditor
Agreement.
ACCELERATION
If an Event of Default (other than an Event of Default specified in clauses
(7) or (8) in "Events of Default" above with respect to the Company or any
Guarantor) occurs and is continuing, the Trustee by notice to the Company, or
the Holders of at least 25% in aggregate principal amount of the exchange notes
by notice to the Company and the Trustee, may declare the principal of and
accrued interest on all the exchange notes to be due and payable. Upon such a
declaration, such principal and interest will be due and payable immediately. If
an Event of Default specified in clauses (7) or (8) above with respect to the
Company or any Guarantor occurs, the principal of and interest on all the
exchange notes will ipso facto become and be immediately due and payable without
any declaration or other act on the part of the
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Trustee or any Holders. The Holders of a majority in aggregate principal amount
of the exchange notes by notice to the Trustee may rescind an acceleration and
its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission will affect any subsequent Default or impair
any right consequent thereto.
Except as provided below under "-- Rights of Holders to Receive Payment," a
Holder may not pursue any remedy with respect to the Indenture or the exchange
notes unless:
- such Holder gives to the Trustee written notice stating that an Event of
Default is continuing;
- the Holders of at least 25% in aggregate principal amount of the exchange
notes make a written request to the Trustee to pursue the remedy;
- such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
- the Trustee does not comply with the request within 60 days after receipt
of the request and the offer of security or indemnity; and
- the Holders of a majority in aggregate principal amount of the exchange
notes do not give the Trustee a direction inconsistent with the request
during such 60-day period.
A Holder may not use the Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
RIGHTS OF HOLDERS TO RECEIVE PAYMENT
Notwithstanding any other provision of the Indenture, the right of any
Holder to receive payment of principal of and interest on the exchange notes
held by such Holder, on or after the respective due dates expressed in the
exchange notes, or to bring suit for the enforcement of any such payment on or
after such respective dates, will not be impaired or affected without the
consent of such Holder.
DISCHARGE OF INDENTURE AND DEFEASANCE
When
(1) the Company delivers to the Trustee all outstanding exchange notes
(other than exchange notes replaced because of mutilation, loss,
destruction or wrongful taking) for cancellation or
(2) all outstanding exchange notes have become due and payable,
whether at maturity or as a result of the mailing of a notice of redemption
as described above, and the Company irrevocably deposits with the Trustee
funds sufficient to pay at maturity or upon redemption all outstanding
exchange notes, including interest thereon, and
if in either case the Company pays all other sums payable thereunder by the
Company, then the Indenture will, subject to certain surviving provisions, cease
to be of further effect. The Trustee will acknowledge satisfaction and discharge
of the Indenture on demand of the Company accompanied by an Officers'
Certificate and an Opinion of Counsel and at the cost and expense of the
Company.
Subject to conditions to defeasance described below and the survival of
certain provisions, the Company at any time may terminate
(1) all its obligations under the exchange notes and the Indenture
("legal defeasance option")
or
(2) its obligations under certain restrictive covenants and the
related Events of Default ("covenant defeasance option").
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The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
exchange notes may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the exchange notes
may not be accelerated because of an Event of Default specified in clause (2) of
the immediately preceding paragraph.
The Company may exercise its legal defeasance option or its covenant
defeasance option only if:
(A) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal and interest on
the exchange notes to maturity or redemption, as the case may be;
(B) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent certified public accountants
expressing their opinion that the payments of principal and interest when
due and without reinvestment on the deposited U.S. Government Obligations
plus any deposited money without investment will provide cash at such times
and in such amounts as will be sufficient to pay principal and interest
when due on all the exchange notes to maturity or redemption, as the case
may be;
(C) 91 days pass after the deposit is made and during the 91-day
period no Default described in clauses (7) or (8) under "-- Events of
Default" occurs with respect to the Company which is continuing at the end
of the period;
(D) no Default or Event of Default has occurred and is continuing on
the date of such deposit and after giving effect thereto;
(E) such deposit does not constitute a default under any other
agreement or instrument binding on the Company;
(F) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(G) in the case of the legal defeasance option, the Company delivers
to the Trustee an Opinion of Counsel stating that
- the Company has received from the Internal Revenue Service a ruling, or
- since the date of the Indenture there has been a change in the applicable
Federal income tax law,
to the effect, in either case, that, and based thereon such Opinion of Counsel
will confirm that, the Holders of the exchange notes will not recognize income,
gain or loss for Federal income tax purposes as a result of such defeasance and
will be subject to Federal income tax on the same amounts, in the same manner
and at the same time as would have been the case if such legal defeasance had
not occurred;
(H) in the case of the covenant defeasance option, the Company
delivers to the Trustee an Opinion of Counsel to the effect that the
Holders of the exchange notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such covenant defeasance and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred; and
(I) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the exchange notes have been complied with as
required by the Indenture.
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TRANSFER AND EXCHANGE
Holders may transfer or exchange the exchange notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents, and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Registrar is not required to transfer or exchange any Note selected for
redemption, or any Note for a period of 15 days before a selection of exchange
notes to be redeemed, or any Note for a period of 15 days before an interest
payment date. The registered Holder of a Note may be treated as the owner of it
for all purposes.
AMENDMENT AND SUPPLEMENT
Subject to certain exceptions, the Indenture, the exchange notes, the
Guarantees, the Intercreditor Agreement or any Second Priority Security Document
may be amended or supplemented by the Company or the Guarantors and the Trustee
with the consent of the Holders of at least a majority in aggregate principal
amount of such then outstanding exchange notes (it being understood that the
provisions of the Intercreditor Agreement and the Second Priority Security
Documents that may by their terms be amended or waived without the consent of
the Holders do not require the consent of the Holders contemplated hereby).
Without notice to or the consent of any Holder, the Company, the Guarantors
and the Trustee may amend the Indenture, the exchange notes, the Intercreditor
Agreement or any Second Priority Security Document, among other things,
- to cure any ambiguity, defect or inconsistency;
- to provide for the assumption of the Company's or a Guarantor's
obligations to Holders under the Indenture, the Intercreditor Agreement
or any Second Priority Security Document by a Surviving Entity;
- to provide for uncertificated exchange notes in addition to or in place
of certificated exchange notes;
- to secure the exchange notes under the Indenture, to add Subsidiary
Guarantees with respect to the exchange notes, or to confirm and evidence
the release, termination or discharge of any such security or Subsidiary
Guarantee when such release, termination or discharge is permitted by the
Indenture;
- to make any change that does not adversely affect the rights of any
Holder;
- to comply with any requirement of the Commission in connection with
qualification of the Indenture under the Trust Indenture Act or
otherwise; or
- to add or release Collateral as permitted under the terms of the
Indenture, the Intercreditor Agreement or the Second Priority Security
Documents.
Without the consent of each Holder affected, the Company may not
- reduce the principal amount of exchange notes the Holders of which must
consent to an amendment of the Indenture;
- reduce the rate or extend the time for payment of interest on any
exchange note;
- reduce the principal of or extend the fixed maturity of any exchange
note;
- reduce the premium payable upon the redemption of any exchange note or
change the time at which any exchange note may or will be redeemed;
- reduce the premium payable upon the repurchase of any exchange note upon
a Change of Control;
- make any exchange note payable in money other than that stated in the
exchange note;
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- make any change in the provisions concerning waiver of Defaults or Events
of Default by Holders of the exchange notes or rights of Holders to
receive payment of principal or interest;
- modify or change any provision of the Indenture affecting the ranking of
the exchange notes or the Subsidiary Guarantees in a manner adverse to
the Holders of the exchange notes;
- release the Company or the Guarantors from their respective obligations
under the exchange notes, or the Guarantees (except pursuant to the
provisions described above in "-- Merger, Consolidation and Sale of
Assets"); or
- make any change in the exchange notes not otherwise permitted by the
Indenture that would adversely affect the rights of any Holder.
NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS, DIRECTORS
No director, officer, employee or stockholder, as such, of the Company, the
Guarantors or the Trustee (as the case may be) will have any personal liability
in respect of the obligations of the Company, the Guarantors or the Trustee (as
the case may be) under the exchange notes, the Indenture, the Guarantees, the
Intercreditor Agreement or the Second Priority Security Documents by reason of
his or its status as such.
THE TRUSTEE
Wells Fargo Bank Minnesota, National Association, is the Trustee under the
Indenture. 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 of the rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
Person would exercise under the circumstances in the conduct of such Person's
own affairs.
DEFINITIONS
In addition to terms defined elsewhere in this prospectus, set forth below
is a summary of specific defined terms used in the Indenture. Reference is made
to the Indenture and the Trust Indenture Act for the full definition of all such
terms, as well as any other terms used herein for which no definition is
provided.
"Additional Assets" means
(1) any property or assets (other than Indebtedness and Capital Stock)
that are used or intended to be used in a Related Business;
(2) Capital Stock of a Person that becomes a Restricted Subsidiary as
a result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that
at such time is a Restricted Subsidiary;
provided, however, that, in the case of clauses (2) and (3), such Restricted
Subsidiary is primarily engaged in a Related Business.
"Adjusted EBITDA" means, for any period, an amount equal to:
(a) the net income (after taxes) for such period of each party to the
Credit Agreement and its Subsidiaries (the "Credit Parties") on a
consolidated basis, as determined in accordance with generally accepted
accounting principles ("Credit Agreement Net Income"), (excluding the
effect of any extraordinary or other non-recurring gains (including any
gain from the sale of property not in the ordinary course of business)),
except as permitted below, plus
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(b) an amount which in the determination of Credit Agreement Net
Income for such period has been deducted for
(i) interest expense for such period (whether cash or non-cash),
(ii) total Federal, state, foreign or other income or franchise
taxes for such period,
(iii) any cash or non-cash charges (excluding any non-cash
restructuring charges that are used to write down the value of accounts
receivable or inventory) incurred in connection with plant closings or
consolidations ("Restructuring Charges"),
(iv) all depreciation and amortization charges, all extraordinary
non-cash losses from the sale of property (except to the extent included
in Restructuring Charges) and all non-cash charges related to the
write-off of goodwill, and
(v) non-cash charges related to the write-off of inventory during
the fourth fiscal quarter of 2001 in an amount not to exceed $3,200,000,
minus
(c) any cash losses associated with the Restructuring Charges that
were actually paid in cash during such period, all as determined in
accordance with GAAP, in excess of $25,000,000, in the aggregate, incurred
pursuant to programs initiated after December 18, 2001, minus
(d) reserve reversals taken in connection with Restructuring Charges
for prior periods to the extent such Restructuring Charges were previously
added back to Credit Agreement Net Income in the calculation of Adjusted
EBITDA, plus
(e) all costs associated with (i) the financial advisor retained under
the Second Amendment to Credit Agreement, dated December 18, 2001 and (ii)
the advisor retained by the Credit Parties in December 2001 to review their
European operations.
"Affiliate" of any specified Person means
(1) any other Person, directly or indirectly, controlling or
controlled by or under direct or indirect common control with such
specified Person or
(2) any other Person who is a director or officer of such specified
Person, of any Subsidiary of such specified Person or of any Person
described in clause (1) above.
For the purposes of this definition, "control" when used with respect to
any Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. For purposes of the section
"-- Covenants -- Limitation on Transactions with Affiliates" only, "Affiliate"
also means any beneficial owner of shares representing 10% or more of the total
voting power of the Voting Stock (on a fully diluted basis) of the Company or of
rights or warrants to purchase such Voting Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence of the preceding paragraph.
"Asset Disposition" means any direct or indirect sale including a lease,
transfer, conveyance or other disposition (or series of related sales, leases,
transfers, conveyances or dispositions) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company, the Parent Guarantor or any of the Restricted
Subsidiaries other than
- a disposition by a Restricted Subsidiary to the Company or by the Company
or a Restricted Subsidiary to a Wholly Owned Subsidiary,
- a disposition of property or assets at Fair Market Value in the ordinary
course of business of the Company or any of the Restricted Subsidiaries,
as applicable,
- a disposition with a Fair Market Value and a sale price of less than $5
million,
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- operating leases entered in the ordinary course of business or a
Sale/Leaseback Transaction,
- for purposes of the provisions of "-- Covenants -- Limitation on Asset
Dispositions" only, a disposition subject to the limitations set forth
under "-- Covenants -- Limitation on Restricted Payments" and
- when used with respect to the Company or any Guarantor, any Asset
Disposition pursuant to "-- Merger, Consolidation and Sale of Assets"
which constitutes a disposition of all or substantially all of the
Company's or such Guarantor's property.
"Attributable Indebtedness" means Indebtedness deemed to be Incurred in
respect of a Sale/ Leaseback Transaction and will be, at the date of
determination, the present value (discounted at the actual rate of interest
implicit in such transaction, compounded annually) of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale/Leaseback Transaction (including any period for which such lease
has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing
- the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of such Indebtedness or redemption or similar payment with respect to
such Preferred Stock and the amount of such payment by
- the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement from time to time, whether outstanding on the Issue Date
or thereafter incurred, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company or any Guarantor
whether or not a claim for post-filing interest is allowed in such proceedings),
fees, charges, expenses, reimbursement obligations, guarantees and all other
amounts payable thereunder or in respect thereof.
"Board of Directors" means, as applicable, the Board of Directors of the
Company or the Parent Guarantor, or any committee thereof duly authorized to act
on behalf of such Board.
"Capital Expenditure Indebtedness" means Indebtedness issued to finance the
purchase or construction of any assets acquired or constructed after the Issue
Date
- to the extent the purchase or construction prices for such assets are or
should be included in "addition to property, plant or equipment" in
accordance with GAAP,
- if the acquisition or construction of such assets is not part of any
acquisition of a person or business unit, and
- if such Indebtedness is Incurred within 360 days of the acquisition or
completion of construction of such assets.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP; and the amount of Indebtedness represented by
such obligation will be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof will be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible or exchangeable into such
equity.
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"Certified Resolution" means a duly adopted resolution of the Board of
Directors in full force and effect at the time of determination and certified as
such by the Secretary or an Assistant Secretary of the Company or the Parent
Guarantor, as applicable.
"Change of Control" means the occurrence of any of the following events:
(A) before the first Public Equity Offering that results in a Public
Market,
(1) the Permitted Holders cease to be the "beneficial owners" (as
defined in Rule 13d-3 under the Exchange Act, except that a Person will
be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of at least 40% of the total voting power of the Voting Stock of the
Company or the Parent Guarantor, whether as a result of the issuance of
securities of the Company or the Parent Guarantor, any merger,
consolidation, liquidation or dissolution of the Company or the Parent
Guarantor, any direct or indirect transfer of securities by the
Permitted Holders or otherwise, or
(2) any "person" or "group" (as such terms are used in Section
13(d) or Section 14(d) of the Exchange Act or any successor provisions
to either of the foregoing, including any group acting for the purpose
of acquiring, voting or disposing of securities within the meaning of
Rule 13d-5(b)(1) under the Exchange Act) becomes the "beneficial owner"
(as defined above), directly or indirectly, of more Voting Stock of the
Company or the Parent Guarantor than is "beneficially owned" by the
Permitted Holders (for purposes of this clause (A) the Permitted Holders
will be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation so long as the Permitted
Holders beneficially own, directly or indirectly, in the aggregate a
majority of the total voting power of the Voting Stock of such parent
corporation);
(B) on or after the first Public Equity Offering that results in a
Public Market, if any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d)of the Exchange Act or any successor provisions to
either of the foregoing), including any group acting for the purpose of
acquiring, holding, voting or disposing of securities within the meaning of
Rule 13d-5(b)(1) under the Exchange Act, other than one or more Permitted
Holders or an underwriter engaged in a firm commitment underwriting in
connection with a public offering of the Voting Stock of the Company or the
Parent Guarantor, is or becomes the "beneficial owner" (as such term is
used in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
will be deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 50% of the total voting power of the Voting Stock of the Company
or the Parent Guarantor;
(C) the Company or the Parent Guarantor consolidates or merges with or
into any other Person, other than a consolidation or merger
(1) with a Wholly Owned Subsidiary or a Permitted Holder or
(2) pursuant to a transaction in which the outstanding Voting Stock
of the Company or the Parent Guarantor is changed into or exchanged for
cash, securities or other property with the effect that the outstanding
Voting Stock of the Company or the Parent Guarantor is changed into or
exchanged for other Voting Stock of the Company, the Parent Guarantor or
the surviving corporation, or the beneficial owners of the outstanding
Voting Stock of the Company or the Parent Guarantor immediately prior to
such transaction, beneficially own, directly or indirectly, more than
50% of the total voting power of the Voting Stock of the surviving
corporation immediately following such transaction,
(D) the Company, the Parent Guarantor or any of the Restricted
Subsidiaries, directly or indirectly, sells, assigns, conveys, transfers,
leases, or otherwise disposes of, in one transaction or a series of related
transactions, all or substantially all of the property or assets of the
Company, the Parent Guarantor and the Restricted Subsidiaries to any Person
or group of related Persons (as such
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term is used in Section 13(d) of the Exchange Act), other than the Company,
a Wholly Owned Subsidiary or a Permitted Holder or
(E) the stockholders of the Company or the Parent Guarantor will have
approved any plan of liquidation or dissolution of the Company or the
Parent Guarantor, as the case may be.
For purposes of the definition of Change of Control, the collective parties
to the Stockholder Agreement, as such may be amended from time to time, shall
not constitute a group solely as a result of being parties to the Stockholder
Agreement.
"Commission" means the Securities and Exchange Commission.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of
- the aggregate amount of EBITDA for the period of the most recent four
consecutive fiscal quarters ending at least 30 days prior to the date of
such determination to
- Consolidated Interest Expense for such four fiscal quarters;
provided, however, that
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness (other than revolving credit borrowings made in the ordinary
course of business for working capital purposes) since the beginning of
such period that remains outstanding or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, or both, Consolidated Interest Expense for such period will
be calculated after giving effect on a pro forma basis to such Indebtedness
as if such Indebtedness had been Incurred on the first day of such period
and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if
such discharge had occurred on the first day of such period,
(2) if since the beginning of such period the Company or any
Restricted Subsidiary will have made any Asset Disposition or if the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio is an Asset Disposition, the EBITDA for such period will be reduced
by an amount equal to the EBITDA (if positive) directly attributable to the
assets which are the subject of such Asset Disposition for such period, or
increased by an amount equal to the EBITDA (if negative), directly
attributable thereto for such period as if such Asset Disposition had
occurred on the first day of such period and Consolidated Interest Expense
for such period will be reduced by an amount equal to the Consolidated
Interest Expense directly attributable to any Indebtedness of the Company
or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period as
if such Asset Disposition had occurred on the first day of such period (or,
if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period as if such Asset Disposition had occurred
on the first day of such period directly attributable to the Indebtedness
of such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after
such sale),
(3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) will have made an Investment
in any Restricted Subsidiary (or any Person which becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing a calculation to
be made hereunder, which constitutes all or substantially all of an
operating unit of a business, EBITDA and Consolidated Interest Expense for
such period will be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period, and
(4) if since the beginning of such period any Person that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning
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of such period will have made any Asset Disposition or any Investment that
would have required an adjustment pursuant to clause (2) or (3) above if
made by the Company or a Restricted Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period will be calculated
after giving pro forma effect thereto as if such Asset Disposition or Investment
occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the pro forma calculations the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, will be
determined in good faith by a responsible financial or accounting officer of the
Company and as further contemplated by the definition of pro forma. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness will be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries determined in accordance
with GAAP, plus, to the extent not included in such interest expense,
(1) interest expense attributable to Capital Lease Obligations,
(2) amortization of debt discount and debt issuance cost,
(3) capitalized interest,
(4) non-cash interest expense,
(5) accrued interest,
(6) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(7) to the extent any Indebtedness of any Person is Guaranteed by the
Company or any Restricted Subsidiary, the aggregate amount of interest
related to such Guarantee actually paid or required by GAAP to be accrued
in the Company's financial statements,
(8) net costs associated with Interest Rate Agreements and Currency
Exchange Agreements (including, in each case, amortization of fees),
(9) the interest portion of any deferred obligation,
(10) Preferred Stock Dividends in respect of all Preferred Stock of
the Company and its Restricted Subsidiaries and Redeemable Stock of the
Company held by Persons other than the Company or a Wholly Owned
Subsidiary,
(11) fees payable in connection with financings to the extent not
being amortized as contemplated by (2) above, including commitment,
availability and similar fees, and
(12) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its Subsidiaries determined in accordance with GAAP; provided,
however, that there will not be included in such Consolidated Net Income
(1) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that subject to the limitations contained in
(4) below, the Company's equity in the net income of any such Person for
such period will be included in such Consolidated Net Income up to the
aggregate
93
amount of cash actually distributed by such Person during such period to
the Company or a Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a Restricted
Subsidiary, to the limitations contained in clause (3) below), and the
Company's equity in a net loss of any such Person (including an
Unrestricted Subsidiary) for such period will be included in determining
such Consolidated Net Income to the extent funded in cash by the Company,
(2) except as required by the pro forma requirements of the definition
of "Consolidated Coverage Ratio," any net income (loss) of any Person
acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition,
(3) any net income (loss) of any Restricted Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company (other than pursuant to
the Credit Agreement) except that subject to the limitations contained in
(4) below, the Company's equity in the net income of any such Restricted
Subsidiary for such period will be included in such Consolidated Net Income
up to the aggregate amount of cash that could have been distributed by such
Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in the case of a dividend to
another Restricted Subsidiary, to the limitation contained in this clause)
and the Company's equity in a net loss of any such Restricted Subsidiary
for such period will be included in determining such Consolidated Net
Income,
(4) any gain or loss realized upon the sale or other disposition of
any property, plant or equipment of the Company or its consolidated
Subsidiaries (including pursuant to any Sale/ Leaseback Transaction) which
is not sold or otherwise disposed of in the ordinary course of business and
any gain or loss realized upon the sale or other disposition of any Capital
Stock of any Person,
(5) any extraordinary gain or loss,
(6) the cumulative effect of a change in accounting principles, and
(7) non-cash compensation charges incurred as a result of the issuance
of employee stock options or restricted stock for less than fair market
value.
"Credit Agreement" means that certain Credit Agreement, dated as of October
4, 2000, as amended, among the Company and the Guarantors and the syndicate of
lenders named therein, together with any Guarantees, collateral documents or
other instruments or agreements executed in connection therewith, as the same
may be amended, supplemented or otherwise modified from time to time and any
renewal, extensions, revisions, restructuring, refinancings or replacements
thereof (whether with the original agent or agents or lenders or other agents or
lenders and whether pursuant to the original credit agreement or another credit
or other agreement or indenture).
"Currency Exchange Agreement" means, in respect of any Person, any foreign
currency swap agreement or other agreement pursuant to which the Company, the
Parent Guarantor or any of the Company's Subsidiaries hedge their exposure to
foreign currency exchange rates in connection with their business operations.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means a director of the Company other than a
director (1) who is an employee of the Company or a Subsidiary of the Company,
or (2) who is a party, or who is a director, officer, employee or Affiliate (or
is related by blood or marriage to any such Person) of a party, to the
transaction in question, and who is, in fact, independent in respect of such
transaction.
"Disqualified Stock" of a Person means Redeemable Stock of such Person as
to which the maturity, mandatory redemption, conversion or exchange or
redemption at the option of the holder thereof occurs, or may occur, on or prior
to the first anniversary of the Stated Maturity of the exchange notes.
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"Domestic Restricted Subsidiary" means any Restricted Subsidiary of the
Company other than a Foreign Restricted Subsidiary.
"Domestic Subsidiary" means any subsidiary of the Company other than a
Foreign Subsidiary.
"EBITDA" means, for any period, the sum for such period, of Consolidated
Net Income plus, to the extent reflected in the income statement of such Person
for such period from which Consolidated Net Income is determined, without
duplication,
- Consolidated Interest Expense,
- net provision for plant closing costs,
- income tax expense,
- depreciation expense,
- amortization expense,
- any charge related to any premium or penalty paid in connection with
redeeming or retiring any Indebtedness prior to its Stated Maturity, and
- any other non-cash charges to the extent deducted from or reflected in
Consolidated Net Income except for any non-cash charges that represent
accruals of, or reserves for, cash disbursements to be made in any future
accounting period (less any non-cash items increasing Consolidated Net
Income for such period that were not accrued in the ordinary course of
business).
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arms' length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided,
- if such property or asset has a Fair Market Value of less than $3
million, by any Officer of the Company, or
- if such property or asset has a Fair Market Value in excess of $3
million, by a majority of the Board of Directors of the Company and
evidenced by a Certified Resolution dated within 30 days of the relevant
transaction.
"First Lien Indebtedness" means Indebtedness that is not by its terms
junior or subordinated in right of payment to the exchange notes and is secured
by a Lien that has priority over the Lien securing the exchange notes and is
permitted under "-- Covenants -- Limitation on Liens" as a "Permitted Lien."
"First Priority Security Documents" means, collectively, the security
agreements, pledge agreements, mortgages, deeds of trust, pledges, collateral
assignments and other agreements or instruments, as amended, supplemented,
replaced or otherwise modified from time to time, that evidence or create a
security interest in any or all of the Collateral to secure Bank Indebtedness
under the Credit Agreement and interest rate and foreign hedging obligations
provided by lenders under the Credit Agreement.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of the
Company that is not organized under the laws of the United States of America or
any state thereof or the District of Columbia.
"Foreign Significant Subsidiary" means any Foreign Restricted Subsidiary of
the Company meeting the standards specified in Rule 1-02(w) of Regulation S-X
promulgated by the Commission as in effect on the Issue Date.
"Foreign Subsidiary" means any Subsidiary of the Company that is not
organized under the laws of the United States of America or any state thereof or
the District of Columbia.
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"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in
- the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants,
- statements and pronouncements of the Financial Accounting Standards
Board, and
- such other statements by such other entity as approved by a significant
segment of the accounting profession.
All ratios and computations based on GAAP contained in the Indenture will
be computed in conformity with GAAP consistently applied.
"Guarantors" means the Parent Guarantor and the Subsidiary Guarantors,
collectively.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person
- to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise)
or
- entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in
part);
provided, however, that the term "Guarantee" will not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holder" means the Person in whose name an exchange note is registered on
the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) will be deemed to be incurred by such
Subsidiary at the time it becomes a Subsidiary. The terms "Incurred,"
"Incurrence" and "Incurring" will each have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal of and premium (if any) in respect of indebtedness
of such Person for borrowed money;
(2) the principal of and premium (if any) in respect of obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments;
(3) all Capitalized Lease Obligations and Attributable Indebtedness of
such Person;
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables), which
purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion
of such services;
(5) all obligations of such Person in respect of letters of credit,
banker's acceptances or other similar instruments or credit transactions
(including reimbursement obligations with respect thereto), other than
obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (1) through (4) above) entered into
in the ordinary course of business of such Person to the extent such
letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the third business day following
receipt by such Person of a demand for reimbursement following payment on
the letter of credit;
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(6) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary that is not a Subsidiary Guarantor, any
Preferred Stock (but excluding, in each case, any accrued dividends);
(7) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of such Indebtedness will be the lesser
of (a) the fair market value of such asset at such date of determination
and (b) the amount of such Indebtedness of such other Persons;
(8) all Indebtedness of other Persons to the extent guaranteed by such
Person; and
(9) to the extent not otherwise included in this definition, net
obligations in respect of Interest Rate Agreements and Currency Exchange
Agreements.
The amount of Indebtedness of any Person at any date will be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Intercreditor Agreement" means the lien intercreditor agreement, dated as
of July 22, 2003, among the Trustee, Bank of America, N.A., in its capacity as
agent for the financial institutions party to the Credit Agreement, the Company,
the Parent Guarantor, and the Subsidiary Guarantors, as the same may be amended,
supplemented, restated, replaced or otherwise modified from time to time
(whether with the original agent or agents or lenders or other agents or lenders
under the Credit Agreement).
"Interest Rate Agreement" means, in respect of a Person, any interest rate
swap agreement, interest rate option agreement, interest rate cap agreement,
interest rate collar agreement, interest rate floor agreement or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable or trade receivables on the balance sheet of
such Person) or other extension of credit (including by way of Guarantee or
similar arrangement) 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 of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes of
the covenant described under "-- Covenants -- Designation of Restricted and
Unrestricted Subsidiaries" and the limitations set forth in
"-- Covenants -- Limitation on Restricted Payments,"
- "Investment" will include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the Fair Market Value of the net
assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company
will be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary in an amount (if positive) equal to the Company's
"Investment" in such Subsidiary at the time of such redesignation less
the portion (proportionate to the Company's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of such Subsidiary
at the time that such Subsidiary is so redesignated a Restricted
Subsidiary; and
- any property transferred to or from an Unrestricted Subsidiary will be
valued at its Fair Market Value at the time of such transfer.
In determining the amount of any Investment in respect of any property or
assets other than cash, such property or asset will be valued at its Fair Market
Value at the time of such Investment (unless otherwise specified in this
definition), as determined in good faith by the Board of Directors, whose
determination will be evidenced by a Certified Resolution.
"Issue Date" means the date on which the notes were originally issued.
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"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof) or any Sale/Leaseback Transaction.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other noncash form) therefrom,
in each case net of
- all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as
a consequence of such Asset Disposition,
- all payments made on any Indebtedness that is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any
Lien upon such assets, or which must by its terms, or in order to obtain
a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of the proceeds from such Asset Disposition,
- all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition, and
- the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the assets disposed of in such Asset Disposition and retained by the
Company or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Officer" means the Chairman of the Board, President, Chief Executive
Officer, Chief Operating Officer, Senior Vice President, Chief Financial
Officer, Treasurer or Controller of the Company.
"Officers' Certificate" means a certificate signed by two Officers at least
one of whom will be the principal executive officer, principal accounting
officer or principal financial officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be outside counsel to the Company or
an employee of or outside counsel to the Trustee.
"Parent Guarantor" means U.S. Can Corporation, the Company's sole
stockholder and parent corporation.
"pari passu," as applied to the ranking of any Indebtedness of a Person in
relation to other Indebtedness of such Person, means that each such Indebtedness
either (1) is not subordinate in right of payment to any Indebtedness or (2) is
subordinate in right of payment to the same Indebtedness as is the other, and is
so subordinate to the same extent, and is not subordinate in right of payment to
each other or to any Indebtedness as to which the other is not so subordinate.
"Pari Passu Indebtedness" means any Indebtedness that is not subordinated
to the exchange notes, the Parent Guarantor's or such Subsidiary Guarantor's
Guarantee, as the case may be.
"Permitted Holder" means Berkshire Partners LLC (and its Affiliates) or any
Person of which the foregoing "beneficially owns" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act) voting securities representing at least 75% of the
total voting power of all classes of Capital Stock of such Person (exclusive of
any matters as to which class voting rights exist).
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"Permitted Indebtedness" is defined to include:
(1) Indebtedness Incurred by the Company or the Guarantors if, after
giving pro forma effect to the Incurrence and application of the proceeds
thereof, the Consolidated Coverage Ratio exceeds 2.0 to 1.0;
(2) Indebtedness Incurred by the Company or any of its Restricted
Subsidiaries pursuant to the Credit Agreement in an amount outstanding at
any time not to exceed $325 million, (reduced by any required permanent
repayments of the principal amount of Indebtedness under the Credit
Agreement with the proceeds of Asset Dispositions that are accompanied by a
corresponding permanent commitment reduction thereunder); provided that
Indebtedness Incurred pursuant to the Credit Agreement by the Company's
Foreign Restricted Subsidiaries at any one time outstanding shall not
exceed $75 million;
(3) Capital Expenditure Indebtedness incurred by the Company or any of
its Restricted Subsidiaries in an aggregate principal amount not to exceed
$15 million in any fiscal year of the Company;
(4) Indebtedness of the Company or any of its Restricted Subsidiaries
under Interest Rate Agreements and Currency Exchange Agreements, entered
into for the purpose of limiting interest rate or foreign exchange risk, as
the case may be, provided that the obligations under Interest Rate
Agreements are related to payment obligations on Permitted Indebtedness and
provided further that obligations under Currency Exchange Agreements are
entered into in connection with foreign business transactions in the
ordinary course of business;
(5) Indebtedness of the Company to any Restricted Subsidiary or of any
Restricted Subsidiary to the Company or any other Restricted Subsidiary for
so long as such Indebtedness is held by the Company or such Restricted
Subsidiary, in each case subject to no Lien held by a Person other than the
Company or a Restricted Subsidiary; provided that if as of any date any
Person other than the Company or a Restricted Subsidiary owns or holds any
such Indebtedness or holds a Lien in respect of such Indebtedness, such
date will be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness (under any clause other than clause (1) of the
definition thereof) by the issuer of such Indebtedness;
(6) Indebtedness evidenced by the notes and the Guarantees not to
exceed the $125 million initially outstanding on the Issue Date;
(7) Indebtedness outstanding immediately after the issuance of the
notes and the application of the proceeds thereof reduced by the amount of
any scheduled amortization payments or mandatory prepayments when actually
paid or permanent reductions thereon;
(8) Refinancing Indebtedness incurred with respect to Indebtedness
referred to in clauses (1), (3), (6), (7) and (13) of this paragraph;
(9) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims and letters of credit
and bankers acceptances for the purchase of inventory and other goods;
(10) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price, or other similar obligations (exclusive of any Guarantee of
Indebtedness of the purchaser in such transaction), in each case, incurred
or assumed in connection with the disposition of any business, assets or a
Restricted Subsidiary of the Company, provided that the maximum assumable
liability in respect of all such Indebtedness will at no time exceed the
gross proceeds actually received by the Company and its Restricted
Subsidiaries in connection with such disposition;
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(11) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any of its Restricted
Subsidiaries in the ordinary course of business;
(12) Indebtedness of Foreign Subsidiaries not borrowed under the
Credit Agreement in an amount outstanding at any time not to exceed $75
million, including any guarantees thereof by the Company, provided,
however, that the amount of Indebtedness of Foreign Subsidiaries
outstanding at any particular time under this clause (12) in excess of $30
million shall reduce on a dollar-for-dollar basis both the amount that may
be borrowed at that time under the Credit Agreement referred to in clause
(2) of this paragraph and under the sub-facility available to Foreign
Subsidiaries under said Credit Agreement;
(13) Indebtedness in an amount not to exceed $7 million that is
incurred or assumed by the Company or a Subsidiary in connection with its
acquisition of the majority interest in the Company's Formametal S.A. joint
venture in Argentina; and
(14) Indebtedness of the Company or a Guarantor not otherwise
permitted to be incurred pursuant to the covenant described under "--
Covenants -- Limitation on Indebtedness" in an aggregate principal amount
not to exceed at any one time outstanding $15 million.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in
- a Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary; provided, however,that the
primary business of such Restricted Subsidiary is a Related Business;
- another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related
Business;
- Temporary Cash Investments;
- receivables owing to the Company or any Restricted Subsidiary, if created
or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms
as the Company or any such Restricted Subsidiary deems reasonable under
the circumstances;
- payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business;
- loans or advances to employees made in the ordinary course of business of
the Company or such Restricted Subsidiary, as the case may be, not to
exceed $1 million per employee and $3 million in the aggregate;
- stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
- Investments in foreign joint ventures in an aggregate amount not to
exceed $5 million; and
- any securities received or other Investments made as a result of the
receipt of non-cash consideration received in connection with an Asset
Disposition that was made pursuant to and in compliance with the
provisions of the covenant described under the caption "-- Covenants --
Limitation on Asset Disposition" or in connection with any other
disposition of assets not constituting an Asset Disposition.
"Permitted Liens" means, with respect to any Person,
(1) pledges or deposits by such Person under workers' compensation
laws, unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for the
payment of Indebtedness) or leases to which such Person is a party, or
deposits to
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secure public or statutory obligations of such Person or deposits of cash
or United States government bonds to secure surety or appeal bonds to which
such Person is a party, or deposits and other Liens as security for taxes
or import duties or for the payment of rent, in each case Incurred in the
ordinary course of business;
(2) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens, in each case for sums not yet due or being contested in
good faith by appropriate proceedings, or other Liens arising out of
judgments or awards against such Person with respect to which such Person
will then be prosecuting an appeal or other proceedings for review;
(3) Liens for property taxes not yet delinquent or which are being
contested in good faith by appropriate proceedings;
(4) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business;
(5) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, licenses, rights-of-way, sewers,
electric lines, telegraph and telephone lines and other similar purposes,
or zoning or other restrictions as to the use of real property or Liens
incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect
the value of said properties or materially impair their use in the
operation of the business of such Person;
(6) Liens existing on the Issue Date;
(7) Liens on property or shares of stock of a Person at the time such
Person becomes a Subsidiary; provided, however, that any such Lien may not
extend to any other property owned by the Company, the Parent Guarantor or
any Restricted Subsidiary; provided further that such Liens are not
Incurred in anticipation of or in connection with the transaction or series
of related transactions pursuant to which such Person became a Restricted
Subsidiary;
(8) Liens on property at the time the Company, the Parent Guarantor or
a Subsidiary acquired the property, including any acquisition by means of a
merger or consolidation with or into the Company, the Parent Guarantor or
any Restricted Subsidiary; provided, however, that any such Lien may not
extend to any other property owned by the Company, the Parent Guarantor or
any Restricted Subsidiary; provided further that such Liens are not
Incurred in anticipation of or in connection with the acquisition of such
property;
(9) Liens securing Bank Indebtedness permitted to be incurred pursuant
to clause (2) of the definition of "Permitted Indebtedness" on any tangible
or intangible asset or property of the Company or any Restricted
Subsidiary, whether such asset or property is real, personal or mixed;
provided, that any such Lien on such asset or property shall also be
granted for the benefit of the Holders of the exchange notes and such Lien
shall be junior only to the Liens securing the Bank Indebtedness and other
Permitted Liens, and any intercreditor agreement or other agreement
pertaining to relative rights in such Collateral shall not be any less
favorable than the Intercreditor Agreement as in effect at such time or as
last in effect;
(10) Liens securing the notes and the Guarantees in an amount
initially not to exceed $125 million outstanding on the Issue Date;
(11) Liens securing Capital Expenditure Indebtedness permitted to be
incurred pursuant to clause (3) of the definition of "Permitted
Indebtedness" provided that if such Capital Expenditure Indebtedness is
incurred under the Credit Agreement, any such Lien on such asset or
property shall also be granted for the benefit of the Holders of the
exchange notes and such Lien shall be junior only to the Liens securing the
Bank Indebtedness and other Permitted Liens, and any intercreditor
agreement or other agreement pertaining to relative rights in such
Collateral shall not be any less favorable than the Intercreditor Agreement
as in effect at such time or as last in effect;
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(12) Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancings, refundings, extensions, renewals
or replacements) as a whole, or in part, of any Indebtedness secured by any
Lien referred to in the foregoing clauses (6), (7), (8), (11) and (23);
provided, however, that
- such new Lien will be limited to all or part of the same property that
secured the original Lien (plus improvements on such property) and
- the Indebtedness secured by such Lien at such time is not increased to
any amount greater than the sum of
- the outstanding principal amount or, if greater, committed amount of the
Indebtedness described under clauses (6), (7), (8) and (11) at the time
the original Lien became a Permitted Lien under the Indenture, and
- an amount necessary to pay any fees and expenses, including premiums,
related to such refinancing, refunding, extension, renewal or
replacement;
and provided further, that if any Lien permitted under clauses (11) or (23)
secures Bank Indebtedness, such Lien may secure the Bank Indebtedness as
refinanced, refunded, replaced, renewed, repaid or extended from time to
time without regard to the foregoing provisions of this clause (12);
(13) Liens in favor of the Company or the Guarantors;
(14) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances and letters of credit issued or created for the
account of such Person to facilitate the purchase, shipment or storage of
such inventory or other goods incurred in the ordinary course of business;
(15) 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 incurred in the ordinary course of business;
(16) Liens on assets of the Company or any Restricted Subsidiary
arising as a result of a Sale/ Leaseback Transaction with respect to such
assets; provided that the proceeds from such Sale/ Leaseback Transaction
are applied to the repayment of Indebtedness or acquisition of Additional
Assets, all pursuant to clauses (E)(1) and (2) of the covenant described
above under the caption "-- Covenants -- Limitation on Asset Dispositions;"
(17) Liens securing Indebtedness of Foreign Subsidiaries permitted to
be incurred pursuant to clause (12) of the definition of "Permitted
Indebtedness";
(18) Leases or subleases granted to others and entered into in the
ordinary course of business; and
(19) Liens to secure the performance of statutory obligations and
Liens imposed by law, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business;
(20) Liens securing any Interest Rate Agreement provided by lenders
under the Credit Facility;
(21) Liens granted by any Foreign Subsidiary to vendors of materials
and supplies to secure the purchase price of such materials and supplies;
(22) Liens securing Indebtedness permitted to be incurred pursuant to
the definition of "Permitted Indebtedness" on any tangible or intangible
asset or property of the Company or any Restricted Subsidiary, whether such
asset or property is real, personal or mixed, in an aggregate amount not to
exceed at any one time outstanding $30 million; provided, that any such
Lien on such asset or property shall also be granted for the benefit of the
Holders of the exchange notes and such
102
Lien shall be junior only to the Liens securing the Bank Indebtedness and
other Permitted Liens, and any intercreditor agreement or other agreement
pertaining to the relative rights in such Collateral shall not be any less
favorable than the Intercreditor Agreement as in effect at such time or as
last in effect; and
(23) Liens not otherwise permitted to be incurred pursuant to clauses
(1) through (22) above, in an aggregate amount not to exceed at the time of
incurrence 5% of the Company's Tangible Assets provided, that if such Lien
is incurred under the Credit Agreement, any such Lien on such asset or
property shall also be granted for the benefit of the Holders of the
exchange notes and such Lien shall be junior only to the Liens securing the
Bank Indebtedness and other Permitted Liens, and any intercreditor
agreement or other agreement pertaining to relative rights in such
Collateral shall not be any less favorable than the Intercreditor Agreement
that is in effect at such time or as last in effect.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Preferred Stock Dividends" means all dividends with respect to Preferred
Stock of Restricted Subsidiaries held by Persons other than the Company or a
Wholly Owned Subsidiary. The amount of any such dividend will be equal to the
quotient of such dividend divided by the difference between one and the maximum
statutory federal income tax rate (expressed as a decimal number between 1 and
0) then applicable to the issuer of such Preferred Stock.
"Principal" of an exchange note means the principal of the exchange note
plus the premium, if any, payable on the Note which is due or overdue or is to
become due at the relevant time.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms hereof, a calculation in accordance with Article 11
of Regulation S-X promulgated under the Securities Act (to the extent
applicable).
"Public Equity Offering" has the meaning set forth under
"-- Redemption -- Optional Redemption upon Public Equity Offerings."
"Public Market" means any time after (1) a Public Equity Offering has been
consummated and (2) at least 10.0% of the total issued and outstanding common
stock of the Company has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"Redeemable Stock" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event
- matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
- is convertible or exchangeable for Indebtedness or Disqualified Stock or
- is redeemable at the option of the holder thereof, in whole or in part.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" will have a
correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of the Company
that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of
any Restricted Subsidiary that refinances
103
Indebtedness of another Restricted Subsidiary) including Indebtedness that
refinances Refinancing Indebtedness; provided, however, that
- the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being refinanced,
- the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced,
- such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than the aggregate principal amount (or
if issued with original issue discount, the aggregate accreted value)
then outstanding of the Indebtedness being refinanced plus an amount
necessary to pay any fees and expenses, including premiums, related to
such refinancing, and
- if the Indebtedness of the Company or a Restricted Subsidiary being
refinanced is subordinated to other Indebtedness of the Company or a
Restricted Subsidiary in any respect, such Refinancing Indebtedness is
subordinated at least to the same extent;
provided further, however, that Refinancing Indebtedness will not include
- Indebtedness of a Subsidiary that refinances Indebtedness of the Company,
or
- Indebtedness of the Company or a Restricted Subsidiary that refinances
Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, or complementary (as
determined in good faith by the Board of Directors), to the business of the
Company and the Restricted Subsidiaries on the Issue Date.
"Representative" means the trustee, agent or representative (if any) for an
issue of Pari Passu Indebtedness.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" means
- U.S.C. Europe N.V.,
- U.S.C. Europe Netherlands B.V.,
- U.S.C. Holding U.K. Ltd.,
- U.K. Can Ltd.,
- U.S.C. Europe U.K. Ltd.,
- U.S.C. Europe Italia, S.r.l.,
- U.S.C. France Holding, S.A.S.,
- USC Aerosols France, S.A.S.,
- USC May Verpackungen Holding Inc.,
- U.S.C. Aerosoldosen Deutschland GmbH,
- U.S.C. Can Espana Holding SCpA,
- U.S.C. Europe Espana SA,
- May Verpackungen GmbH & Co. KG,
- Wilhelm Wessel Nachfl. GmbH & Co. KG,
- May Verpackungen Verwaltung GmbH,
104
- May Can Company GmbH,
- Wessel Emballagen GmbH,
- any other direct or indirect Subsidiary of the Company that is not
designated by the Board of Directors to be an Unrestricted Subsidiary,
and
- an Unrestricted Subsidiary that is redesignated as a Restricted
Subsidiary as permitted pursuant to the definition of "Unrestricted
Subsidiary."
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company, the Parent Guarantor or a
Restricted Subsidiary transfers such property to a Person and the Company, the
Parent Guarantor or a Restricted Subsidiary leases it from such Person.
"Second Priority Security Documents" means, collectively, the security
agreements, pledge agreements, mortgages, deeds of trust, pledges, collateral
assignments and other agreements or instruments, as amended, supplemented,
replaced or otherwise modified from time to time, among the Company, certain
other grantors and the Trustee, that evidence or create a security interest in
any or all of the Collateral in favor of the Trustee and any Holders of the
exchange notes.
"Secured Debt to Adjusted EBITDA Ratio" means, as of any date of
determination, the ratio of
- the aggregate amount of Secured Pari Passu Indebtedness as of such date
to
- the aggregate amount of Adjusted EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 30 days prior to the
date of such determination.
"Secured Pari Passu Indebtedness" means Pari Passu Indebtedness of the
Company, the Parent Guarantor or a Subsidiary Guarantor that is secured by a
Lien permitted under "-- Covenants -- Limitation on Liens" as a "Permitted
Lien."
"Security Documents" mean, collectively:
(1) the First Priority Security Documents;
(2) the Second Priority Security Documents; and
(3) the Intercreditor Agreement.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Stockholder Agreement" means that certain Stockholder Agreement by and
among the common equity stockholders of the Parent Guarantor, including the
Permitted Holders, certain management investors and the other Persons listed
therein, as in effect on the date of the Indenture.
"Subordinated Notes" means the 12 3/8% Senior Subordinated Notes Due
October 1, 2010 of the Company and the 10 1/8% Senior Subordinated Notes Due
2006 of the Parent Guarantor.
"Subordinated Obligation" means
- any Indebtedness of the Company (whether outstanding on the date of the
Indenture or thereafter Incurred) that is subordinate or junior in right
of payment to the exchange notes,
- any Indebtedness of the Guarantors (whether outstanding on the date of
the Indenture or thereafter Incurred) that is subordinate or junior in
right of payment to the Guarantees or
- any Disqualified Stock of the Company or the Guarantors.
105
"Subsidiary" or "subsidiary" of any specified Person means any corporation,
partnership, joint venture, association or other business entity, whether now
existing or hereafter organized or acquired,
- in the case of a corporation, of which at least 50% of the total voting
power of the Voting Stock is held by such first-named Person or any of
its Subsidiaries and such first-named Person or any of its Subsidiaries
has the power to direct the management, policies and affairs thereof; or
- in the case of a partnership, joint venture, association, or other
business entity, with respect to which such first-named Person or any of
its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise if in
accordance with GAAP such entity is consolidated with the first-named
Person for financial statement purposes.
"Subsidiary Guarantors" means (1) USC May Verpackungen Holding Inc. and (2)
each Domestic Restricted Subsidiary 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 that any Person constituting a
Subsidiary Guarantor as described above will cease to constitute a Subsidiary
Guarantor when its respective Subsidiary Guarantee is released in accordance
with the terms of the Indenture.
"Tangible Assets" means the aggregate amount of assets (less applicable
reserves and other properly deductible items) after deducting therefrom all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense (to the extent included in said aggregate amount of assets) and other
like intangibles, all as set forth in the most recent consolidated balance sheet
of the Company and computed in accordance with GAAP. Tangible Assets shall be
calculated after giving effect to the transaction giving rise to the need to
calculate Tangible Assets.
"Temporary Cash Investments" means any of the following:
(1) investments in U.S. Government Obligations maturing within one
year of the date of acquisition thereof,
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within one year of the date of acquisition
thereof, issued by a bank or trust company which is organized under the
laws of the United States of America or any state thereof having capital,
surplus and undivided profits aggregating in excess of $500 million and
whose long-term debt (or that of its parent) is rated "A-3" or A- or higher
according to Moody's Investors Service, Inc. or Standard and Poor's (or
such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the
Securities Act)),
(3) repurchase obligations with a term of not more than 7 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above,
(4) investments in commercial paper, maturing not more than six months
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and
Poor's, and
(5) mutual funds whose assets consist primarily of Investments of the
type described in clauses (1) through (4) above.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
guaranteed by such Person arising in the ordinary course of business of such
Person in connection with the acquisition of goods or services.
"Trustee" means the party named as such in the Indenture until a successor
replaces it in accordance with the provisions of the Indenture and, thereafter,
means such successor.
106
"Uniform Commercial Code" means the New York Uniform Commercial Code as in
effect from time to time.
"Unrestricted Subsidiary" means (1) any Subsidiary of the Company that at
the time of determination will be designated an Unrestricted Subsidiary by the
Board of Directors as permitted or required pursuant to the covenant described
under "-- Covenants -- Designation of Restricted and Unrestricted Subsidiaries"
and not thereafter redesignated as a Restricted Subsidiary as permitted pursuant
thereto and (2) any Subsidiary of an Unrestricted Subsidiary.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company, all
the Capital Stock of which (other than directors' qualifying shares) is owned by
the Company or another Wholly Owned Subsidiary.
BOOK-ENTRY DELIVERY AND FORM
THE GLOBAL NOTES
The certificates representing the exchange notes will be issued in fully
registered form. Except as described below, the exchange notes will be initially
represented by one or more global notes in fully registered form without
interest coupons. The global notes will be deposited with, or on behalf of and
registered in the name of Cede & Co., as nominee of DTC, or will remain in the
custody of the trustee pursuant to the FAST Balance Certificate Agreement
between and the trustee.
Ownership of beneficial interests in each global note will be limited to
persons who have accounts with DTC, which we refer to as participants, or
persons who hold interests through participants. We expect that under procedures
established by DTC, ownership of beneficial interests in each global note will
be shown on, and transfer of ownership of those interests will be effected only
through, records maintained by DTC, with respect to interests of participants,
and the records of participants, with respect to other owners of beneficial
interests in the global note.
DEPOSITARY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear and Clearstream are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them. We take no responsibility
for these operations and procedures and urge investors to contact the system or
their participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participants and to facilitate the clearance and
settlement of transactions in those securities between these participants
through electronic book-entry changes in accounts of its participants. The
participants include securities brokers and dealers (including the initial
purchaser), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to indirect
participants, which include other entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Persons who are not participants may
beneficially own securities held by or on behalf of DTC only through the
participants or the indirect participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the participants and indirect participants.
107
DTC has also advised us that, pursuant to procedures established by it:
(1) upon deposit of the global notes, DTC will credit the accounts of
participants with portions of the principal amount of the global notes; and
(2) ownership of these interests in the global notes will be shown on,
and the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the participants) or by the
participants and the indirect participants (with respect to other owners of
beneficial interest in the global notes).
Investors in the global notes who are participants in DTC's system may hold
their interests in the global notes directly through DTC. Investors in the
global notes who are not participants may hold their interests therein
indirectly through organizations (including Euroclear and Clearstream) that are
participants in such system. All interests in a global note, including those
held through Euroclear or Clearstream, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or Clearstream may
also be subject to the procedures and requirements of such systems. The laws of
some states require that certain Persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer
beneficial interests in a global note to such Persons will be limited to that
extent. Because DTC can act only on behalf of participants, which in turn act on
behalf of indirect participants, the ability of a Person having beneficial
interests in a global note to pledge such interests to persons that do not
participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing such
interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE
REGISTERED OWNERS OR "HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and interest and premium and
special interest, if any, on a global note registered in the name of DTC or its
nominee will be payable to DTC in its capacity as the registered holder under
the indenture. Under the terms of the indenture, we and the trustee will treat
the Persons in whose names the exchange notes, including the global notes, are
registered as the owners for the purpose of receiving payments and for all other
purposes. Consequently, none of us, the trustee or any agent of us or the
trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any participant's or indirect
participant's records relating to or payments made on account of beneficial
ownership interests in the global notes or for maintaining, supervising or
reviewing any of DTC's records or any participant's or indirect
participant's records relating to the beneficial ownership interests in the
global notes; or
(2) any other matter relating to the actions and practices of DTC or
any of its participants or indirect participants.
DTC has advised us that its current practice, upon receipt of any payment
in respect of securities such as the exchange notes (including principal and
interest), is to credit the accounts of the relevant participants with the
payment on the payment date in accordance with instructions provided to DTC.
Each relevant participant is credited with an amount proportionate to its
beneficial ownership of an interest in the principal amount of the relevant
security as shown on the records of DTC. Payments by the participants and the
indirect participants to the beneficial owners of exchange notes will be
governed by standing instructions and customary practices and will be the
responsibility of the participants or the indirect participants and will not be
the responsibility of DTC, the trustee or us. Neither we nor the trustee will be
liable for any delay by DTC or any of its participants in identifying the
beneficial owners of the exchange notes, and we and the trustee may conclusively
rely on and will be protected in relying on instructions from DTC or its nominee
for all purposes.
Subject to applicable transfer restrictions, transfers between participants
in DTC will be effected in accordance with DTC's procedures, and will be settled
in same-day funds, and transfers between
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participants in Euroclear and Clearstream will be effected in accordance with
their respective rules and operating procedures.
Subject to compliance with any transfer restrictions applicable to the
exchange notes, cross-market transfers between the participants in DTC, on the
one hand, and Euroclear and Clearstream participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of each of
Euroclear or Clearstream, as the case may be, by its respective depositary;
however, such cross-market transactions will require delivery of instructions to
Euroclear or Clearstream as the case may be, by the counterparty in such system
in accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the global note in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and Clearstream
participants may not deliver instructions directly to the depositaries for
Euroclear or Clearstream.
DTC has advised us that it will take any action permitted to be taken by a
holder of exchange notes only at the direction of one or more participants to
whose account DTC has credited the interests in the global notes and only in
respect of such portion of the aggregate principal amount of the exchange notes
as to which such participant or participants has or have given such direction.
However, if there is an Event of Default under the exchange notes, DTC reserves
the right to exchange the global notes for legended exchange notes in
certificated form, and to distribute such exchange notes to its participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the global notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform such procedures, and may discontinue such
procedures at any time. None of us or the trustee or any of their respective
agents will have any responsibility for the performance by DTC, Euroclear or
Clearstream or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A global note is exchangeable for definitive exchange notes in registered
certificated form, which we refer to as "certificated exchange notes," if:
(1) DTC notifies us that it (a) is unwilling or unable to continue as
depositary for the global notes or (b) has ceased to be a clearing agency
registered under the Exchange Act and, in either case, we fail to appoint a
successor depositary within 120 days after the date of such notice;
(2) we, at our option, notify the trustee in writing that we elect to
cause the issuance of the certificated exchange notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the exchange notes.
In addition, beneficial interests in a global note may be exchanged for
certificated exchange notes upon prior written notice given to the trustee by or
on behalf of DTC in accordance with the indenture. In all cases, certificated
exchange notes delivered in exchange for any global note or beneficial interests
in global notes will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures) and will bear the applicable restrictive legend
referred to herein, unless that legend is not required by applicable law.
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EXCHANGE OF CERTIFICATED EXCHANGE NOTES FOR GLOBAL NOTES
Certificated exchange notes may not be exchanged for beneficial interests
in any global note unless the transferor first delivers to the trustee a written
certificate, in the form provided in the indenture, to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such notes.
SAME DAY SETTLEMENT AND PAYMENT
We will make payments in respect of the exchange notes represented by the
global notes (including principal, premium if any, interest and liquidated
damages, if any) by wire transfer of immediately available funds to the accounts
specified by the global note holder. We will make all payments of principal,
interest and premium and liquidated damages, if any, with respect to
certificated exchange notes by wire transfer of immediately available funds to
the accounts specified by the holders of certificated exchange notes or, if no
such account is specified, by mailing a check to each such holder's registered
address. Any permitted secondary market trading activity in the exchange notes
will be required by DTC to be settled in immediately available funds. We expect
that secondary trading in any certificated exchange notes will also be settled
in immediately available funds.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We originally sold the notes on July 22, 2003 to Citigroup Global Markets
Inc., who we refer to as the initial purchaser, pursuant to a purchase agreement
dated July 15, 2003. The initial purchaser subsequently resold the notes to
qualified institutional buyers in reliance on Rule 144A under the Securities Act
and to a limited number of persons outside the United States under Regulation S.
As a condition to the purchase agreement, we entered into a registration rights
agreement with the initial purchaser in which we agreed to:
- file a registration statement registering the exchange notes with the
Commission within 120 days after the original issuance of the notes;
- use our best efforts to have the registration statement relating to the
exchange notes declared effective by the Commission within 150 days after
the original issuance of the notes; and
- cause the exchange offer to be completed on or before the date that is
180 days after the original issuance of the notes.
We have agreed to keep the exchange offer open for not less than 20
business days (or longer if required by applicable law) after the date on which
notice of the exchange offer is mailed to note holders.
This prospectus covers the offer and sale of the exchange notes pursuant to
the exchange offer and the resale of exchange notes received in the exchange
offer by any broker-dealer who held notes, other than notes purchased directly
from us or one of our affiliates.
For each note surrendered to us pursuant to the exchange offer, the holder
of the surrendered note will receive an exchange note having a principal amount
equal to that of the surrendered note. Interest on each exchange note will
accrue from the last date on which interest was paid on the surrendered note or,
if no interest has been paid, from the date of original issuance of the
surrendered note.
Although we have not requested, and do not intend to request, the
Commission to issue an interpretation with respect to resales of the exchange
notes, we believe that under existing Commission interpretations, the exchange
notes will be freely transferable by holders other than our affiliates after the
exchange offer without further registration under the Securities Act if the
holder of the exchange notes represents that it is acquiring the exchange notes
in the ordinary course of its business, that it has no arrangement or
understanding with any person to participate in the distribution of the exchange
notes and that it is not one of our affiliates (or if it is one of our
affiliates, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent practicable), as such terms are
interpreted by the Commission. If our belief is inaccurate, holders who transfer
exchange notes in violation of the prospectus delivery provisions of the
Securities Act and without an exemption from registration may incur liability
under the Securities Act. We do not assume or indemnify holders against such
liability.
Broker-dealers ("Participating Broker-Dealers") receiving exchange notes in
the exchange offer will have a prospectus delivery requirement with respect to
resales of such exchange notes. While the Commission has not taken a position
with respect to this particular transaction, under existing Commission
interpretations relating to transactions structured substantially like the
exchange offer, Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to exchange notes (other than a resale of an
unsold allotment from the original sale of the notes) with the prospectus
contained in the registration statement relating to the exchange offer. Under
the registration rights agreement, we are required to allow Participating
Broker-Dealers and other persons, if any, with similar prospectus delivery
requirements to use this prospectus in connection with the resale of such
exchange notes.
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A holder of notes (other than certain specified holders) tendering notes in
the exchange offer is required to represent that:
- any exchange notes to be received by it will be acquired in the ordinary
course of business;
- the holder has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities
Act) of the exchange notes; and
- it is not one of our "affiliates" as defined in Rule 405 of the
Securities Act or, if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent practicable.
If a holder is a 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, the holder will be required to acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
See "Plan of Distribution."
In the event that
- applicable interpretations of the staff of the Commission do not permit
us to effect the exchange offer;
- for any other reason, we do not consummate the exchange offer within 180
days after issuance of the notes;
- the initial purchaser so requests with respect to notes not eligible to
be exchanged for exchange notes in the exchange offer;
- any holder of notes (other than the initial purchaser) is not eligible to
participate in the exchange offer; or
- the initial purchaser does not receive freely tradable exchange notes in
exchange for notes constituting any portion of an unsold allotment
(unless current interpretations by the Commission's staff permit the
filing in lieu of a shelf registration statement of a post-effective
amendment to the registration statement relating to the exchange offer),
we will, at our cost,
- as promptly as practicable, file a shelf registration statement covering
resales of the notes or the exchange notes, as the case may be,
- use our best efforts to cause the shelf registration statement to be
declared effective under the Securities Act, and
- keep the shelf registration statement effective until two years after its
effective date (or until one year after the effective date if the
registration statement is filed at the request of the initial purchaser).
The initial purchaser or holder of a note is ineligible to participate in
the exchange offer if the initial purchaser or such holder cannot execute the
letter of transmittal because it is unable to make the required representations
therein. We will, in the event a shelf registration statement is filed, among
other things, provide to each holder for whom the shelf registration statement
was filed copies of the prospectus that is a part of the shelf registration
statement, notify each holder when the shelf registration statement has become
effective and take certain other actions as are required to permit unrestricted
resales of the notes or the exchange notes, as the case may be. A holder selling
notes or exchange notes pursuant to the shelf registration statement generally
would be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
those sales and will be bound by the provisions of the registration rights
agreement that are applicable to such holder (including certain indemnification
obligations).
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In the event that
- within 120 days after the issuance of the notes, neither the registration
statement relating to the exchange offer nor the shelf registration
statement has been filed with the Commission;
- within 150 days after the issuance of the notes, the registration
statement relating to the exchange offer has not been declared effective;
- within 180 days after the issuance of the notes, neither the exchange
offer has been consummated nor the shelf registration statement has been
declared effective; or
- after either the registration statement relating to the exchange offer or
the shelf registration statement has been declared effective, such
registration statement thereafter ceases to be effective or usable
(subject to certain exceptions) in connection with resales of notes or
exchange notes in accordance with and during the periods specified in the
registration rights agreement (each such event, a "Registration
Default"),
additional interest will accrue on the notes and the exchange notes (in addition
to the stated interest on the notes and the exchange notes) from and including
the date on which any such Registration Default has occurred to but excluding
the date on which all Registration Defaults have been cured. The additional
interest will accrue at a rate of 0.50% per annum during the 90-day period
immediately following the occurrence of any Registration Default and will
increase by 0.25% per annum at the end of each subsequent 90-day period, but in
no event will such rate exceed 1.00% per annum in the aggregate, regardless of
the number of Registration Defaults.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and the accompanying letter of transmittal, we will accept all notes validly
tendered prior to 12:00 midnight, New York City time, on , 2003, the
expiration date. We will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding notes accepted in the
exchange offer. Holders may tender some or all of their notes pursuant to the
offer in integral multiples of $1,000.
The form and terms of the exchange notes are identical in all material
respects to the form and terms of the notes except for the following:
- the exchange notes bear a Series B designation and different CUSIP number
from the notes;
- the exchange notes have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer; and
- the holders of the exchange notes will not be entitled to certain rights
under the registration rights agreement, including the provisions
providing for liquidated damages 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 notes and will be
entitled to the benefits of the indenture. As of the date of this prospectus,
$125.0 million aggregate principal amount of the notes is outstanding. Solely
for reasons of administration and no other reason, we have fixed the close of
business on , 2003 as the record date for the exchange offer for purposes
of determining the persons to whom this prospectus and the letter of transmittal
will be mailed initially. Only a registered holder of notes (or such holder's
legal representative or attorney-in-fact) as reflected on the records of the
trustee under the indenture may participate in the exchange offer. There will be
no fixed record date, however, for determining registered holders of the notes
entitled to participate in the exchange offer.
The holders of notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the indenture. We intend to conduct
the exchange offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission.
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We shall be deemed to have accepted validly tendered notes when, as and if
the holder of such note has given 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 us.
If any tendered notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth in this prospectus or
otherwise, the certificates for any such unaccepted notes will be returned,
without expense, to the tendering holder as promptly as practicable after the
expiration date.
Those holders who tender 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 notes. We
will pay all charges and expenses, other than certain applicable taxes, in
connection with the exchange offer. See "-- Fees and Expenses."
EXPIRATION DATES; EXTENSIONS; AMENDMENTS
The "expiration date" will be 12:00 midnight, New York City time, on
, 2003, unless we, in our sole discretion, extend the exchange offer,
in which case the expiration date will be the latest date to which the exchange
offer is extended. Notwithstanding the foregoing, we will not extend the
expiration date beyond , 2003.
We have no current plans to extend the exchange offer. In order to extend
the expiration date, we will notify the exchange agent of any extension by oral
or written notice and will make a public announcement of such extension, in each
case prior to 9:00 a.m., New York City time, no later than the next business day
after the previously scheduled expiration date.
We reserve the right, in our sole discretion, to
- delay accepting any notes;
- extend the exchange offer; or
- terminate the exchange offer
if any of the conditions set forth below under "-- Conditions of the Exchange
Offer" shall not have been satisfied, in each case by giving oral (with written
notice to follow) or written notice of such delay, extension or termination to
the exchange agent, and 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 a public announcement of such event. If
we amend the exchange offer in a manner determined by us to constitute a
material change, we will promptly disclose the amendment by means of a
prospectus supplement that will be distributed to the registered holders of the
notes, and the exchange offer will be extended for a period of five to ten
business days, as required by law, depending upon the significance of the
amendment and the manner of disclosure to the registered holders, assuming the
exchange offer would otherwise expire during such five to ten business day
period.
Without limiting the manner in which we may choose to make public
announcement of any delay, extension, termination or amendment of the exchange
offer, we will not have an obligation to publish, advertise, or otherwise
communicate any such public announcement other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from their date of issuance. Interest
is payable semiannually on January 15 and July 15 of each year, commencing on
January 15, 2004, at the rate of 10 7/8% per annum. Interest on each exchange
note will accrue from the last date on which interest was paid on the note being
tendered for exchange or, if no interest has been paid, from the date on which
the notes were issued in the original offering. Consequently, holders who
exchange their notes for exchange notes will receive the same interest payment
on January 15, 2004 that they would have received had they not accepted the
exchange
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offer. Interest on the notes accepted for exchange will cease to accrue upon
issuance of the exchange notes.
PROCEDURES FOR TENDERING
Only a registered holder of notes may tender such notes in the exchange
offer. To effectively tender in the exchange offer, a holder must complete, sign
and date a copy or facsimile of the letter of transmittal, have the signatures
thereon guaranteed if required by the letter of transmittal, and mail or
otherwise deliver such letter of transmittal or such facsimile, together with
the notes and any other required documents, to the exchange agent at the address
set forth below under "Exchange Agent" for receipt on or prior to the expiration
date. Delivery of the notes also may be made by book-entry transfer in
accordance with the procedures described below. If you are effecting delivery by
book-entry transfer,
- confirmation of such book-entry transfer must be received by the exchange
agent prior to the expiration date; and
- you must transmit to the exchange agent on or prior to the expiration
date a computer-generated message transmitted by means of the Automated
Tender Offer Program System of The Depository Trust Company ("DTC") in
which you acknowledge and agree to be bound by the terms of the letter of
transmittal and which, when received by the exchange agent, forms a part
of the confirmation of book-entry transfer.
By executing the letter of transmittal or effecting delivery by book-entry
transfer, each holder is making to us those representations set forth under the
heading "-- Resale of the Exchange Notes."
The tender by a holder of notes will constitute an agreement between such
holder and us in accordance with the terms and subject to the conditions set
forth herein and in the letter of transmittal.
The method of delivery of the notes and the letter of transmittal 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 ensure delivery to the exchange agent on or prior to the
expiration date. You should not send any letters of transmittal or notes to us.
Holders may request that their respective brokers, dealers, commercial banks,
trust companies or nominees effect the above transactions for such holders.
The term "holder" with respect to the exchange offer means any person in
whose name notes are registered on our books or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose notes are held of record by DTC who desires to deliver such notes
by book-entry transfer at DTC.
If your notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to tender, you should promptly
contact the person in whose name the notes are registered and instruct such
registered holder to tender on your behalf. If a beneficial owner wishes to
tender on his or her own behalf, the holder must, prior to completing and
executing the letter of transmittal and delivering the notes, either make
appropriate arrangements to register ownership of the notes in his or her name
or to obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time. Signatures on a
letter of transmittal or a notice of withdrawal, as the case may be, must be
guaranteed by an Eligible Institution (defined below) unless the notes are
tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
- for the account of an Eligible Institution.
If signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed, such guarantee must be by a participant in a
recognized signature guarantee medallion program within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
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If the letter of transmittal is signed by a person other than the
registered holder of any notes listed therein, such notes must be endorsed or
accompanied by properly completed bond powers, signed by such registered holder
as such registered holder's name appears on such notes with the signature
thereon guaranteed by an Eligible Institution. If the letter of transmittal or
any notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and submit with the letter of transmittal evidence satisfactory to so
act.
We understand that the exchange agent will make a request, promptly after
the date of this prospectus, to establish accounts with respect to the notes at
the book-entry transfer facility of DTC for the purpose of facilitating this
exchange offer, and subject to the establishment of these accounts, any
financial institution that is a participant in the book-entry transfer facility
system may make book-entry delivery of notes by causing the transfer of such
notes into the exchange agent's account with respect to the notes in accordance
with DTC's procedures for such transfer. Although delivery of the notes may be
effected through book-entry transfer into the exchange agent's account at the
book-entry transfer facility, unless the holder complies with the procedures
described in the following paragraph or the guaranteed delivery procedures
described below, an appropriate letter of transmittal properly completed and
duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
exchange agent at its address set forth below before the expiration date. The
delivery of documents to the book-entry transfer facility does not constitute
delivery to the exchange agent.
The exchange agent and DTC have confirmed that the exchange offer is
eligible for the Automated Tender Offer Program ("ATOP") of DTC. Accordingly,
DTC participants may electronically transmit their acceptance of the exchange
offer by causing DTC to transfer notes to the exchange agent in accordance with
the procedures for transfer established under ATOP. DTC will then send an
Agent's Message to the exchange agent. The term "Agent's Message" means a
message transmitted by DTC that, when received by the exchange agent, forms part
of the confirmation of a book-entry transfer and that states that DTC has
received an express acknowledgment from the DTC participant that such
participant has received and agrees to be bound by the terms of the letter of
transmittal and that we may enforce such agreement against such participant. In
the case of an Agent's Message relating to guaranteed delivery, the term means a
message transmitted by DTC and received by the exchange agent that states that
DTC has received an express acknowledgment from the DTC participant that such
participant has received and agrees to be bound by the notice of guaranteed
delivery.
We will determine all questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of the tendered notes in
our sole discretion, and our determination will be final and binding. We reserve
the absolute right to reject any and all notes not validly tendered or any notes
the acceptance of which would, in the opinion of our counsel, be unlawful. We
also reserve the absolute right to waive any defects, irregularities or
conditions of tender as to particular notes. Our interpretation of the terms and
conditions of the exchange offer, including the instructions in the letter of
transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of notes must be cured
within such time as we shall determine. Although we intend to notify holders of
defects or irregularities with respect to the tender of notes, neither we, the
exchange agent nor any other person shall incur any liability for failure to
give such notification. Tenders of notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any notes
received by the exchange agent that are not validly tendered and as to which the
defects or irregularities have not been cured or waived, or if notes are
submitted in a principal amount greater than the principal amount of notes being
tendered by such tendering holder, such unaccepted or non-exchanged notes will
be returned by the exchange agent to the tendering holders (or, in the case of
notes tendered by book-entry transfer into the exchange agent's account at the
book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such unaccepted or non-exchanged notes will be credited to an
account maintained with such book-entry transfer facility), unless otherwise
provided in the letter of transmittal designated for such notes, as soon as
practicable following the expiration date.
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GUARANTEED DELIVERY PROCEDURES
Those holders who wish to tender their notes and
- whose notes are not immediately available; or
- who cannot deliver their notes, the letter of transmittal or any other
required documents to the exchange agent before the expiration date; or
- who cannot complete the procedures for book-entry transfer before the
expiration date;
may effect a tender if:
- the tender is made through an Eligible Institution;
- before the expiration date, the exchange agent receives from such
Eligible Institution 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
or numbers of such notes and the principal amount of notes tendered,
stating that the tender is being made thereby, and guaranteeing that,
within five business days after the expiration date, either (a) that a
copy or facsimile of the letter of transmittal, together with the
certificate(s) representing the notes and any other documents required by
the letter of transmittal, will be deposited by the Eligible Institution
with the exchange agent or (b) that a confirmation of book-entry transfer
of such notes into the exchange agent's account at DTC, will be delivered
to the exchange agent; and
- either (a) a copy or facsimile of such properly completed and executed
letter of transmittal, together with the certificate(s) representing all
tendered notes in proper form for transfer and all other documents
required by the letter of transmittal, or (b) if applicable, confirmation
of a book-entry transfer into the exchange agent's account at DTC, are
actually received by the exchange agent within five business days after
the expiration date.
Upon request, the exchange agent will send a notice of guaranteed delivery
to holders who wish to tender their notes according to the guaranteed delivery
procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of notes may be withdrawn at
any time on or prior to the expiration date.
To validly withdraw a tender of notes in the exchange offer, the exchange
agent must receive a telegram, telex, letter or facsimile transmission notice of
withdrawal at its address set forth herein on or prior to the expiration date.
Any such notice of withdrawal must:
- specify the name of the person having deposited the notes to be withdrawn
(the "Depositor");
- identify the notes to be withdrawn, including the certificate number or
numbers and the aggregate principal amount of such notes or, in the case
of notes transferred by book-entry transfer, the name and number of the
account at DTC to be credited;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such notes were tendered, including
any required signature guarantees, or be accompanied by documents of
transfers sufficient to permit the trustee with respect to the notes to
register the transfer of such notes into the name of the person
withdrawing the tender; and
- specify the name in which any such notes are to be registered, if
different from the name of the Depositor.
We will determine all questions as to the validity, form and eligibility
(including time of receipt) of such notices in our sole discretion, and our
determination will be final and binding. Any 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 in exchange for withdrawn notes unless those notes
are validly retendered.
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Any notes that have been tendered but that are not accepted for exchange because
of the rejection of the tender due to uncured defects or the prior termination
of the exchange offer, or which have been validly withdrawn, 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 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 OF THE EXCHANGE OFFER
The exchange offer is subject to the condition that the exchange offer, or
the making of any exchange by a holder, does not violate applicable law or any
applicable interpretation of the staff of the Commission. If there has been a
change in policy of the Commission such that, in the reasonable opinion of our
counsel, there is a substantial question whether the exchange offer is permitted
by applicable federal law, we have agreed to seek a no-action letter or other
favorable decision from the Commission allowing us to consummate the exchange
offer.
If we determine that the exchange offer is not permitted by applicable
federal law, we may terminate the exchange offer. In connection with any
termination we may:
- refuse to accept any notes and return any notes that have been tendered
by the holders thereof;
- extend the exchange offer and retain all notes tendered prior to the
expiration date, subject to the rights of the holders of tendered notes
to withdraw their tendered notes; or
- waive the termination event with respect to the exchange offer and accept
all properly tendered notes that have not been properly withdrawn.
If the waiver of a termination event constitutes a material change in the
exchange offer, we will disclose the change by means of a supplement to this
prospectus that will be distributed to each registered holder of notes, and we
will extend the exchange offer for a period of five to ten business days,
depending upon the significance of the waiver, if the exchange offer would
otherwise expire during such period.
EXCHANGE AGENT
Wells Fargo Bank Minnesota, National Association, the trustee under the
indenture, has been appointed as exchange agent for the exchange offer.
Questions and requests for assistance, requests for additional copies of this
prospectus or the letter of transmittal and requests for the notice of
guaranteed delivery should be directed to the exchange agent addressed as
follows:
<Table>
<Caption>
BY REGISTERED AND CERTIFIED MAIL: BY REGULAR MAIL OR OVERNIGHT COURIER: IN PERSON BY HAND ONLY:
- --------------------------------- ------------------------------------- -----------------------
Wells Fargo Bank Minnesota, N.A. Wells Fargo Bank Minnesota, N.A. Wells Fargo Bank Minnesota, N.A.
Corporate Trust Operations Corporate Trust Operations Corporate Trust Services
MAC N9303-121 MAC N9303-121 Northstar East Building - 12th Floor
P.O. Box 1517 6th & Marquette Avenue 608 2nd Avenue South
Minneapolis, MN 55480 Minneapolis, MN 55479 12th Floor-Corporate Trust Services
Minneapolis, MN 55402
</Table>
Any requests or deliveries to an address or facsimile number other than as
set forth above will not constitute a valid delivery.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We are making the
principal solicitation by mail, but our officers, employees and affiliates may
make additional solicitations in person, by telegraph or telephone.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will pay
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the exchange agent, however, reasonable and customary fees for its services and
will reimburse the exchange agent for its reasonable out-of-pocket expenses in
connection with the exchange offer.
We will pay the cash expenses incurred in connection with the exchange
offer. Such expenses include fees and expenses of the exchange agent and the
trustee, accounting and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of the
notes in the exchange offer. If, however, a transfer tax is imposed for any
reason other than the exchange of the notes in the exchange offer, then the
amount of any such transfer taxes, whether imposed on the registered holder or
any other persons, will be payable by the tendering holder. If satisfactory
evidence of payment of or exemption from such taxes is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed directly
to such tendering holder.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
notes, which is face value, as reflected in our accounting records on the date
of exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes. The costs of the exchange offer will be amortized over the term of the
exchange notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The notes that are not exchanged for exchange notes in the exchange offer
will remain restricted securities. Accordingly, those notes may be resold only
as follows:
- to us, upon redemption or otherwise;
- so long as the 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,
(b) in accordance with Rule 144 under the Securities Act, or (c) pursuant
to another exemption from the registration requirements of the Securities
Act and based upon an opinion of counsel reasonably acceptable to us;
- outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act; or
- pursuant to an effective registration statement under the Securities Act.
Persons who acquire the notes are responsible for compliance with the state
securities or blue sky laws regarding resales. We assume no responsibility for
compliance with these requirements.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
IN GENERAL
The following is a summary of the material U.S. federal income tax (and,
with respect to non-U.S. holders, estate tax) consequences to you of the
ownership and disposition of the exchange notes and, only where so indicated,
the notes offered in the initial offering, which we refer to in this section as
the original notes. It:
- is based on the Internal Revenue Code of 1986, as amended (the "Code"),
administrative pronouncements, judicial decisions and final, temporary
and proposed U.S. Treasury Department regulations, all of which are
subject to change (possibly with retroactive effect) or to different
interpretations;
- assumes that you hold the exchange notes as capital assets within the
meaning of Section 1221 of the Code (that is, for investment purposes);
- does not discuss all of the tax consequences that may be relevant to you
in light of your particular circumstances (such as the application of the
alternative minimum tax) or that may be relevant to you because you are
subject to special rules, such as rules applicable to financial
institutions, tax-exempt entities, holders whose "functional currency" is
not the U.S. dollar, insurance companies, dealers in securities or
foreign currencies, persons holding the exchange notes as part of a
hedge, straddle, "constructive sale," "conversion" or other integrated
transaction, or former U.S. citizens or long-term residents subject to
taxation as expatriates under Section 877 of the Code;
- does not discuss the effect of any state, local or foreign laws;
- does not discuss tax consequences to an owner of exchange notes held
through a partnership or other pass-through entity; and
- assumes that:
- the exchange notes are properly characterized as debt for U.S. federal
income tax purposes;
- the exchange notes are not convertible;
- the exchange notes cannot be integrated with any other financial
instrument;
- a substantial amount of the exchange notes will be issued for money; and
- the exchange notes are not high yield debt obligations, are not payable
in our stock or the stock of a party related to us, and do not
constitute corporate acquisition indebtedness.
WE SUGGEST YOU CONSULT YOUR OWN TAX ADVISOR REGARDING THE APPLICATION OF
U.S. FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION AND THE CONSEQUENCES
OF FEDERAL ESTATE AND GIFT TAX LAWS, STATE, LOCAL AND FOREIGN LAWS AND TAX
TREATIES.
As used in this section, a U.S. holder of an exchange note means a
beneficial owner of an exchange note that is, for U.S. federal income tax
purposes:
- a citizen or resident of the United States;
- a corporation (including an entity treated as a corporation for U.S.
federal income tax purposes) created or organized in or under the laws of
the United States, any state thereof or the District of Columbia;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust if (1) a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
U.S. persons have the authority to control all substantial decisions of
the trust, or (2) a valid election is in place to treat the trust as a
U.S. person.
120
As used in this section, a non-U.S. holder means a beneficial owner of an
exchange note that is not a U.S. holder.
TAX CONSEQUENCES TO U.S. HOLDERS
This section applies to you if you are a U.S. holder.
EXCHANGE OFFER
You will not have taxable gain or loss on the exchange of original notes
for exchange notes in connection with the exchange offer. Instead, your basis in
the original notes will carry over to the exchange notes received, and the
holding period of the exchange notes will include the holding period of the
original notes surrendered.
PAYMENTS OF INTEREST
In general, you must report interest on the exchange notes in accordance
with your accounting method. If you are a cash method taxpayer, which is the
case for most individuals, you must report interest on the exchange notes in
your income when you receive it. If you are an accrual method taxpayer, you must
report interest on the exchange notes in your income as it accrues.
Under the terms of the exchange notes, we may be obligated to pay you
amounts in excess of stated interest or principal on the exchange notes. For
example, upon a "change of control," you have the right to require us to
repurchase all or part of your exchange notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase. We believe that the likelihood that we will pay you these amounts
is remote. Thus, under special rules governing remote contingencies, the
possibility of these payments will not affect the amount of interest income you
recognize in advance of those payments. Our determination of whether a
contingency is remote as to amount will be binding on you unless you explicitly
disclose your contrary position to the IRS in the manner required by the
applicable Treasury Regulations. Our determination is not, however, binding on
the IRS, and if the IRS successfully challenged this determination, you could be
required to accrue interest income on the exchange notes at a rate higher than
the stated interest rate on the exchange notes.
We have the option to redeem the exchange notes beginning on July 15, 2007,
at a price equal to 105.438% of the principal amount of the exchange notes. We
also have the option on or before July 15, 2006, to redeem some of the exchange
notes from the proceeds of any equity offering at a price equal to 110.875% of
the principal amount of the exchange notes. If we were to exercise either
option, the yields on the redeemed exchange notes would be greater than they
would otherwise be. Thus, under special rules governing these types of
unconditional options, for tax purposes, we will be deemed not to exercise these
options, and the possibility of these redemption premia will not affect the
amount of interest income you recognize in advance of receiving any such
redemption premia.
SALE, EXCHANGE OR RETIREMENT OF THE EXCHANGE NOTES
Subject to the discussion above and below, on the sale, exchange or
retirement of the exchange note:
- You will have taxable gain or loss equal to the difference between the
amount received by you (other than amounts representing accrued and
unpaid interest) and your adjusted tax basis in the exchange note. Your
tax basis is the cost of the original note to you,
- increased by any accrued market discount if you have elected to include
such market discount in your income with respect to the original note;
and
- decreased by any amortizable bond premium you have applied to reduce
interest on the original note, and any principal payments you receive
with respect to the original note.
- Your gain or loss will generally be a capital gain or loss and will be a
long-term capital gain or loss if you held the exchange note (and prior
to the exchange note, the original note) for more than one
121
year. The deductibility of capital losses is subject to limitation. For
taxable years beginning on or before December 31, 2008, your maximum
long-term capital gain tax rate (assuming you are a U.S. holder who is an
individual) will be 15%, increasing to 20% thereafter.
- If you sell the exchange note between interest payment dates, a portion
of the amount you receive will reflect interest that has accrued on the
exchange note but has not yet been paid by the sale date. That amount is
treated as ordinary interest income and not as sale proceeds.
MARKET DISCOUNT AND BOND PREMIUM
Under the market discount and bond premium provisions of the Code,
generally:
- If you have purchased (1) an original note at our initial offering of the
original notes, for an amount less than its issue price or (2) an
original note or exchange note subsequent to our initial offering of the
original notes, for an amount less than the sum of the issue price and
the aggregate amount of OID included in the income of all previous
holders, the difference will be treated as market discount.
- You will be required, subject to a de minimis exception, to treat any
gain on the sale, exchange or retirement of the original note or the
exchange note as ordinary income to the extent of the market discount
that has not previously been included in your income and that has accrued
on such original note or exchange note (including, in the case of an
exchange note, any market discount accrued on the original note exchanged
for such an exchange note) at the time of such sale, exchange or
retirement.
- Unless you elect to accrue under a constant yield method, any market
discount will be considered to accrue ratably during the period from the
date of acquisition of the exchange note to the maturity date.
- If an original note or an exchange note has market discount, you may be
required to defer the deduction of all or a portion of the interest
expense on any indebtedness incurred or continued in order to purchase or
carry the original note or the exchange note (including, in the case of
an exchange note, the interest expense on any indebtedness incurred or
continued in order to purchase or carry the original note exchanged for
such an exchange note) until (1) the maturity of the original note or
exchange note, (2) the earlier disposition in a taxable transaction of
the original note or exchange note or (3) if you make an appropriate
election, a subsequent taxable year in which you realize sufficient
interest income with respect to the exchange note.
- You may elect to include market discount in income currently as it
accrues, on either a ratable or constant yield method, in which case the
rule described above regarding deferral of interest deductions will not
apply. This election to include market discount in income currently, once
made, applies to all market discount obligations acquired by you during
the taxable year of the election and thereafter, and may not be revoked
without the consent of the Internal Revenue Service (the "IRS").
- If you have purchased an original note or an exchange note for an amount
that is greater than its face value, you generally may elect to amortize
that premium from the purchase date to the maturity date under a constant
yield method. Amortizable premium can generally only offset interest
income on such original note or exchange note (including, in the case of
an exchange note, the income on the original note exchanged for such an
exchange note) and may generally not be deducted against other income.
Your basis in an original note or an exchange note will be reduced by any
premium amortization deductions. An election to amortize premium on a
constant yield method, once made, generally applies to all debt
obligations held or subsequently acquired by you during the taxable year
of the election and thereafter, and may not be revoked without the
consent of the IRS.
122
- The rules regarding market discount and bond premium are complex and the
rules described above may not apply in all cases. Accordingly, you should
consult your own tax advisor regarding their application.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under the tax rules concerning information reporting and backup withholding
to the IRS:
- If you hold the exchange notes through a broker or other securities
intermediary, the intermediary must provide information to the IRS and to
you on IRS Form 1099 concerning interest and retirement proceeds on the
exchange notes, unless an exemption applies.
- Similarly, unless an exemption applies, you must provide the intermediary
or us with your Taxpayer Identification Number for use in reporting
information to the IRS. If you are an individual, this is your social
security number. You are also required to comply with other IRS
requirements concerning information reporting, including a certification
that you are not subject to backup withholding and that you are a U.S.
person.
- If you are subject to these requirements but do not comply, the
intermediary must withhold a percentage of all amounts payable to you on
the exchange notes, including principal payments. Under current law, this
percentage will be 28% for amounts paid through 2010, and 31% thereafter.
This is called backup withholding. Backup withholding may also apply if
we are notified by the IRS that such withholding is required or that the
Taxpayer Identification Number you provided is incorrect.
- Backup withholding is not an additional tax. You may use the withheld
amounts, if any, as a credit against your federal income tax liability.
- All individuals are subject to these requirements. Some non-individual
holders, including all corporations, tax-exempt organizations and
individual retirement accounts, are exempt from these requirements.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
This section applies to you if you are a non-U.S. holder.
EXCHANGE OFFER
The exchange of original notes for exchange notes in connection with the
exchange offer will not be a taxable sale or exchange.
INTEREST
Subject to the discussion below concerning effectively connected income and
backup withholding, payments of interest on the exchange notes by us or any
paying agent to you will not be subject to U.S. federal withholding tax,
provided that either
- pursuant to the "portfolio interest" exception:
- you do not own, actually or constructively, 10% or more of the combined
voting power of all classes of our stock entitled to vote,
- you are not a controlled foreign corporation (within the meaning of the
Code) that is related, directly or indirectly, to us,
- you are not a bank receiving interest on the exchange notes on an
extension of credit made pursuant to a loan agreement entered into in
the ordinary course of your trade or business,
- you certify to us or our paying agent on IRS Form W-8BEN (or appropriate
substitute form) under penalties of perjury, that you are not a U.S.
person, provided that if you hold the exchange
123
notes through a financial institution or other agent acting on your
behalf, you will be required to provide appropriate documentation to the
agent and your agent will then be required to provide certification to
us or our paying agent, either directly or through other intermediaries;
or
- you are otherwise entitled to the benefits of an income tax treaty under
which such interest is exempt from U.S. federal withholding tax, and you
or your agent provides to us a properly executed IRS Form W-8BEN (or an
appropriate substitute form evidencing eligibility for the exemption).
Payments of interest on the exchange notes that do not meet the
above-described requirements will be subject to a U.S. federal income tax of 30%
(or such lower rate provided by an applicable income tax treaty if you establish
that you qualify to receive the benefits of such treaty) collected by means of
withholding. However, if you have purchased an exchange note with bond premium
please see your own tax advisor regarding the application of the bond premium
rules.
SALE, EXCHANGE OR RETIREMENT OF THE EXCHANGE NOTES
Subject to the discussion below concerning effectively connected income and
backup withholding, you will not be subject to U.S. federal income tax on any
gain (including gain attributable to market discount) realized on the sale,
exchange or retirement of the exchange note unless you are an individual, you
are present in the United States for at least 183 days during the year in which
you dispose of the exchange note, and other conditions are satisfied.
EFFECTIVELY CONNECTED INCOME
The preceding discussion assumes that the interest and gain received by you
is not effectively connected with the conduct by you of a trade or business in
the United States. If you are engaged in a trade or business in the United
States and your investment in an exchange note is effectively connected with
such trade or business:
- You will be exempt from the 30% withholding tax on interest (provided a
certification requirement, generally on IRS Form W-8ECI, is met) and will
instead generally be subject to regular U.S. federal income tax on any
interest and gain with respect to the exchange notes in the same manner
as if you were a U.S. holder.
- If you are a foreign corporation, you may also be subject to an
additional branch profits tax of 30% or such lower rate provided by an
applicable income tax treaty if you establish that you qualify to receive
the benefits of such treaty.
- If you are eligible for the benefits of a tax treaty, any effectively
connected income or gain will generally be subject to U.S. federal income
tax only if it is also attributable to a permanent establishment
maintained by you in the United States.
U.S. FEDERAL ESTATE TAX
An exchange note held or beneficially owned by an individual who, for
estate tax purposes, is not a citizen or resident of the United States at the
time of death will not be includable in the decedent's gross estate for U.S.
estate tax purposes, provided that (i) such holder or beneficial owner did not
at the time of death actually or constructively own 10% or more of the combined
voting power of all of our classes of stock entitled to vote, and (ii) at the
time of death, payments with respect to such exchange note would not have been
effectively connected with the conduct by such holder of a trade or business in
the United States. In addition, the U.S. estate tax may not apply with respect
to such exchange note under the terms of an applicable estate tax treaty.
124
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. rules concerning information reporting and backup withholding
applicable to non-U.S. holders are as follows:
- Interest payments you receive will be automatically exempt from the usual
backup withholding rules if such payments are subject to the 30%
withholding tax on interest or if they are exempt from that tax by
application of a tax treaty or the "portfolio interest" exception. The
exemption does not apply if the withholding agent or an intermediary
knows or has reason to know that you should be subject to the usual
information reporting or backup withholding rules. In addition,
information reporting may still apply to payments of interest (on Form
1042-S) even if certification is provided and the interest is exempt from
the 30% withholding tax.
- Sale proceeds you receive on a sale of your exchange notes through a
broker may be subject to information reporting and/or backup withholding
if you are not eligible for an exemption, or do not provide the
certification described above. In particular, information reporting and
backup withholding may apply if you use the U.S. office of a broker, and
information reporting (but generally not backup withholding) may apply if
you use the foreign office of a broker that has certain connections to
the United States.
We suggest that you consult your tax advisor concerning the application of
information reporting and backup withholding.
125
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for notes where such notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, starting on the
expiration date and ending on the close of business one year after the
expiration date of the exchange offer, we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until , 2003, all dealers effecting transactions
in the exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, 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
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any 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 of 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 broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of one year after the expiration date of the exchange offer,
we will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the holder of the
notes) other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
126
LEGAL MATTERS
The validity of the exchange notes and the guarantees of the exchange notes
will be passed upon for United States Can Company and the guarantors by Ropes &
Gray LLP, Boston, Massachusetts.
INDEPENDENT AUDITORS
The consolidated financial statements of U.S. Can Corporation and its
subsidiaries as of and for the year ended December 31, 2002 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report (which report expresses an unqualified opinion and
includes explanatory paragraphs relating to (i) a change in accounting for
goodwill and intangible assets upon adoption of Statement of Financial
Accounting Standards No. 142, and (ii) the application of procedures relating to
certain disclosures related to the 2001 and 2000 financial statements that were
audited by other auditors who have ceased operations and for which they have
expressed no opinion or other form of assurance other than with respect to such
disclosures) appearing herein.
The consolidated financial statements of U.S. Can Corporation and its
subsidiaries as of December 31, 2001 and for each of the two years in the period
ended December 31, 2001 included in this prospectus were audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto dated March 6, 2002. Arthur Andersen LLP has not reissued its
audit report included in this prospectus and has not consented to the inclusion
of its audit report in this prospectus. As a result, you may not have an
effective remedy against Arthur Andersen LLP in connection with any material
misstatement or omission in the consolidated financial statements to which its
audit report relates. In addition, even if you were able to assert such a claim,
as a result of its recent conviction of federal obstruction of justice charges
and other lawsuits, Arthur Andersen LLP may fail or otherwise have insufficient
assets to satisfy claims made by investors that might arise under Federal
securities laws or otherwise with respect to its audit report. See "Risk
Factors -- Risks Related to Our Business -- Our former independent public
accountant, Arthur Andersen LLP, has been found guilty of a federal obstruction
of justice charge, and you may be unable to exercise effective remedies against
it in any legal action."
WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the Commission. Such reports and
other information filed by us may be inspected and copied at the public
reference facility maintained by the Commission located at 450 Fifth Street,
N.W., Washington, D.C. 20549. For further information about the public reference
room, call 1-800-SEC-0330. The Commission also maintains a website on the
internet that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission,
and such website is located at http://www.sec.gov. We have agreed that, whether
or not we are required to do so by the rules and regulations of the Commission,
for so long as any of the exchange notes remain outstanding, we will furnish to
the holders of the exchange notes and will, if permitted, 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 Form 10-Q and Form
10-K if we were required to file such forms and (ii) all reports that would be
required to be filed with the Commission on Form 8-K if we were required to file
such reports.
127
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF U.S. CAN CORPORATION AND ITS SUBSIDIARIES
<Table>
<Caption>
PAGE
----
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Reports............................. F-2
Consolidated Statements of Operations for the Years Ended
December 31, 2002, 2001
and 2000............................................... F-5
Consolidated Balance Sheets as of December 31, 2002 and
2001................................................... F-6
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2002, 2001 and 2000........... F-7
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000....................... F-8
Notes to Consolidated Financial Statements................ F-9
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations for the Quarterly
Periods Ended June 29, 2003 and June 30, 2002.......... F-46
Consolidated Balance Sheets as of June 29, 2003 and
December 31, 2002...................................... F-47
Consolidated Statements of Cash Flows for the Quarterly
Periods Ended June 29, 2003 and June 30, 2002.......... F-48
Notes to Consolidated Financial Statements................ F-49
</Table>
F-1
INDEPENDENT AUDITORS' REPORT
To U.S. Can Corporation:
Lombard, Illinois
We have audited the accompanying consolidated balance sheet of U.S. Can
Corporation and Subsidiaries ("the Company") as of December 31, 2002, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The consolidated financial
statements of the Company as of December 31, 2001 and 2000 and for each of the
two years then ended, before the inclusion of the disclosures discussed in Note
15 to the financial statements, were audited by other auditors, who have ceased
operations. Those auditors expressed an unqualified opinion on those financial
statements in their report dated March 6, 2002.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such 2002 consolidated financial statements present fairly,
in all material respects, the financial position of U.S. Can Corporation and
Subsidiaries as of December 31, 2002, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
As discussed in Note 2, in 2002 the Company changed its method of
accounting for goodwill as required by Statement of Financial Accounting
Standards (Statement) No. 142, "Goodwill and Other Intangible Assets."
As discussed above, the financial statements of U.S. Can Corporation as of
December 31, 2001 and 2000, and for the years then ended were audited by other
auditors who have ceased operations. As described in Note 15, these financial
statements have been revised to include the transitional disclosures required by
Statement No. 142, which was adopted by the Company as of January 1, 2002. Our
audit procedures with respect to the disclosures in Note 15 with respect to 2001
and 2000 included (i) agreeing the previously reported net income to the
previously issued financial statements and the adjustments to reported net
income representing amortization expense (including any related tax effects)
recognized in those periods related to goodwill, to the Company's underlying
records obtained from management, and (ii) testing the mathematical accuracy of
the reconciliation of adjusted net income to reported net income. In our
opinion, the disclosures for 2001 and 2000 in Note 15 are appropriate. However,
we were not engaged to audit, review, or apply any procedures to the 2001 or
2000 financial statements of the Company other than with respect to such
disclosures and, accordingly, we do not express an opinion or any other form of
assurance on the 2001 or 2000 financial statements taken as a whole.
As discussed above, the financial statements of U.S. Can Corporation for
the year ended December 31, 2000 were audited by other auditors who have ceased
operations. As described in Note 2(n), the financial statements for the year
ended December 31, 2000 have been reclassified to give effect to Statement No.
145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS 145"), which was adopted by
the Company on January 1, 2003. We audited the adjustments to the Company's
financial statements for the year ended December 31, 2000 as described in Note
2(n) that were applied to conform those financial statements to the presentation
required by SFAS 145. Our audit procedures with respect to the financial
statements for the year ended December 31, 2000 included (i) comparing the
amounts previously reported as net loss from early extinguishment of debt in the
Company's consolidated statement of operations to the
F-2
Company's underlying accounting analysis obtained from management, (ii)
comparing the amounts comprising the loss on early extinguishment of debt and
related income tax benefit to independent supporting documentation obtained from
management, and (iii) testing the mathematical accuracy of the reclassifications
in the Company's financial statements. In our opinion such reclassifications
have been properly applied. However, we were not engaged to audit, review, or
apply any procedures to the 2000 financial statements of the Company other than
with respect to such reclassifications and, accordingly, we do not express an
opinion or any other form of assurance on the 2000 financial statements taken as
a whole.
Deloitte & Touche LLP
Chicago, Illinois
February 21, 2003 (September 15, 2003 as to the sixth paragraph, above)
F-3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. IN FISCAL 2002, THE
COMPANY ADOPTED THE PROVISIONS OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
NO. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS" (SFAS NO. 142). AS DISCUSSED IN
NOTE 15 TO THE CONSOLIDATED FINANCIAL STATEMENTS, THE COMPANY HAS PRESENTED THE
TRANSITIONAL DISCLOSURES FOR 2001 AND 2000 REQUIRED BY SFAS NO. 142. THE ARTHUR
ANDERSEN LLP REPORT DOES NOT EXTEND TO THESE TRANSITIONAL DISCLOSURES. THESE
DISCLOSURES ARE REPORTED ON BY DELOITTE & TOUCHE LLP AS STATED IN THEIR REPORT
APPEARING HEREIN.
To U.S. Can Corporation:
We have audited the accompanying consolidated balance sheets of U.S. CAN
CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of December 31, 2001
and 2000, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2001*. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of U.S. Can
Corporation and Subsidiaries as of December 31, 2001 and 2000, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 6, 2002
*The 1999 consolidated financial statements are not presented herein.
F-4
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
FOR THE YEAR ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000
------------ ------------ ------------
(000'S OMITTED)
Net Sales............................................... $796,500 $772,188 $809,497
Cost of Sales........................................... 710,395 695,514 693,158
-------- -------- --------
Gross Income.......................................... 86,105 76,674 116,339
Selling, General and Administrative Expenses............ 37,853 46,581 45,887
Special Charges......................................... 8,705 36,239 3,413
Recapitalization Charges................................ -- -- 18,886
-------- -------- --------
Operating Income (Loss)............................... 39,547 (6,146) 48,153
Interest Expense........................................ 55,384 57,304 40,468
Loss from Early Extinguishment of Debt.................. -- -- 24,167
-------- -------- --------
Loss Before Income Taxes.............................. (15,837) (63,450) (16,482)
Provision (Benefit) for Income Taxes.................... 37,637 (23,034) (4,960)
-------- -------- --------
Loss from Operations Before Cumulative Effect of
Accounting Change.................................. (53,474) (40,416) (11,522)
Cumulative Effect of Accounting Change, net of income
taxes................................................. (18,302) -- --
-------- -------- --------
Net Loss Before Preferred Stock Dividends............. (71,776) (40,416) (11,522)
Preferred Stock Dividend Requirement.................... (12,521) (11,345) (2,601)
-------- -------- --------
Net Loss Attributable to Common Stockholders.......... $(84,297) $(51,761) $(14,123)
======== ======== ========
</Table>
The accompanying notes to Consolidated Financial Statements are an integral part
of these statements.
F-5
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2002 2001
------------ ------------
(000'S OMITTED, EXCEPT
PER SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 11,790 $ 14,743
Accounts receivable, net of allowances.................... 89,986 95,274
Inventories, net.......................................... 105,635 100,676
Deferred income taxes..................................... 7,730 21,977
Other current assets...................................... 14,466 15,732
--------- ---------
Total current assets................................... 229,607 248,402
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation
and amortization.......................................... 241,674 239,234
GOODWILL, less accumulated amortization..................... 27,384 66,437
DEFERRED INCOME TAXES....................................... 29,340 20,515
OTHER NON-CURRENT ASSETS.................................... 50,821 59,762
--------- ---------
Total assets........................................... $ 578,826 $ 634,350
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease
obligations............................................ $ 26,153 $ 14,983
Accounts payable.......................................... 94,537 96,685
Accrued expenses.......................................... 51,446 45,437
Restructuring reserves.................................... 11,990 25,945
Income taxes payable...................................... 958 1,055
--------- ---------
Total current liabilities.............................. 185,084 184,105
LONG TERM DEBT.............................................. 523,529 521,793
LONG TERM LIABILITIES PURSUANT TO EMPLOYEE BENEFIT PLANS.... 74,574 38,000
OTHER LONG-TERM LIABILITIES................................. 6,352 16,963
--------- ---------
Total liabilities...................................... 789,539 760,861
REDEEMABLE PREFERRED STOCK, 200,000 shares authorized,
106,667 shares issued & outstanding....................... 133,133 120,613
STOCKHOLDERS' EQUITY:
Common stock, $10.00 par value, 100,000 shares authorized,
53,333 shares issued & outstanding..................... 533 533
Additional paid-in-capital................................ 52,800 52,800
Accumulated other comprehensive loss...................... (51,076) (38,651)
Accumulated deficit....................................... (346,103) (261,806)
--------- ---------
Total stockholders' equity/(deficit)................... (343,846) (247,124)
--------- ---------
Total liabilities and stockholders' equity........... $ 578,826 $ 634,350
========= =========
</Table>
The accompanying notes to Consolidated Financial Statements are an integral part
of these statements.
F-6
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
ACCUMULATED
UNEARNED TREASURY OTHER COMPREHENSIVE
COMMON PAID-IN- RESTRICTED COMMON COMPREHENSIVE ACCUMULATED INCOME
STOCK CAPITAL STOCK STOCK LOSS DEFICIT (LOSS)
------ --------- ---------- -------- ------------- ----------- -------------
(000'S OMITTED)
BALANCE AT DECEMBER 31, 1999.... $135 $ 112,840 $(629) $(1,380) $ (7,771) $ (34,639)
Net loss before preferred stock
dividends..................... -- -- -- -- -- (11,522) $(11,522)
Redemption of common stock and
exercise of stock options in
connection with the
recapitalization.............. (134) (110,973) 305 -- -- (159,220) --
Purchase of treasury stock...... -- -- -- (488) -- -- --
Retirement of treasury stock.... (1) (1,867) -- 1,868 -- -- --
Issuance of common stock in
recapitalized company......... 533 52,800 -- -- -- -- --
Preferred stock dividends....... -- -- -- -- -- (2,601) --
Amortization of unearned
restricted stock.............. -- -- 324 -- -- -- --
Cumulative translation
adjustment.................... -- -- -- -- (11,903) -- (11,903)
--------
Comprehensive loss.............. $(23,425)
---- --------- ----- ------- -------- --------- ========
BALANCE AT DECEMBER 31, 2000.... 533 52,800 -- -- (19,674) (207,982)
Net loss before preferred stock
dividends..................... -- -- -- -- -- (40,416) $(40,416)
Settlement of shareholder
litigation in connection with
the recapitalization.......... -- -- -- -- -- (2,063) --
Unrealized loss on cash flow
hedge......................... -- -- -- -- (3,862) -- (3,862)
Preferred stock dividends....... -- -- -- -- -- (11,345) --
Equity adjustment to reflect
minimum pension liability..... -- -- -- -- (288) -- (288)
Cumulative translation
adjustment.................... -- -- -- -- (14,827) -- (14,827)
--------
Comprehensive loss.............. $(59,393)
---- --------- ----- ------- -------- --------- ========
BALANCE AT DECEMBER 31, 2001.... 533 52,800 -- -- (38,651) (261,806)
Net loss before preferred stock
dividends..................... -- -- -- -- -- (71,776) $(71,776)
Unrealized gain (loss) on cash
flow hedge.................... -- -- -- -- 176 -- (6,783)
Preferred stock dividends....... -- -- -- -- -- (12,521) --
Equity adjustment to reflect
minimum pension liability..... -- -- -- -- (22,058) -- (22,058)
Cumulative translation
adjustment.................... -- -- -- -- 9,457 -- 9,457
--------
Comprehensive loss.............. $(91,160)
---- --------- ----- ------- -------- --------- ========
BALANCE AT DECEMBER 31, 2002.... $533 $ 52,800 $ -- $ -- $(51,076) $(346,103)
==== ========= ===== ======= ======== =========
</Table>
The accompanying notes to Consolidated Financial Statements are an integral part
of these statements.
F-7
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
2002 2001 2000
--------- --------- ---------
(000'S OMITTED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss before preferred stock dividends requirements.... $(71,776) $(40,416) $(11,522)
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization........................... 36,086 34,626 33,670
Special charge.......................................... 8,705 36,239 3,413
Recapitalization charge................................. -- -- 18,886
Loss on extinguishment of debt.......................... -- -- 24,167
Cumulative effect of accounting change, net of tax...... 18,302 -- --
Deferred income taxes................................... 35,724 (24,369) (5,430)
Change in operating assets and liabilities, net of
effect of acquired and disposed of businesses:
Accounts receivable................................... 11,859 (5,677) (11,869)
Inventories........................................... 2,432 11,070 (3,587)
Accounts payable...................................... (9,220) (3,366) 10,733
Accrued expenses...................................... (21,357) (12,838) (7,363)
Other, net............................................ (4,591) (2,261) (22,366)
-------- -------- --------
Net cash provided by (used in) operating activities... 6,164 (6,992) 28,732
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including restructuring capital..... (27,235) (19,537) (24,504)
Acquisition of business, net of cash acquired............. -- (4,198) --
Proceeds from sale of business............................ -- -- 12,088
Proceeds from sale of property............................ 5,662 7,208 8,755
Investment in Formametal S.A.............................. (133) (7,891) (4,914)
-------- -------- --------
Net cash used in investing activities................. (21,706) (24,418) (8,575)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................. -- -- 53,333
Issuance of preferred stock............................... -- -- 106,667
Retirement of common stock and exercise of stock
options................................................. -- -- (270,022)
Settlement of shareholder litigation...................... -- (2,063) --
Purchase of treasury stock................................ -- -- (488)
Issuance of 12 3/8% exchange notes........................ -- -- 175,000
Repurchase of 10 1/8% exchange notes...................... -- -- (254,658)
Net borrowings (payments) under the revolving line of
credit.................................................. 13,600 37,600 (56,100)
Borrowing of Tranche A loan............................... -- -- 80,000
Borrowing of Tranche B loan............................... -- -- 180,000
Borrowing of Tranche C loan............................... -- 20,000 --
Borrowing of other long-term debt......................... 11,079 -- 19,286
Payments of long-term debt, including capital lease
obligations............................................. (12,689) (14,102) (22,528)
Payment of debt financing costs........................... -- (6,294) (16,137)
Payment of recapitalization costs......................... -- -- (18,886)
-------- -------- --------
Net cash provided by (used in) financing activities... 11,990 35,141 (24,533)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... 599 228 (537)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (2,953) 3,959 (4,913)
CASH AND CASH EQUIVALENTS, beginning of year................ 14,743 10,784 15,697
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year...................... $ 11,790 $ 14,743 $ 10,784
======== ======== ========
</Table>
The accompanying notes to Consolidated Financial Statements are an integral part
of these statements.
F-8
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
(1) BASIS OF PRESENTATION AND OPERATIONS
The consolidated financial statements include the accounts of U.S. Can
Corporation (the "Corporation" or "U.S. Can"), its wholly owned subsidiary,
United States Can Company ("United States Can"), and United States Can's
subsidiaries (the "Subsidiaries"). All significant intercompany balances and
transactions have been eliminated. The consolidated group is referred to herein
as "the Company". Certain prior year amounts have been reclassified to conform
with the 2002 presentation. The reclassifications had no effect on net loss
attributable to common stockholders or total assets.
The Company is a supplier of steel and plastic containers for personal
care, household, food, automotive, paint and industrial supplies, and other
specialty products. The Company owns or leases 13 plants in the United States
and 8 plants located in Europe.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and Cash Equivalents -- The Company considers all liquid
interest-bearing instruments purchased with an original maturity of three months
or less to be cash equivalents.
(b) Accounts Receivable Allowances -- Allowances for accounts receivable
are based on the customer relationships, the aging and turns of accounts
receivable, credit worthiness of customers, credit concentrations and payment
history. Although management monitors collections and credit worthiness, the
inability of a particular customer to pay its debts could impact collectibility
of receivables and could have an impact on future revenues if the customer is
unable to arrange other financing. Activity in the accounts receivable
allowances accounts was as follows (000's omitted):
<Table>
<Caption>
2002 2001 2000
------- ------- -------
Balance at beginning of year............................ $12,243 $10,971 $13,367
Provision for doubtful accounts....................... 1,437 621 516
Change in discounts, allowances and rebates........... 3,378 790 (2,449)
Write-offs of doubtful accounts, net of recoveries.... (944) (139) (463)
------- ------- -------
Balance at end of year.................................. $16,114 $12,243 $10,971
======= ======= =======
</Table>
(c) Inventories -- Inventories are stated at the lower of cost or market
and include material, labor and factory overhead. Costs for United States
inventory have been determined using the last-in, first-out ("LIFO") method. Had
the inventories been valued using the first-in, first-out ("FIFO") method, the
amount would not have differed materially from the amounts as determined using
the LIFO method. Costs for Subsidiaries' inventory has been determined using the
first-in, first-out ("FIFO") method. Subsidiaries' inventory was approximately
$48.1 million as of December 31, 2002 and 2001. The Company estimates reserves
for inventory obsolescence and shrinkage based on its judgment of future
realization.
Inventories reported in the accompanying balance sheets were classified as
follows (000's omitted):
<Table>
<Caption>
2002 2001
-------- --------
Raw materials............................................... $ 23,492 $ 27,216
Work in progress............................................ 46,435 40,046
Finished goods.............................................. 35,708 33,414
-------- --------
Total Inventory............................................. $105,635 $100,676
======== ========
</Table>
F-9
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the 2001 restructuring initiatives, the Company charged $3.2
million to Cost of Goods Sold for the write-off of inventory associated with
discontinued product lines. See Note (4) for further information on
restructuring initiatives.
(d) Property, Plant and Equipment -- Property, plant and equipment is
recorded at cost. Major renewals and betterments which extend the useful life of
an asset are capitalized; routine maintenance and repairs are expensed as
incurred. Maintenance and repairs charged against earnings were approximately
$27.4 million, $28.6 million and $27.5 million in 2002, 2001 and 2000,
respectively. Upon sale or retirement of these assets, the asset cost and
related accumulated depreciation are removed from the accounts and any related
gain or loss is reflected in income.
Depreciation for financial reporting purposes is principally provided using
the straight-line method over the estimated useful lives of the assets, as
follows: buildings -- 25 to 40 years; machinery and equipment -- 5 to 20 years.
Equipment under capital leases is amortized over the life of the lease.
Depreciation expense was $32.0 million, $29.2 million and $28.7 million for
2002, 2001 and 2000, respectively.
Property reported in the accompanying balance sheets is classified as
follows (000's omitted):
<Table>
<Caption>
2002 2001
--------- ---------
Land........................................................ $ 5,086 $ 6,025
Buildings................................................... 60,364 62,483
Machinery and equipment..................................... 409,052 396,843
Capital leases.............................................. 9,036 13,135
Construction in process..................................... 23,347 24,014
--------- ---------
506,885 502,500
Accumulated depreciation and amortization................... (265,211) (263,266)
--------- ---------
Total property.............................................. $ 241,674 $ 239,234
========= =========
</Table>
(e) Goodwill -- The Company adopted SFAS No. 142 "Goodwill and Other
Intangible Assets" on January 1, 2002. This standard provides accounting and
disclosure guidance for acquired intangibles. Under this standard, goodwill and
"indefinite-lived" intangibles are no longer amortized, but are tested at least
annually for impairment. Effective January 1, 2002, the Company has ceased
amortization of goodwill. The Company recorded goodwill amortization of $2.8
million and $2.9 million for the years ended December 31, 2001 and 2000. During
the fourth quarter of 2002, the Company completed its transitional impairment
testing and recorded a non-cash, pre-tax impairment charge of $39.1 million
($18.3 million, net of tax) as the cumulative effect of a change in accounting,
effective January 1, 2002. See Note (15) for additional disclosure.
(f) Deferred Financing Costs -- Costs related to the issuance of new debt
are included in other non-current assets and are deferred and amortized over the
terms of the related debt agreements. Amortization of financing costs in 2002,
2001, and 2000 were $4.1 million, $2.6 million and $1.7 million, respectively
and are included in interest expense. The Company did not incur any financing
costs in 2002 and paid $6.3 million of financing costs in 2001.
(g) Impairment of Long-Lived Assets -- SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," was issued in August 2001. SFAS
No. 144, which addresses financial accounting and reporting for the impairment
of long-lived assets and for long-lived assets to be disposed of, supercedes
SFAS No. 121 and is effective for fiscal years beginning after December 15,
2001. The Company adopted
F-10
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
this pronouncement on January 1, 2002. There was no impact to the financial
position and results of operations of the Company as a result of the adoption.
In accordance with SFAS 144, we continually review whether events and
circumstances subsequent to the acquisition of any long-lived assets have
occurred that indicate the remaining estimated useful lives of those assets may
warrant revision or that the remaining balance of those assets may not be
recoverable. If events and circumstances indicate that the long-lived assets
should be reviewed for possible impairment, we use projections to assess whether
future cash flows or operating income (before amortization) on an undiscounted
basis related to the tested assets is likely to exceed the recorded carrying
amount of those assets, to determine if a write-down is appropriate. Should an
impairment be identified, a loss would be reported to the extent that the
carrying value of the impaired assets exceeds their fair values as determined by
valuation techniques appropriate in the circumstances that could include the use
of similar projections on a discounted basis.
(h) Revenue -- Revenue is recognized when goods are shipped, at which time,
title and risk of loss pass to the customer. Provisions for discounts, returns,
allowances, customer rebates and other adjustments are provided for in the same
period as the related revenues are recorded. The Company enters into contractual
agreements with certain of its customers for rebates, generally based on annual
sales volumes. As sales occur, a provision for rebates is accrued on the balance
sheet and is charged against net sales.
(i) Foreign Currency Translation -- The functional currency for
substantially all the Company's Subsidiaries is the applicable local currency.
The translation from the applicable foreign currencies to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using an average
exchange rate prevailing during the period. The gains or losses resulting from
such translation are included in accumulated other comprehensive loss. Gains or
losses resulting from foreign currency transactions are included in operating
income and were not material in 2002, 2001 or 2000.
(j) Financial Instruments -- To manage interest rate exposure, the Company
enters into interest rate agreements. The net interest paid or received on these
agreements is recognized as interest income or expense. Our interest rate
agreements are reported in the consolidated financial statements at fair value
using a mark to market valuation. Changes in the fair value of the contracts are
recorded each period as a component of other comprehensive income. Gains or
losses on interest rate agreements are reclassified as earnings or losses in the
period in which earnings are affected by the underlying hedged item. The Company
does not use financial instruments for trading or speculative purposes.
(k) Accumulated Other Comprehensive Loss -- The components of accumulated
other comprehensive loss for 2002, 2001 and 2000 are as follows (000's omitted):
<Table>
<Caption>
2002 2001 2000
-------- -------- --------
Foreign Currency Translation Adjustment.............. $(25,044) $(34,501) $(19,674)
Minimum Pension Liability Adjustment................. (22,346) (288) --
Unrealized Loss on Cash Flow Hedges.................. (3,686) (3,862) --
-------- -------- --------
Total Accumulated Other Comprehensive Loss........... $(51,076) $(38,651) $(19,674)
======== ======== ========
</Table>
The components of comprehensive loss for 2002, 2001 and 2000 are included
in the Statement of Stockholder's Equity. The unrealized loss on cash flow hedge
included in comprehensive loss is net of reclassifications of losses included in
interest expense of $7.0 million for the year ended December 31, 2002.
(l) Stock-Based Compensation -- The Company currently issues stock-based
compensation under its U.S. Can 2000 Equity Incentive Plan. The Company
continues to use the intrinsic fair value method
F-11
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under APB Opinion No. 25 to account for the plan; therefore, no compensation
costs are recognized in the Company's financial statements for options granted.
In December of 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation -- Transition and Disclosure". SFAS No. 148 amends FASB Statement
No. 123 "Accounting for Stock-Based Compensation" to provide alternative methods
of transition for companies who voluntarily change to the fair value based
method of accounting for stock-based employee compensation. The statement also
increases stock-based compensation quarterly and annual disclosure requirements
for all companies and is effective for financial statements of companies with
fiscal years ending after December 15, 2002. The Company adopted this statement
in December of 2002. In accordance with SFAS No. 148, the following table
presents (in thousands) what the Company's net loss would have been had the
Company determined compensation costs using the fair value-based accounting
method.
<Table>
<Caption>
ACTUAL PRO-FORMA ACTUAL PRO-FORMA ACTUAL PRO-FORMA
2002 2002 2001 2001 2000 2000
-------- --------- -------- --------- -------- ---------
Stock-Based
Compensation Cost,
net of tax.......... $ -- $ (5) $ -- $ (37) $ -- $ (4,266)
Net Loss.............. (84,297) (84,302) (51,761) (51,798) (14,123) (18,389)
</Table>
(m) Income Taxes -- The Company accounts for income taxes using the asset
and liability method under which deferred income tax assets and liabilities are
recognized for the tax consequences of "temporary differences" between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities and operating losses and tax credit carry forwards. On an ongoing
basis, the Company evaluates its deferred tax assets to determine whether it is
more likely than not that such assets will be realized in the future and records
valuation allowances against the deferred tax assets for amounts which are not
considered more likely than not to be realized. The estimate of the amount that
is more likely than not to be realized requires the use of assumptions
concerning the amounts and timing of the Company's future income by taxing
jurisdiction.
(n) New Accounting Pronouncements -- SFAS No. 145 "Rescission of FASB
Statements No. 4, 44, and 46, Amendment of FASB Statement No. 13, and Technical
Corrections" was issued in April 2002 and is effective for fiscal years
beginning after May 15, 2002. This statement eliminates the current requirement
that gains and losses on extinguishment of debt be classified as extraordinary
items in the statement of operations. Instead, the statement requires that gains
and losses on extinguishment of debt be evaluated against the criteria in APB
Opinion 30 to determine whether or not such gains or losses should be classified
as an extraordinary item. The statement also contains other corrections to
authoritative accounting literature in SFAS 4, 44 and 46.
In connection with the recapitalization in 2000, the Corporation completed
a tender offer and consent solicitation for all of its outstanding 10 1/8% notes
due 2006, plus accrued interest and a bond tender premium. $235.7 million of the
$236.6 million principal amount of bonds outstanding were purchased by the
Corporation in the tender offer. In the fourth quarter of 2000, the Company
recorded an extraordinary net charge of $14.9 million ($24.2 million pre-tax),
related to the tender premium and the write-off of related deferred financing
charges.
The Company has adopted SFAS No. 145. In accordance with the statement, the
Company reviewed the criteria in Opinion 30 as it relates to the Company's early
extinguishment of debt in 2000. Opinion 30 states that for an item to be
considered extraordinary, the underlying event or transaction causing the gain
or loss should be unusual in nature and should be of a type that would not
reasonably be expected to recur in the foreseeable future. Based on its review,
the Company determined that the loss from early extinguishment of debt in 2000
does not meet the criteria in Opinion 30 for classification as an extraordinary
item. As such, the
F-12
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company has reported its 2000 loss from early extinguishment of debt as a
deduction from income before income taxes. The restatement did not affect the
Company's financial position or results of operations.
During July 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated With Exit or Disposal Activities". SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. SFAS No. 146 supercedes the guidance of Emerging
Issues Task Force ("EITF") Issue No. 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity", which
required that liabilities for exit costs be recognized at the date of an
entity's commitment to an exit plan. SFAS No. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002. The Company will
adopt SFAS No. 146 for any exit disposal activities initiated after such date.
In December of 2002, the FASB issued SFAS No. 148 "Accounting for
Stock-Based Compensation -- Transition and Disclosure". SFAS No. 148 amends FASB
Statement No. 123 "Accounting for Stock-Based Compensation" to provide
alternative methods of transition for companies who voluntarily change to the
fair value based method of accounting for stock-based employee compensation. The
statement also increases stock-based compensation quarterly and annual
disclosure requirements for all companies and is effective for financial
statements of companies with fiscal years ending after December 15, 2002. The
Company adopted this statement in December of 2002 and there was no impact to
the financial position and results of operations of the Company as a result of
the adoption.
(o) Use of Estimates -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Estimates are used for, but
not limited to: allowance for doubtful accounts; inventory valuation; purchase
accounting allocations; restructuring amounts; asset impairments; depreciable
lives of assets; goodwill impairments; pension assumptions and tax valuation
allowances. Future events and their effects cannot be perceived with certainty.
Accordingly, our accounting estimates require the exercise of management's
current best reasonable judgment based on facts available. The accounting
estimates used in the preparation of the Consolidated Financial Statements will
change as new events occur, as more experience is acquired, as more information
is obtained and as the Company's operating environments change. Significant
business or customer conditions could cause material changes to the amounts
reflected in the Company's financial statements. Accounting policies requiring
significant management judgments include those related to revenue recognition,
inventory valuation, accounts receivable allowances, goodwill impairment,
restructuring reserves, tax valuation allowances and interest rate exposure.
While actual results could differ from these estimates, management believes that
these estimates are reasonable.
(3) RECAPITALIZATION
On October 4, 2000, U.S. Can Corporation and Berkshire Partners LLC
completed a recapitalization of the Company through a merger. As a result of the
recapitalization, all of U.S. Can's common stock, other than certain shares held
by designated continuing shareholders (the rollover shareholders), was converted
into the right to receive $20.00 in cash per share and options to purchase
approximately 1.6 million shares of U.S. Can's common stock were retired in
exchange for a cash payment of $20.00 per underlying share, less the applicable
option price. Certain shares held by the rollover shareholders were converted
into the right to receive $20.00 in cash per share and certain shares held by
the rollover shareholders were converted into the right to receive shares of
capital stock of the surviving corporation in the merger.
F-13
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The recapitalization was financed by:
- a $106.7 million preferred stock investment by Berkshire Partners, its
co-investors and certain of the rollover stockholders;
- a $53.3 million common stock investment by Berkshire Partners, its
co-investors, certain of the rollover stockholders and management;
- $260.0 million in term loans under a new senior bank credit facility;
- $20.5 million in borrowings under a new revolving credit facility; and
- $175.0 million from the sale of 12 3/8% Senior Subordinated Notes due
2010.
The recapitalization increased the Company's accumulated deficit as
follows:
- Accumulated deficit was charged for the difference between the redemption
price and the paid in value of the redeemed U.S. Can capital stock
($159.2 million).
- The Company recorded a net charge of $14.9 million ($18.9 million pretax)
for expenses related to their recapitalization in the fourth quarter of
2000.
- The Company recorded a $24.2 million pretax charge relating to the early
redemption of the Company's 10 1/8% Notes due in 2006.
- In 2001, the shareholder litigation was settled resulting in a charge of
$2.1 million.
Funds generated from the recapitalization were used to retire all of the
borrowings outstanding under the Company's former credit agreement, to repay the
majority of the principal, accrued interest and tender premium applicable to
U.S. Can's 10 1/8% Notes due 2006, to purchase outstanding shares at $20 per
share and to pay fees and expenses associated with the transaction.
(4) SPECIAL CHARGES
The Company initiated several restructuring programs in 2001, consisting of
a voluntary termination program offered to all corporate office salaried
employees, the closure of six manufacturing facilities and the consolidation of
two Georgia plastics facilities into a new plastics plant in Atlanta, Georgia.
During the year ended December 31, 2001, the Company closed a paint can
manufacturing facility and a warehouse in Baltimore, Maryland and ceased
operations in Dallas, Texas. Also in conjunction with the restructuring programs
established in 2001, during 2002 the Company closed a Custom & Specialty plant
located in the Baltimore, Maryland area and closed its Southall, England
manufacturing facility. The Company also closed two plastics facilities in
Georgia and consolidated production to a new facility in Atlanta, Georgia. As
scheduled, in the fourth quarter of 2002, the Company closed its Burns Harbor,
Indiana lithography facility, which completed the restructuring program
established in 2001, as originally planned. In addition, during the fourth
quarter of 2002, the Company sold its Daegeling, Germany facility.
During 2002, the Company recorded a net charge of $8.7 million related to
restructuring. The net charge of $8.7 million consists of new restructuring
reserves of $11.9 million less reversals of $3.2 million due to the reassessment
of previously established reserves. The 2002 net charge included a reassessment
of the restructuring reserves established in 2001, position elimination costs
and the loss on the sale of the Daegeling, Germany facility. While the majority
of the restructuring initiatives have been completed in 2002, certain portions
of the programs will not be completed until 2003, and the Company does not
expect to realize the full earnings benefits until 2004. Certain long-term
liabilities (approximately $3.7 million as of December 31, 2002), consisting
primarily of employee termination costs and future ongoing facility carrying
costs will be paid over many years.
F-14
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total cash payments in the twelve months ended December 31, 2002 were $20.8
million and the Company anticipates spending another $15.7 million over the next
several years. The remainder of the reserve consists primarily of employee
termination benefits paid over time for approximately 52 salaried and 67 hourly
employees (approximately 600 positions were originally identified for
elimination), and other ongoing facility carrying costs.
The table below presents the reserve categories and related activity as of
December 31, 2002:
<Table>
<Caption>
JANUARY 1, 2002 NET DECEMBER 31, 2002
BALANCE ADDITIONS(D) DEDUCTIONS(C) OTHER(B) BALANCE
--------------- ------------ ------------- -------- -----------------
(IN MILLIONS)
Employee Separation..... $21.2 $4.9 $(17.6) $0.7 $ 9.2
Facility Closing
Costs................. 10.7 3.8 (9.6) 1.6 6.5
----- ---- ------ ---- -----
Total................... $31.9 $8.7 $(27.2) $2.3 $15.7(a)
===== ==== ====== ==== =====
</Table>
- ---------------
(a) Includes $3.7 million classified as other long-term liabilities as of
December 31, 2002.
(b) Non-cash foreign currency translation impact and the reversal of $1.5
million of asset write-offs previously expensed in the 2001 restructuring.
(c) Includes cash payments of $20.8 million. The remaining non-cash deductions
represent increased pension and post-retiree benefits transferred to Other
Long-Term Liabilities (see exchange notes 8 & 9) and the non-cash loss
recorded on the sale of the Daegeling facility.
(d) Includes reversals of $3.2 million due to the re-assessment of reserves
2001
The Company initiated several restructuring programs in 2001, consisting of
a voluntary termination program offered to all corporate office salaried
employees, the closure of six manufacturing facilities and the consolidation of
two Georgia plastics facilities into a new plastics plant in Atlanta, Georgia.
During 2001, the Company closed a paint can manufacturing facility and a
warehouse in Baltimore, Maryland and ceased operations in Dallas, Texas. Also in
connection with the restructuring programs established in 2001, during 2002 the
Company closed a Custom & Specialty plant located in the Baltimore, Maryland
area, closed the Southall, England manufacturing facility and closed the Burns
Harbor, Indiana lithography facility. The Company has also closed two plastics
facilities in Georgia and transferred production to a new facility in Atlanta,
Georgia. The closure of the Burns Harbor, Indiana lithography facility, in the
fourth quarter of 2002 completed the restructuring program established in 2001,
as originally planned.
As of December 31, 2001, the remaining balance in the restructuring reserve
included severance and related termination benefits paid over time for
approximately 159 salaried and 330 hourly employees. Net charges of $36.2
million were recorded in 2001 for the cost of these programs. The net charge of
$36.2 million consists of new restructuring reserves of $43.4 million less
reversals of $7.2 million due to the reassessment of previously established
reserves. Cash charges consist primarily of employee termination costs, future
cash payments for employee benefits as required under union contracts, lease
termination and other facility exit costs. Non-cash charges consist primarily of
write-offs of property, plant and equipment.
F-15
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the Company's 2001 restructuring programs:
<Table>
<Caption>
SPECIAL CHARGE
-------------------------------
TOTAL POSITIONS IDENTIFIED
PROGRAMS CASH NON-CASH CHARGE FOR ELIMINATION
- -------- ----- -------- ------ --------------------
(IN MILLIONS)
Baltimore.................................. $ 0.6 $ 1.8 $ 2.4 1
Salaried Reduction in Force................ $ 4.6 -- $ 4.6 82
International Operations................... $ 3.4(a) $ 5.8 $ 9.2 286
Burns Harbor............................... $ 9.5 $ 3.8 $13.3 135
Other Facilities........................... $ 4.9 $ 9.0 $13.9 89
Reassessment of Prior Programs............. -- $(7.2) $(7.2) --
----- ----- ----- ---
Total...................................... $23.0 $13.2 $36.2 593
===== ===== ===== ===
</Table>
- ---------------
(a) Net of cash proceeds of $11.7 million received from the sale of the
Southall, UK site.
Baltimore The Company closed a paint can manufacturing facility and a
warehouse in Baltimore, Maryland and transferred a portion of its production
capacity to another facility located in Baltimore, Maryland.
Salaried Reduction in Force In the third quarter of 2001, the Company
offered a voluntary termination program to all corporate office salaried
employees. Approximately 82 employees accepted the voluntary program.
International Operations After a review of its operating facilities in the
United Kingdom, the Company decided to close its Southall, England manufacturing
facility. Production capabilities will be transferred to the Company's Merthyr
Tydfil and other European Aerosol plants. The European consolidation will reduce
payroll and overhead costs in the U.K. while realigning capacity within Europe
to meet customer demand. In connection with the realignment, the Company
completed the sale of its Southall, United Kingdom property in late December
2001 and the manufacturing facility was closed over the first three-quarters of
2002. In addition, several other headcount reduction programs were initiated
throughout the Company's International operations, including May.
Burns Harbor The Company closed its Burns Harbor, Indiana lithography
facility and transitioned its volume to other existing operations. The closure
will reduce excess capacity, overhead and related payroll costs as well as
leverage investments made in previous years in new technology in existing U.S.
Can facilities.
Other Facilities The Company reviewed its steel paint can capacity versus
Company and industry requirements and decided to permanently reduce capacity by
closing its Dallas, Texas plant. The Company closed this operation in the fourth
quarter of 2001.
In 2001, the Company entered into a lease for a new plastics manufacturing
plant. The Company closed its two existing plastics plants (Newnan, Georgia and
Morrow, Georgia) in the first quarter of 2002, and all goods are now produced in
our new Atlanta plant.
In order to better leverage resources and facilities, the Company closed
its Columbia Specialty plant in 2002, exited certain product lines and
transferred production capacity to its Steeltin and Olive Can operations. The
closure was planned to provide better operating efficiencies and reduce overhead
and payroll costs associated with the Columbia operation.
F-16
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reassessment of Prior Programs Due to the Olive Can acquisition, the
Company revised its plan to close a lithography operation for which it had
previously reserved closing costs. Accordingly, a reversal of previously
provided restructuring reserves was recorded.
The tables below present the reserve categories and related activity as of
December 31, 2001 respectively:
<Table>
<Caption>
JANUARY 1, 2001 DECEMBER 31, 2001
BALANCE ADDITIONS(A) DEDUCTIONS(C) BALANCE
--------------- ------------ ------------- -----------------
(IN MILLIONS)
Employee Separation........... $ 6.1 $19.8 $ (4.7) $21.2
Facility Closing Costs........ 9.3 11.2 (9.8) 10.7
Other Asset Write-Offs........ -- 5.2 (5.2)(d) --
----- ----- ------ -----
Total......................... $15.4 $36.2 $(19.7) $31.9(b)
===== ===== ====== =====
</Table>
- ---------------
(a) Includes a re-assessment of prior programs of $7.2 million
(b) Includes $6.0 million of other long-term liabilities as of December 31, 2001
(c) Includes cash payments of $8.3 million
(d) Net of proceeds from sale of Southall facility of $11.7 million
In 2000, the Company announced a reduction in force program, under which 81
salaried and 39 hourly positions were eliminated. A one-time pre-tax charge for
severance and other termination related costs was recorded in conjunction with
the program.
(5) ACQUISITIONS
On February 20, 2001, certain assets of Olive Can Company, a Custom &
Specialty manufacturer, were acquired for net cash consideration of $4.2
million. The Olive acquisition is not material to the Company's operations or
financial position.
In March 1998, a European Subsidiary acquired a 36.5% equity interest in
Formametal S.A. ("Formametal"), an aerosol can manufacturer located in
Argentina, for $4.6 million. Including the initial investment, the Company has
made advances to and investments in Formametal totaling $19.5 million. The
Company has also provided a $7.5 million loan to Formametal, payable in
installments through March 31, 2007.
In January 2002, Argentina enacted legislation which, among other things,
repealed the one to one U.S. dollar to Argentinean peso exchange rate. The
Company has determined that the Argentinean peso denominated portion of the
investment in Formametal will not be settled in the foreseeable future and
therefore has reduced the investment balance by $17.0 million with an offsetting
charge to accumulated other comprehensive income, representing the impact of the
devaluation.
F-17
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) DEBT OBLIGATIONS
Long-term debt obligations of the Company at December 31, 2002 and 2001
consisted of the following (000's omitted):
<Table>
<Caption>
2002 2001
-------- --------
Senior debt --
Revolving line of credit at adjustable interest rate,
based on market rates, due January 4, 2006............. $ 69,700 $ 56,100
Tranche A term loan at adjustable interest rate, based on
market rates, due January 4, 2006...................... 66,000 74,000
Tranche B term loan at adjustable interest rate, based on
market rates, due January 4, 2006...................... 177,750 178,750
Tranche C term loan at adjustable interest rate, based on
market rates, due January 4, 2006...................... 20,000 20,000
Secured term loan at 8.5% interest rate, due serially to
January 2004........................................... 18,220 19,912
Unsecured revolving lines of credit at adjustable interest
rate, based on market rates............................ 13,384 --
Industrial revenue bonds at adjustable interest rate,
based on market rates, due February 1, 2015............ 4,000 4,000
Capital lease obligations................................. 1,867 4,290
Other..................................................... 2,907 3,870
Senior Subordinated Series B Notes at 12 3/8% interest
rate, due October 1, 2010.............................. 175,000 175,000
Senior Subordinated Series B Notes at 10 1/8% interest
rate, due October 15, 2006............................. 854 854
-------- --------
Total Debt................................................ 549,682 536,776
Less -- Current maturities................................ (26,153) (14,983)
-------- --------
Total long-term debt...................................... $523,529 $521,793
======== ========
</Table>
In connection with the recapitalization, United States Can Company, as
Borrower, entered into a Credit Agreement among United States Can, U.S. Can
Corporation and Domestic Subsidiaries of U.S. Can Corporation as Domestic
Guarantors, and certain lenders including Bank of America, N.A., Citicorp North
America, Inc., and Bank One NA as of October 4, 2000 (the "Senior Secured Credit
Facility"). The Senior Secured Credit Facility provides for aggregate borrowings
of $395.0 million consisting of: (i) $80.0 million Tranche A loan; (ii) $180.0
million Tranche B loan; (iii) $25.0 million Tranche C facility and (iv) $110.0
million under a revolving credit facility. All of the Tranche A and Tranche B
debt and approximately $20.5 million under the revolving credit facility were
used to finance the recapitalization.
Principal repayments required under the Senior Secured Credit Facility are
$10 million in 2003 increasing to $218.8 million in 2006. Also due in 2006 are
any amounts outstanding at that time under the Company's revolving line of
credit. Additionally, the Facility requires a prepayment in the event that
excess cash flow (as defined) exists and following certain other events,
including asset sales and issuances of debt and equity.
Amounts outstanding under the Senior Secured Credit Facility bear interest
at a rate per annum equal to either: (1) the base rate (as defined in the Senior
Secured Credit Facility) or (2) the LIBOR rate (as defined in the Senior Secured
Credit Facility), in each case, plus an applicable margin. The
F-18
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
applicable margins were increased in connection with the 2001 amendments and are
subject to future reductions based on the achievement of certain leverage ratio
targets and on the credit rating of the Senior Secured Credit Facility. The 2002
average interest rate on borrowings under the Senior Secured Credit Facility was
6.1%.
Borrowings under the Tranche A term loan are due and payable in quarterly
installments, which were initially $1.0 million and increase over time to $8.0
million, until the final balance is due. Borrowings under the Tranche B term
loan are due and payable in quarterly installments of nominal amounts. No
payments are due on borrowings under the Tranche C term loan prior to its final
maturity. The revolving credit facility is available until January 4, 2006. In
addition, the Company is required to prepay a portion of the facilities under
the Senior Secured Credit Facility upon the occurrence of certain specified
events.
The Senior Secured Credit Facility is secured by a first priority security
interest in all existing and after-acquired assets of the Company and its direct
and indirect domestic subsidiaries' existing and after-acquired assets,
including, without limitation, real property and all of the capital stock owned
of its direct and indirect domestic subsidiaries (including certain capital
stock of their direct foreign subsidiaries only to the extent permitted by
applicable law). In addition, if loans are made to foreign subsidiaries, they
will be secured by the existing and after-acquired assets of certain of our
foreign subsidiaries.
United States Can also issued $175.0 million aggregate principal amount of
12 3/8% Senior Subordinated Notes due October 1, 2010 ("Notes"). The Notes are
unsecured obligations of United States Can and are subordinated in right of
payment to all of United States Can's senior indebtedness. The Notes are
guaranteed by U.S. Can and all of United States Can's domestic restricted
subsidiaries.
The Senior Secured Credit Facility and the Notes contain a number of
financial and restrictive covenants. The covenants for the Senior Secured Credit
Facility were amended in connection with the 2001 amendments. Under its Senior
Secured Credit Facility, the Company is required to meet certain financial
tests, including achievement of a minimum EBITDA level (as defined in the Senior
Secured Credit Facility), a minimum interest coverage ratio, a minimum fixed
charge coverage ratio and a maximum leverage ratio. The restrictive covenants
limit the Company's ability to incur debt, pay dividends or make distributions,
sell assets or consolidate or merge with other companies. The Company was in
compliance with all of the required financial ratios and other covenants at
December 31, 2002 and anticipates being in compliance in 2003. However, the
minimum EBITDA level covenant increases significantly in each of the first three
quarters of 2003. Although management believes that the Company will be in
compliance with these and other covenants under the Senior Secured Credit
Facility, factors beyond the Company's control, such as sudden downturns in the
demand for its products or significant cost increases that it cannot quickly
pass through to customers or offset through cost reductions, may cause the
Company's earnings levels to not achieve those forecasted. If the Company
believes that it would be unable to achieve its minimum EBITDA level or other
financial covenants, the Company would expect to negotiate with the lenders an
amendment to its Senior Secured Credit Facility. The Company cannot be assured
however, that the lenders would agree to an amendment if one were required.
Without such an amendment or a waiver, the Company would be in default on almost
all of its borrowings, which would have severe consequences to the Company
regarding its sources of liquidity and its ability to continue operations.
In connection with the recapitalization, the Corporation completed a tender
offer and consent solicitation for all of its outstanding 10 1/8% Notes due
2006, plus accrued interest and a bond tender premium. $235.7 million of the
$236.6 million principal amount of bonds outstanding were purchased by the
Corporation in the tender offer. A pre-tax charge of $24.2 million ($14.9
million, net of tax) was taken in the fourth quarter of 2000, related to the
tender premium and the write-off of related deferred financing charges.
F-19
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under existing agreements, contractual maturities of long-term debt as of
December 31, 2002 (including capital lease obligations), are as follows (000's
omitted):
<Table>
2003........................................................ $ 26,153
2004........................................................ 31,813
2005........................................................ 21,576
2006........................................................ 289,840
2007........................................................ 1,300
Thereafter.................................................. 179,000
--------
$549,682
========
</Table>
See Note (10) for further information on obligations under capital leases.
Other debt, consisting of various governmental loans, unsecured foreign debt and
secured equipment notes bearing interest at rates between 1.4% and 8.5% matures
at various times through 2015, and was used to finance the expansion of several
manufacturing facilities.
In an effort to limit foreign exchange risks, and as required by the Credit
Agreement, the Company had entered into several forward hedge contracts. The
payments due on the secured term loan used to finance the acquisition of the
Merthyr Tydfil facility were hedged by a series of British Pound/Dollar forward
contracts. Pursuant to the agreement under which the contracts had been issued,
the counterparty elected to terminate the contracts in January 2003. In
connection with the termination, the Company paid $1.0 million to the
counterparty, which will be reflected in 2003 interest expense in accordance
with the original contract terms.
Based upon borrowing rates currently available to the Company for
borrowings with similar terms and maturities, the fair value of the Company's
total debt was approximately $453.2 million and $472.9 million as of December
31, 2002 and 2001, respectively. No quoted market value is available (except on
the 12 3/8% and the 10 1/8% Notes). These amounts, because they do not include
certain costs such as prepayment penalties, do not represent the amount the
Company would have to pay to reacquire and retire all of its outstanding debt in
a current transaction.
The Company paid interest on borrowings of $56.0 million, $55.2 million and
$27.5 million in 2002, 2001 and 2000, respectively. Accrued interest payable of
$8.2 million and $11.9 million as of December 31, 2002 and 2001 respectively, is
included in accrued expenses on the consolidated balance sheet.
F-20
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES
The provision (benefit) for income taxes before the cumulative effect of a
change in accounting principle consisted of the following (000's omitted):
<Table>
<Caption>
2002 2001 2000
------- -------- -------
Current
U.S.................................................. $ -- $ -- $ --
Foreign.............................................. 1,913 1,335 470
Deferred
U.S.................................................. 490 (19,789) (7,003)
Foreign.............................................. (9,484) (4,580) 1,573
Valuation Allowance.................................... 44,718 -- --
------- -------- -------
Total............................................. $37,637 $(23,034) $(4,960)
======= ======== =======
</Table>
Due to a history of operating losses in certain countries coupled with the
deferred tax assets that arose in connection with the restructuring programs and
goodwill impairment charges, the Company has determined that it cannot conclude
that it is "more likely than not" that all of the deferred tax assets of certain
of its foreign operations will be realized in the foreseeable future.
Accordingly, during the fourth quarter of 2002, the Company established a
valuation allowance of $44.7 million to provide for the estimated unrealizable
amount of its net deferred tax assets as of December 31, 2002. The Company will
continue to assess the valuation allowance and, to the extent it is determined
that such allowance is no longer required, these deferred tax assets will be
recognized in the future. The provision (benefit) for income taxes above
excludes the tax impact of the goodwill impairment charge recorded in 2002 of
$20.8 million (see Note 15).
The Company received refunds of $4.9 million, $0.3 million and $2.2 million
in 2002, 2001 and 2000 respectively.
The components of loss before income taxes for the three years ended
December 31, 2002, 2001 and 2000 were as follows (000's omitted):
<Table>
<Caption>
2002 2001 2000
-------- -------- --------
U.S.................................................. $ (1,726) $(44,839) $(18,599)
Foreign.............................................. (14,111) (18,611) 2,117
-------- -------- --------
Loss before income taxes........................... $(15,837) $(63,450) $(16,482)
======== ======== ========
</Table>
A reconciliation of the difference between taxes on pre-tax loss from
continuing operations before the cumulative effect of a change in accounting
principle and computed at the Federal statutory rate and the actual provision
(benefit) for such income taxes for the years presented were as follows (000's
omitted):
<Table>
<Caption>
2002 2001 2000
------- -------- -------
Tax benefit computed at the statutory rates............ $(5,385) $(21,573) $(6,691)
Nondeductible recapitalization costs and amortization
of intangible assets................................. (143) 398 1,658
State taxes, net of Federal tax effect................. (880) (1,601) 113
Valuation allowance.................................... 44,718 -- --
Other, net............................................. (673) (258) (40)
------- -------- -------
Provision (benefit) for income taxes................. $37,637 $(23,034) $(4,960)
======= ======== =======
</Table>
F-21
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities given the provisions of the enacted tax laws. Significant
temporary differences representing deferred income tax benefits and obligations
consisted of the following (including $2.6 million and $3.8 million of deferred
tax liabilities included in Other Long-Term Liabilities as of December 31, 2002
and 2001, respectively) (000's omitted):
<Table>
<Caption>
DECEMBER 31, 2002 DECEMBER 31, 2001
---------------------- ----------------------
BENEFITS OBLIGATIONS BENEFITS OBLIGATIONS
-------- ----------- -------- -----------
Restructuring reserves..................... $ 5,560 -- $17,355 --
Goodwill................................... 15,305 -- -- (6,174)
Retirement and post-employment benefits.... 26,554 -- 14,231 --
Accrued liabilities........................ 8,528 -- 9,317 --
Tax credit carry-forwards.................. 6,112 -- 7,015 --
Capitalized leases......................... -- (930) -- (255)
Property and equipment..................... -- (23,745) -- (27,804)
Inventory valuation reserves............... -- (6,054) -- (4,271)
Net operating losses....................... 47,983 -- 30,173 --
Other...................................... 2,445 (2,589) 2,386 (3,262)
-------- -------- ------- --------
Total deferred income tax benefits
(obligations)......................... 112,487 (33,318) 80,477 (41,766)
Valuation allowance........................ (44,718) -- -- --
-------- -------- ------- --------
Total.................................... $ 67,769 $(33,318) $80,477 $(41,766)
======== ======== ======= ========
</Table>
The Company's U.S. net operating losses expire as follows: $26.6 million in
2020 and $28.0 million in 2021 and $34.8 million in 2022 and management believes
it is more likely than not that the tax benefit of the net deferred tax assets
will be realized prior to expiration. The Company has foreign net operating loss
carryforwards in Germany and the United Kingdom which have no expiration date.
However, the Company has taken a valuation reserve against the full amount of
its foreign net operating loss carryforwards.
The Company does not provide for U.S. income taxes which would be payable
if undistributed earnings of the European Subsidiaries were remitted to the U.S.
because the Company either considers these earnings to be invested for an
indefinite period or anticipates that if such earnings were distributed, the
U.S. income taxes payable would be substantially offset by foreign tax credits.
On a net basis, there were no unremitted earnings at December 31, 2002.
(8) EMPLOYEE BENEFIT PLANS
The Company maintains separate noncontributory defined benefit and defined
contribution pension plans covering most domestic hourly employees and all
domestic salaried personnel, respectively. It is the Company's policy to fund
accrued pension and defined contribution plan costs in compliance with ERISA or
the applicable foreign requirements.
F-22
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables present the changes in the projected benefit
obligations for the plan years ended December 31, 2002 and 2001 (000's omitted):
<Table>
<Caption>
U.S. 2002 2001
- ---- ------- -------
Projected benefit obligation at the beginning of the year... $33,304 $33,510
Net increase (decrease) during the year attributed to:
Service cost.............................................. 860 886
Interest cost............................................. 2,387 2,399
Actuarial losses.......................................... 3,028 537
Benefits paid............................................. (2,055) (5,378)
Plan amendments........................................... 286 1,350
Plan curtailment(a)....................................... 959 --
Special termination benefit(a)............................ 1,141 --
------- -------
Net increase (decrease) during the year..................... 6,606 (206)
------- -------
Projected benefit obligation at the end of the year......... $39,910 $33,304
======= =======
</Table>
- ---------------
(a) The plan curtailment benefit and special termination benefit are associated
with the closure of the Burns Harbor lithography facility.
F-23
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
NON-U.S. 2002 2001
- -------- ------- -------
Projected benefit obligation at the beginning of the year... $56,790 $53,196
Net increase during the year attributed to:
Service cost.............................................. 635 717
Interest cost............................................. 3,224 2,786
Actuarial losses.......................................... 5,259 2,715
Benefits paid............................................. (2,679) (1,830)
Plan amendments........................................... 119 242
Plan curtailment(a)....................................... (1,003) --
Foreign currency translation impact....................... 6,283 (1,036)
------- -------
Net increase during the year................................ 11,838 3,594
------- -------
Projected benefit obligation at the end of the year......... $68,628 $56,790
======= =======
</Table>
- ---------------
(a) The plan curtailment is associated with the closure of the Southall, U.K.
facility.
The following tables present the changes in the fair value of net assets
available for plan benefits for the plan years ended December 31, 2002 and 2001
(000's omitted):
<Table>
<Caption>
U.S. 2002 2001
- ---- ------- -------
Fair value of plan assets at the beginning of the year...... $32,104 $37,299
Increase (decrease) during the year:
Return on plan assets..................................... (2,505) (1,304)
Sponsor contributions..................................... -- 1,487
Benefits paid............................................. (2,055) (5,378)
------- -------
Net decrease during the year................................ (4,560) (5,195)
------- -------
Fair value of plan assets at the end of the year............ $27,544 $32,104
======= =======
</Table>
<Table>
<Caption>
NON-U.S. 2002 2001
- -------- ------- -------
Fair value of plan assets at the beginning of the year...... $43,431 $49,462
Increase (decrease) during the year:
Return on plan assets..................................... (7,474) (4,272)
Sponsor contributions..................................... 845 1,072
Participant contributions................................. 119 242
Benefits paid............................................. (2,679) (1,830)
Foreign currency translation impact....................... 4,584 (1,243)
------- -------
Net decrease during the year................................ (4,605) (6,031)
------- -------
Fair value of plan assets at the end of the year............ $38,826 $43,431
======= =======
</Table>
F-24
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth the funded status of the Company's defined
benefit pension plans, at December 31, 2002 and 2001 (000's omitted):
<Table>
<Caption>
U.S. 2002 2001
- ---- -------- --------
Actuarial present value of benefit obligation --
Vested benefits........................................... $(34,921) $(27,489)
Nonvested benefits........................................ (4,989) (5,815)
-------- --------
Accumulated benefit obligation.............................. (39,910) (33,304)
Fair value of plan assets................................... 27,544 32,104
-------- --------
Fair value of plan assets in excess of accumulated benefit
obligation................................................ (12,366) (1,200)
Unrecognized net loss....................................... 8,464 288
Unrecognized prior-service costs.......................... 2,929 3,181
-------- --------
Net amount recognized....................................... $ (973) $ 2,269
======== ========
Amounts recognized in the consolidated balance sheet consist
of:
Accrued benefit liability................................. $(12,366) $ (1,200)
Intangible asset.......................................... 2,930 3,181
Deferred tax asset........................................ 3,395 --
Accumulated other comprehensive income.................... 5,068 288
-------- --------
Net amount recognized..................................... $ (973) $ 2,269
======== ========
</Table>
F-25
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
NON-U.S. 2002 2001
- -------- -------- --------
Actuarial present value of benefit obligation --
Vested benefits........................................... $(68,569) $(53,818)
Nonvested benefits........................................ (6) (39)
-------- --------
Accumulated benefit obligation.............................. (68,575) (53,857)
Additional amounts related to projected increases in
compensation levels....................................... (53) (2,933)
-------- --------
Projected benefit obligation................................ (68,628) (56,790)
Fair value of plan assets................................... 38,826 43,431
-------- --------
Fair value of plan assets in excess of projected benefit
obligation............................................. (29,802) (13,359)
Unrecognized net loss....................................... 26,354 7,083
-------- --------
Net amount recognized....................................... $ (3,448) $ (6,276)
======== ========
Amounts recognized in the consolidated balance sheet consist
of:
Accrued benefit liability................................. $(29,654) $ (6,277)
Deferred tax asset(a)..................................... 9,172 --
Accumulated other comprehensive income.................... 17,034 --
-------- --------
Net amount recognized..................................... $ (3,448) $ (6,277)
======== ========
</Table>
- ---------------
(a) Prior to recognition of valuation allowance.
The projected benefit obligation as of December 31, 2002, 2001 and 2000 was
determined using the following assumed discount rates and expected long-term
rate of return on plan assets:
<Table>
<Caption>
U.S. 2002 2001 2000
- ---- ----- ----- -----
Discount Rate............................................... 6.75% 7.25% 7.50%
Long-Term Rate of Return on Plan Assets..................... 8.50% 8.50% 8.50%
</Table>
<Table>
<Caption>
NON-U.S. 2002 2001 2000
- -------- ------------ ------------ ------------
Discount Rate............................... 5.00 - 5.75% 5.00 - 6.00% 5.50 - 6.00%
Long-Term Rate of Return on Plan Assets..... 7.00% 7.00% 7.00%
</Table>
The plan has a non-pay related dollar multiplier benefit formula;
accordingly, the effect of projected future compensation levels is zero. The
plan's assets consist primarily of shares of equity and bond funds, corporate
bonds and cash and cash equivalents.
The net periodic pension cost was as follows (000's omitted):
<Table>
<Caption>
U.S. 2002 2001 2000
- ---- ------- ------- -------
Service costs........................................... $ 860 $ 886 $ 782
Interest costs.......................................... 2,387 2,399 2,296
Return on assets........................................ (2,644) (2,981) (2,454)
Amortization of unrecognized transition obligation...... -- 2 1
Recognized (gains)/loss................................. -- 250 (318)
Recognized prior service cost........................... 392 372 246
Curtailment loss and special termination benefits(a).... 2,247 -- --
------- ------- -------
Net periodic pension cost............................... $ 3,242 $ 928 $ 553
======= ======= =======
</Table>
F-26
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- ---------------
(a) The curtailment loss and special termination benefits include a plan
curtailment benefit of $1.0 million, special termination benefit of $1.1
million, and recognition of prior service cost of $0.1 million, associated
with the closure of the Burns Harbor lithography facility.
<Table>
<Caption>
NON-U.S. 2002 2001 2000
- -------- ------- ------- -------
Service costs........................................... $ 635 $ 717 $ 825
Interest costs.......................................... 3,224 2,786 2,844
Return on assets........................................ (3,301) (3,358) (3,693)
Recognized (gains)/loss................................. 235 -- --
------- ------- -------
Net periodic pension cost............................... $ 793 $ 145 $ (24)
======= ======= =======
</Table>
In addition, hourly employees at four plants are covered by union-sponsored
collectively bargained, multi-employer pension plans. The Company contributed to
these plans and charged to expense approximately $1.1 million, $1.1 million and
$1.2 million in 2002, 2001 and 2000, respectively. The contributions are
generally determined in accordance with the provisions of the negotiated labor
contracts and are generally based on a per employee, per week amount. The
Company's liability, if any, is not presently determinable and therefore no
amount has been recorded for any contingent unfunded liability.
The Company provides a 401(k) defined contribution plan to eligible
employees. Company matching contributions for employees and related
administration costs associated with the plan were $2.4 million, $2.5 million
and $2.3 million for 2002, 2001 and 2000, respectively.
(9) POSTRETIREMENT BENEFIT PLANS
The Company provides health and life insurance benefits for certain
domestic retired employees in connection with collective bargaining agreements.
The following presents the changes in the accumulated postretirement
benefit obligations for the plan years ended December 31, 2002 and 2001 (000's
omitted):
<Table>
<Caption>
2002 2001
------- -------
Accumulated postretirement benefit obligations at the
beginning of the year..................................... $26,833 $25,351
Net increase (decrease) during the year attributable to:
Service cost.............................................. 408 225
Interest cost............................................. 1,734 1,871
Actuarial loss............................................ 8,497 1,060
Benefits paid............................................. (1,947) (1,674)
Plan amendments........................................... (4,506) --
Plan curtailment(a)....................................... 479 --
Special termination benefit(a)............................ 727 --
------- -------
Net increase for the year................................... 5,392 1,482
------- -------
Accumulated postretirement benefit obligations at the end of
the year.................................................. $32,225 $26,833
======= =======
</Table>
- ---------------
(a) The plan curtailment benefit and special termination benefit are associated
with the closure of the Burns Harbor lithography facility.
F-27
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective January 1, 2002 the Company amended the postretiree health care
plan. The amendment resulted in a reduction in the accumulated postretirement
benefit obligation of $4.5 million by capping the Company's contribution toward
retiree medical costs at 150% of the expected 2003 medical costs.
The Company's postretirement benefit plans are not funded. The status of
the plans at December 31, 2002 and 2001, is as follows (000's omitted):
<Table>
<Caption>
2002 2001
------- -------
Accumulated postretirement benefit obligations:
Active employees.......................................... $ 9,812 $ 5,777
Retirees.................................................. 22,413 21,056
------- -------
Total accumulated postretirement benefit obligations........ 32,225 26,833
Unrecognized net gain/(loss)................................ (6,953) 1,544
Unrecognized prior-service costs............................ 4,125 --
------- -------
Net liability recognized.................................... $29,397 $28,377
======= =======
</Table>
Net periodic postretirement benefit costs for the Company's U.S.
postretirement benefit plans for the years ended December 31, 2002, 2001 and
2000, included the following components (000's omitted):
<Table>
<Caption>
2002 2001 2000
------ ------ ------
Service cost............................................... $ 407 $ 225 $ 243
Interest cost.............................................. 1,734 1,871 1,764
Recognized gain............................................ -- -- (152)
Recognized prior-service cost.............................. (382) -- --
Curtailment and Special termination benefit................ 1,206 -- --
------ ------ ------
Net periodic postretirement benefit cost................... $2,965 $2,096 $1,855
====== ====== ======
</Table>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9% to 4% in 2002 and 7% in 2001 and 2000.
The 2002 health care assumption was based upon emerging health care trends, and
begins at a 9% increase in 2003, reducing by 1% each year thereafter, until
2008. A one percentage point increase in the assumed health care cost trend rate
for each year would increase the accumulated postretirement benefit obligation
as of December 31, 2002 and 2001, by approximately $3.6 million and $2.3
million, respectively, and the total of the service and interest cost components
of net postretirement benefit cost for each year then ended by approximately
$0.3 million, $0.3 million and $0.2 million in 2002, 2001 and 2000. A one
percentage point decrease in the assumed health care cost trend rate for each
year would decrease the accumulated postretirement benefit obligation as of
December 31, 2002 and 2001, by approximately $3.2 million and $2.1 million in
2002 and 2001 respectively, and the total of the service and interest cost
components of net postretirement benefit cost for each year then ended by
approximately $0.3 million in 2002 and $0.2 million in both 2001 and 2000. The
assumed discount rate used in determining the accumulated postretirement benefit
obligation was 6.75%, 7.25% and 7.5%, in 2002, 2001 and 2000, respectively. The
increased health care cost trends, along with the decreased discount rate
assumptions are the primary drivers of the $8.5 million actuarial loss disclosed
above.
As of December 31, 2002, 2001 and 2000, the Company has recorded a
liability of $3.0 million, $3.1 million and $3.2 million, respectively, for
benefit obligations for which a former executive was fully eligible to receive
on a periodic payment basis beginning August 1, 1998. In 2002, the Company also
F-28
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded a $244,000 charge to accumulated other comprehensive loss in
conjunction with the benefit obligations. The principal source of funding for
this obligation is an insurance policy on the executive's life.
(10) COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
United States Can has been named as a potentially responsible party for
costs incurred in the clean-up of a groundwater plume partially extending
underneath United Sates Can's former site in San Leandro, California. We are a
party to an indemnity agreement related to this matter with the owner of the
property. Extensive soil and groundwater investigative work has been performed
at this site in a coordinated sampling event in 1999. The results of the
sampling were inconclusive as to the source of the contamination. While the
State of California has not yet commented on the sampling results, we believe
that the principal source of contamination is unrelated to our past operations.
At the request of the State of California, the Company will provide the State
with samples from monitoring wells located at the San Leandro site as part of a
coordinated sampling event that is currently scheduled for the first quarter of
2003.
Through corporate due diligence and the Company's compliance management
system, a potential noncompliance with the environmental laws at our New Castle,
Pennsylvania facility related to the possible use of a coating or coatings
inconsistent with the conditions in the facility's Clean Air Act Title V permit
was identified. In February 2001, the Company voluntarily self-reported the
potential noncompliance to the Pennsylvania Department of Environmental
Protection (PDEP) and the Environmental Protection Agency (EPA) in accordance
with PDEP's and EPA's policies. The Company undertook a full review, revised its
emissions calculations based on its review and determined that it had not
exceeded its emissions cap for any reporting year. In September 2001, the
Company reported to PDEP and EPA certain deviations from the requirements of its
Title V permit related to the use of non-compliant coatings and corresponding
recordkeeping and reporting obligations, and certain recordkeeping deviations
stemming from the malfunction of the temperature recorder for an oxidizer. The
Company met with PDEP officials in October 2001, and provided some supplemental
information requested by PDEP in November 2001. On May 21, 2002, the Company met
with PDEP officials and reached an agreement to resolve the past reported
deviations by entering into a Consent Assessment of Civil Penalty for $30,000.
The Company and PDEP signed a definitive agreement in October 2002 and the
Company paid the first installment. The second installment is due in April 2003.
LEGAL
The Company is involved in litigation from time to time in the ordinary
course of our business. In our opinion, the litigation is not material to our
financial condition or results of operations.
In May 1998, the National Labor Relations Board issued a decision ordering
the Company to pay $1.5 million in back pay, plus interest, for a violation of
certain sections of the National Labor Relations Act. The violation was a result
of the Company's closure of several facilities in 1991 and its failure to offer
inter-plant job opportunities to 25 affected employees. The Company appealed
this decision on the ground that we are entitled to a credit against this award
for certain supplemental unemployment benefits and pension payments. On June 19,
2001, the Court of Appeals issued a written decision. While the Court enforced
the award of backpay, with interest, it agreed with the Company's position that
the NLRB should permit the Company to present actuarial calculations of any
credit due it because of overpayments or early payments of supplemental
unemployment benefits or pension. On March 1, 2002, the Company settled this
case. Under the settlement agreement, the Company paid approximately $1.8
million in backpay and interest, as well as certain pension adjustments that are
not expected to have a material effect on the Company. The National Labor
Relations Board approved the settlement on May 30, 2002. The Company
F-29
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
made substantially all payments due under the settlement in July 2002. In
October 2002, the NLRB entered an Order officially closing this matter.
Walter Schmidt, former finance director at May Verpackungen GmbH ("May")
sued for unfair dismissal following termination of his employment contract. The
contract had a five-year term and Schmidt remains in pay status through its
notice period, ending January 31, 2005. Mr. Schmidt claims that he also is due a
severance settlement of five years' salary at the end of the notice period. In
July 2002, the labor courts of first instance ruled that Mr. Schmidt notice date
and termination should be effective December 31, 2005, and that the severance
settlement is due at that time. On January 7, 2003, May appealed this ruling. In
its appeal, May contends that the labor courts' ruling is erroneous on four
bases. The appeals court will review the ruling of the labor courts of first
instance de novo, meaning that it is not bound by the prior ruling and may
render an independent decision. Since the appeals court's review is not
complete, the Company is unable, at this time, to determine the appeals court's
position or the effect on the Company of the initial decision.
LEASES
The Company has entered into agreements to lease certain property under
terms which qualify as capital leases. Capital leases consist primarily of
various production machinery and equipment. Most capital leases contain renewal
options and some contain purchase options. As of December 31, 2002 and 2001,
capital lease assets were $1.4 million and $3.3 million, net of accumulated
amortization of $7.6 million and $9.8 million, respectively.
The Company also maintains operating leases on various plant and office
facilities, vehicles and office equipment. Rent expense under operating leases
for the years ended December 31, 2002, 2001 and 2000, was $7.0 million, $8.3
million and $7.2 million, respectively.
At December 31, 2002, minimum payments due under these leases were as
follows (000's omitted):
<Table>
<Caption>
CAPITAL OPERATING
LEASES LEASES
------- ---------
2003........................................................ $1,143 $ 4,997
2004........................................................ 764 4,326
2005........................................................ 41 3,883
2006........................................................ -- 3,125
2007........................................................ -- 2,827
Thereafter.................................................. -- 3,628
------ -------
Total minimum lease payments.............................. 1,948 $22,786
=======
Amount representing interest................................ (81)
------
Present value of net minimum capital lease payments......... $1,867
======
</Table>
(11) EQUITY INCENTIVE PLANS
In connection with the recapitalization, the Board of Directors and
stockholders of U.S. Can Corporation approved the U.S. Can 2000 Equity Incentive
Plan. The Board of Directors administers the plan and may, from time to time,
grant option awards to directors of U.S. Can Corporation, including directors
who are not employees of U.S. Can Corporation, all executive officers of U.S.
Can Corporation and its subsidiaries, and other employees, consultants, and
advisers who, in the opinion of the Board, are in a position to make a
significant contribution to the success of U.S. Can and its subsidiaries. The
Board of Directors may grant options that are time-vested and options that vest
based on the attainment of
F-30
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
performance goals specified by the Board of Directors. All previous plans were
terminated in connection with the recapitalization.
In prior years, the Company made grants of restricted shares which were
charged to stockholders' equity at their fair value and amortized as expense on
a straight-line basis over the period earned. In 2000, all unvested outstanding
restricted stock was accelerated and issued or otherwise retired in connection
with the recapitalization.
On December 20, 2002, U.S. Can Corporation amended its certificate of
incorporation to effect (i) a reverse stock split which, upon filing with the
Secretary of State of the State of Delaware, reclassified and converted each
preexisting share of common stock and Series A preferred stock into 1/1000th of
a share of common and preferred stock, respectively, and (ii) a corresponding
reduction in the number of its authorized shares of common stock from
100,000,000 shares to 100,000 shares and in the number of its authorized shares
of preferred stock from 200,000,000 shares to 200,000 shares. The reverse stock
split did not affect the relative percentages of ownership for any shareholders.
A summary of the status of the Company's stock option plans (as restated
for the reverse stock split) at December 31, 2002, 2001 and 2000, and changes
during the years then ended, are presented in the tables below:
<Table>
<Caption>
OPTIONS OUTSTANDING EXERCISABLE OPTIONS
----------------------------- ----------------------------
SHARES WEIGHTED AVERAGE SHARES WEIGHTED AVERAGE
(IN 000S) EXERCISE PRICE (IN 000S) EXERCISE PRICE
---------- ---------------- --------- ----------------
December 31, 1999............... 1,438.150 $16,820 801.212 $15,900
Granted....................... 433.500 14,190
Exercised..................... (1,855.859) 16,290
Canceled...................... (15.791) 6,200
---------- -------
October 4, 2000................. -- --
Granted....................... 2,476.542 1,000 -- --
Exercised..................... -- --
Canceled...................... -- --
---------- -------
December 31, 2000............... 2,476.542 1,000 -- --
Granted....................... 154.000 1,000
Exercised..................... -- --
Canceled...................... (387.622) 1,000
---------- -------
December 31, 2001............... 2,242.920 1,000 325.547 1,000
Granted....................... 25.000 1,000
Exercised..................... -- --
Canceled...................... (461.186) 1,000
---------- -------
December 31, 2002............... 1,806.734 1,000 551.744 1,000
</Table>
<Table>
<Caption>
EXERCISABLE OPTIONS AT
OPTIONS OUTSTANDING AT DECEMBER 31, 2002 DECEMBER 31, 2002
------------------------------------------- --------------------------
REMAINING
CONTRACTUAL WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
--------- ------------ ---------------- ------- ----------------
$1,000.00............. 1,806.734 7.40 1,000.00 551.744 $1,000.00
========= ======= =========
</Table>
F-31
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company accounts for the plan using the intrinsic fair value method
under APB Opinion No. 25; therefore, no compensation costs have been recognized
for options granted. Had compensation costs been determined on the fair
value-based accounting method for options granted in 2002, 2001 and 2000, pro
forma net income (loss) would have been $(84.3) million, $(51.8) million and
$(18.4) million for 2002, 2001 and 2000, respectively.
The weighted-average estimated fair value of options granted during 2002,
2001, and 2000 after and before the recapitalization was $341.10, $388.42,
$440.02, and $13,515.71, respectively. The fair value of each option grant is
determined on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions for options granted in 2002,
2001, and 2000 after and before the recapitalization, respectively: risk-free
interest rate of 4.26%, 5.04%, 6.0% and 6.0%; expected lives of 10 years in all
cases; expected volatility of 0%, 0%, 0%, and 35.2%; and no dividends for any
year.
(12) REDEEMABLE PREFERRED STOCK
As part of the recapitalization, U.S. Can Corporation issued shares of
preferred stock having an aggregate value of $106.7 million to Berkshire
Partners and its affiliates and the rollover stockholders. Dividends accrue on
the preferred stock at an annual rate of 10%, are cumulative from the date of
issuance and compounded quarterly, on March 31, June 30, September 30 and
December 31 of each year and are payable in cash when and as declared by our
Board of Directors, so long as sufficient cash is available to make the dividend
payment and has been obtained in a manner permitted under the terms of our new
senior secured credit facility and the indenture. As of December 31, 2002 and
2001, dividends of approximately $26.5 million and $13.9 million, respectively,
have been accrued. Holders of the preferred stock have no voting rights, except
as otherwise required by law. The preferred stock has a liquidation preference
equal to the purchase price per share, plus all accrued and unpaid dividends.
The preferred stock ranks senior to all classes of U.S. Can Corporation common
stock and is not convertible into common stock.
The Company is required to redeem the preferred stock, at the option of the
holders, at a price equal to its liquidation preference, plus accrued and unpaid
dividends, upon the occurrence of any of the following events and so long as
sufficient cash is available to the Company or available from dividend payments
permitted under the terms of the Company's debt agreement:
- the bankruptcy of the Company
- the acceleration of debt under any major loan agreement to which the
Company or any of its subsidiaries is a party; or
- public offerings of shares of capital stock of the Company
The Company's certificate of incorporation expressly states that any
redemption rights of holders of preferred stock shall be subordinate or
otherwise subject to prior rights of the lenders under the Company's Senior
Secured Credit Facility and the holders of the exchange notes.
At this time, the Company's Senior Secured Credit Facility prohibits the
Company's ability to redeem the preferred stock and the debt agreement restricts
the Company's ability to obtain funds that may be necessary to redeem the
preferred stock.
(13) RELATED PARTIES
Berkshire Partners is the majority shareholder (77.3%) of the Company.
Berkshire received a fee of $2.0 million upon the completion of the
recapitalization and receives a management fee of $750,000 per year.
F-32
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the provisions of the second amendment to the Senior Secured Credit
Facility, Berkshire Partners may be required to cash collateralize and
ultimately repurchase the Tranche C term loan facility. In consideration for
Berkshire's agreement to purchase a participation in the Tranche C term loan,
the Company has agreed to accrue for and pay to Berkshire an annual fee of 2.75%
of the amount of the Tranche C term loan then outstanding, which was $550,000
for 2002. This amount was included in accrued liabilities in the accompanying
balance sheet. This fee is payable in advance, is non-refundable and may not be
paid in cash (without the requisite senior lenders' consent) so long as the
Company's current senior bank debt is outstanding. If Berkshire were required to
purchase a Tranche C term loan participation in the future, the Company would be
required to pay Berkshire the amount of such Tranche C term loan, plus accrued
interest, to the extent of Berkshire's participation. The Company also agreed to
reimburse Berkshire's out-of-pocket costs and expenses incurred in connection
with the purchase agreement and the second amendment to the credit agreement.
Salomon Smith Barney currently beneficially owns 4.90% of the Company's
common stock. Salomon Smith Barney was paid $2.0 million in fees in 2000 for
financial advisory services provided in connection with the recapitalization.
(14) REVERSE STOCK SPLIT
On December 5, 2002, the board of directors authorized (i) a reverse stock
split in which each issued share of the Company's common stock and Series A
preferred stock, $0.01 par value per share, would be reclassified as and
converted into 1/1000th of a share of common stock and preferred stock, $10.00
par value per share, subject to approval of the Company's shareholders and (ii)
a corresponding reduction in the number of its authorized shares of common stock
from 100,000,000 shares to 100,000 shares and in the number of its authorized
shares of preferred stock from 200,000,000 shares to 200,000 shares. During
December, the Company obtained the necessary shareholder consents and on
December 20, 2002, U.S. Can Corporation, upon filing with the Secretary of State
of the State of Delaware, amended its certificate of incorporation to effect the
reverse stock split. The reverse stock split did not affect the relative
percentages of ownership for any shareholders. The reverse stock split did not
affect the annual rate at which dividends on preferred stock accrue, their
cumulation or quarterly compounding. Dividends remain payable in cash when and
as declared by our Board of Directors, so long as sufficient cash is available
to make the dividend payment and such payment would not violate the terms of the
Facility and the Notes.
(15) ACCOUNTING CHANGE
The Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets" on
January 1, 2002. This standard provides accounting and disclosure guidance for
acquired intangibles. Under this standard, goodwill and "indefinite-lived"
intangibles are no longer amortized, but are tested at least annually for
impairment. Effective January 1, 2002, the Company has ceased amortization of
goodwill. The Company recorded goodwill amortization of $2.8 million and $2.9
million for the years ended December 31, 2001 and 2000. SFAS No. 142 required
the Company to make an initial assessment of goodwill impairment within six
months after the adoption date. The initial step was designed to identify
potential goodwill impairment by comparing an estimated fair value for each
applicable reporting unit to its respective carrying value. For the reporting
units where the carrying value exceeds the fair value, a second step was
performed to measure the amount of the goodwill impairment.
During the first six months of 2002, the Company completed the initial
transitional goodwill impairment test as of January 1, 2002, and reported that a
non-cash impairment charge was required in the Custom & Specialty and
International segments. During the fourth quarter of 2002, the Company
determined the amount of the goodwill impairment and recorded a pre-tax goodwill
impairment charge of $39.1 million ($18.3 million, net of tax) relating to the
Custom & Specialty and International segments.
F-33
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The charge has been presented as a cumulative effect of a change in accounting
principle effective as of January 1, 2002 and is primarily due to competitive
pressures in the Custom & Specialty and International segment marketplaces. To
determine the amount of goodwill impairment, the Company measured the impairment
loss as the excess of the carrying amount of goodwill over the implied fair
value of goodwill. The impairment charge has no impact on covenant compliance
under the Senior Secured Credit Agreement.
The changes in the carrying amount of goodwill by segment for the year
ended December 31, 2002 were as follows (in 000's):
<Table>
<Caption>
PAINT, PLASTIC & CUSTOM &
AEROSOL INTERNATIONAL GENERAL LINE SPECIALTY TOTAL
------- ------------- ---------------- --------- --------
Balance, December 31, 2001... $7,255 $ 25,826 $20,129 $ 13,227 $ 66,437
Impairment write-offs........ -- (25,826) -- (13,227) (39,053)
------ -------- ------- -------- --------
Balance, December 31, 2002... $7,255 $ -- $20,129 $ -- $ 27,384
====== ======== ======= ======== ========
</Table>
Pursuant to SFAS No. 142, the results for 2001 and 2000 have not been
restated. A reconciliation of net loss as if SFAS 142 had been adopted is
presented below for the years ended December 31, 2001 and 2000.
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2001 2000
-------------- --------------
(IN THOUSANDS)
Reported Net Loss Attributable to Common Stockholders..... $(51,761) $(14,123)
Add back: Goodwill amortization (net of tax).............. 1,858 1,914
-------- --------
Adjusted Net Loss Attributable to Common Stockholders..... $(49,903) $(12,209)
======== ========
</Table>
(16) BUSINESS SEGMENTS
Management monitors and evaluates performance, customer base and market
share for four business segments. The segments have separate management teams
and distinct product lines. The Aerosol segment primarily produces steel aerosol
containers in the U.S. for personal care, household, automotive, paint and
industrial products. The International segment produces aerosol cans in the
Europe and Latin America (through Formametal S.A., a joint venture in Argentina)
as well as steel food packaging in Europe. The Paint, Plastic & General Line
segment produces round cans in the U.S. for paint and coatings, oblong cans for
items such as lighter fluid and turpentine as well as plastic containers for
paint and industrial and consumer products. The Custom & Specialty segment
produces a wide array of functional and decorative tins, containers and other
products in the U.S. In 2002, the Company realigned certain plants from the
Paint, Plastic & General Line to the Custom & Specialty segments. The amounts
for 2001 and 2000 were reclassified to reflect the realignment.
The accounting policies of the segments are the same as those described in
Note (2) to the Consolidated Financial Statements. No single customer accounted
for more than 10% of the Company's total net sales during 2002, 2001 or 2000.
F-34
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial information relating to the Company's operations by geographic
area was as follows (000's omitted):
<Table>
<Caption>
UNITED
STATES EUROPE CONSOLIDATED
-------- -------- ------------
2002
Net sales........................................... $555,303 $241,197 $796,500
Identifiable assets................................. 359,737 219,089 578,826
2001
Net sales........................................... $542,722 $229,466 $772,188
Identifiable assets................................. 395,150 239,200 634,350
2000
Net sales........................................... $569,870 $239,627 $809,497
Identifiable assets................................. 388,918 248,946 637,864
</Table>
The following is a summary of revenues from external customers, income
(loss) from operations, capital spending, depreciation and amortization and
identifiable assets for each segment as of December 31, 2002, 2001 and 2000
(000's omitted):
<Table>
<Caption>
2002 2001 2000
-------- -------- --------
Revenues from external customers:
Aerosol............................................ $364,133 $334,716 $357,688
International...................................... 241,197 229,466 239,627
Paint, Plastic, & General Line..................... 119,952 130,412 136,054
Custom & Specialty................................. 71,218 77,594 76,128
-------- -------- --------
Total revenues.................................. $796,500 $772,188 $809,497
======== ======== ========
Income (loss) from operations:
Aerosol............................................ $ 59,545 $ 47,299 $ 66,395
International...................................... 742 (267) 12,802
Paint, Plastic, & General Line..................... 11,378 12,544 14,348
Custom & Specialty................................. 734 (998) 7,559
-------- -------- --------
Total Segment Income From Operations............... 72,399 58,578 101,104
Corporate and eliminations(a)(b)................... (32,852) (64,724) (52,951)
Interest Expense................................... (55,384) (57,304) (40,468)
Loss from Early Extinguishment of Debt............. -- -- (24,167)
-------- -------- --------
Total loss before income taxes.................. $(15,837) $(63,450) $(16,482)
======== ======== ========
Capital spending:
Aerosol............................................ $ 6,879 $ 3,514 $ 6,499
International...................................... 11,996 4,556 8,063
Paint, Plastic, & General Line..................... 3,770 6,536 3,650
Custom & Specialty................................. 3,002 1,043 609
Corporate.......................................... 1,588 3,888 5,683
-------- -------- --------
Total capital spending.......................... $ 27,235 $ 19,537 $ 24,504
======== ======== ========
</Table>
F-35
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2002 2001 2000
-------- -------- --------
Depreciation and amortization:
Aerosol............................................ $ 12,014 $ 11,856 $ 10,842
International...................................... 10,182 9,355 9,288
Paint, Plastic, & General Line..................... 5,561 5,462 5,025
Custom & Specialty................................. 1,942 2,165 2,182
Corporate.......................................... 6,387 5,788 6,333
-------- -------- --------
Total depreciation and amortization............. $ 36,086 $ 34,626 $ 33,670
======== ======== ========
Identifiable assets:
Aerosol............................................ $166,136 $168,214 $183,150
International...................................... 219,089 239,200 248,946
Paint, Plastic, & General Line..................... 80,566 82,627 91,209
Custom & Specialty................................. 27,087 45,125 50,017
Corporate.......................................... 85,948 99,184 64,542
-------- -------- --------
Total identifiable assets....................... $578,826 $634,350 $637,864
======== ======== ========
</Table>
- ---------------
(a) Includes special charges and recapitalization costs. Management does not
evaluate segment performance including such charges.
(b) Selling, general and administrative costs are not allocated to the domestic
segments.
(17) SUBSIDIARY GUARANTOR INFORMATION
The following presents the condensed consolidating financial data for U.S.
Can Corporation (the "Parent Guarantor"), United States Can Company (the
"Issuer"), USC May Verpackungen Holding Inc. (the "Subsidiary Guarantor"), and
the Issuer's European subsidiaries, including May Verpackungen GmbH & Co., KG
(the "Non-Guarantor Subsidiaries"), as of December 31, 2002 and 2001 and for the
years ended December 31, 2002, 2001 and 2000. Investments in subsidiaries are
accounted for by the Parent Guarantor, the Issuer and the Subsidiary Guarantor
under the equity method for purposes of the supplemental consolidating
presentation. Earnings of subsidiaries are, therefore, reflected in their
parent's investment accounts and earnings. This consolidating information
reflects the guarantors and non-guarantors of the 12 3/8% senior subordinated
notes due 2010.
The 12 3/8% senior subordinated notes due 2010 are guaranteed on a full,
unconditional, unsecured, senior subordinated, joint and several basis by the
Parent Guarantor, the Subsidiary Guarantor and any other domestic restricted
subsidiary of the Issuer. USC May Verpackungen Holding Inc., which is wholly
owned by the Issuer, currently is the only Subsidiary Guarantor. The Parent
Guarantor has no assets or operations separate from its investment in the
Issuer.
Separate financial statements of the Issuer or the Subsidiary Guarantors
have not been presented as management has determined that such information is
not material to the holders of the 12 3/8% senior subordinated notes due 2010.
F-36
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
<Table>
<Caption>
USC
UNITED USC MAY EUROPE/MAY
STATES VERPACKUNGEN VERPACKUNGEN
U.S. CAN CAN HOLDING GMBH (NON- U.S. CAN
CORPORATION COMPANY (SUBSIDIARY GUARANTOR CORPORATION
(PARENT) (ISSUER) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
(000'S OMITTED)
NET SALES................... $ -- $555,303 $ -- $241,197 $ -- $796,500
COST OF SALES............... -- 483,647 (406) 227,154 -- 710,395
-------- -------- -------- -------- -------- --------
Gross income.............. -- 71,656 406 14,043 -- 86,105
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES... -- 24,146 -- 13,707 -- 37,853
SPECIAL CHARGES............. -- 3,080 -- 5,625 -- 8,705
-------- -------- -------- -------- -------- --------
Operating income (loss)... -- 44,430 406 (5,289) -- 39,547
INTEREST EXPENSE............ -- 46,156 6,465 2,763 -- 55,384
EQUITY EARNINGS (LOSS) FROM
SUBSIDIARY................ (71,776) (59,871) (19,837) -- 151,484 --
-------- -------- -------- -------- -------- --------
Income (loss) before
income taxes........... (71,776) (61,597) (25,896) (8,052) 151,484 (15,837)
PROVISION FOR INCOME
TAXES..................... -- 2,005 22,197 13,435 -- 37,637
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS) BEFORE
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE AND
PREFERRED STOCK
DIVIDENDS................. (71,776) (63,602) (48,093) (21,487) 151,484 (53,474)
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE, NET OF
TAX....................... -- (8,174) 4,717 (14,845) -- (18,302)
-------- -------- -------- -------- -------- --------
NET INCOME BEFORE PREFERRED
STOCK DIVIDENDS........... (71,776) (71,776) (43,376) (36,332) 151,484 (71,776)
PREFERRED STOCK DIVIDENDS... (12,521) -- -- -- -- (12,521)
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS)
ATTRIBUTABLE TO COMMON
STOCKHOLDERS.............. $(84,297) $(71,776) $(43,376) $(36,332) $151,484 $(84,297)
======== ======== ======== ======== ======== ========
</Table>
F-37
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
USC
UNITED USC MAY EUROPE/MAY
STATES VERPACKUNGEN VERPACKUNGEN
U.S. CAN CAN HOLDING GMBH (NON- U.S. CAN
CORPORATION COMPANY (SUBSIDIARY GUARANTOR CORPORATION
(PARENT) (ISSUER) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
(000'S OMITTED)
NET SALES................... $ -- $542,722 $ -- $229,466 $ -- $772,188
COST OF SALES............... -- 483,878 -- 211,636 -- 695,514
-------- -------- ------- -------- ------- --------
Gross income.............. -- 58,844 -- 17,830 -- 76,674
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES... -- 28,484 1,423 16,674 -- 46,581
SPECIAL CHARGES............. -- 27,063 -- 9,176 -- 36,239
-------- -------- ------- -------- ------- --------
Operating income (loss)... -- 3,297 (1,423) (8,020) -- (6,146)
INTEREST EXPENSE............ -- 48,136 6,500 2,668 -- 57,304
EQUITY EARNINGS (LOSS) FROM
SUBSIDIARY................ (40,416) (13,010) (1,198) -- 54,624 --
-------- -------- ------- -------- ------- --------
Income (loss) before
income taxes........... (40,416) (57,849) (9,121) (10,688) 54,624 (63,450)
PROVISION FOR INCOME
TAXES..................... -- (17,433) (3,506) (2,095) -- (23,034)
-------- -------- ------- -------- ------- --------
NET INCOME (LOSS) BEFORE
PREFERRED STOCK
DIVIDENDS................. (40,416) (40,416) (5,615) (8,593) 54,624 (40,416)
PREFERRED STOCK DIVIDENDS... (11,345) -- -- -- -- (11,345)
-------- -------- ------- -------- ------- --------
NET INCOME (LOSS)
ATTRIBUTABLE TO COMMON
STOCKHOLDERS.............. $(51,761) $(40,416) $(5,615) $ (8,593) $54,624 $(51,761)
======== ======== ======= ======== ======= ========
</Table>
F-38
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
USC
UNITED USC MAY EUROPE/MAY
STATES VERPACKUNGEN VERPACKUNGEN
U.S. CAN CAN HOLDING GMBH (NON- U.S. CAN
CORPORATION COMPANY (SUBSIDIARY GUARANTOR CORPORATION
(PARENT) (ISSUER) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
(000'S OMITTED)
NET SALES................... $ -- $569,870 $ -- $239,627 $ -- $809,497
COST OF SALES............... -- 481,217 -- 211,941 -- 693,158
-------- -------- ------- -------- ------- --------
Gross income.............. -- 88,653 -- 27,686 -- 116,339
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES... -- 29,525 1,478 14,884 -- 45,887
SPECIAL CHARGES............. -- 3,413 -- -- -- 3,413
RECAPITALIZATION CHARGES.... 18,886 -- -- -- -- 18,886
-------- -------- ------- -------- ------- --------
Operating income (loss)... (18,886) 55,715 (1,478) 12,802 -- 48,153
INTEREST EXPENSE............ -- 31,261 6,220 2,987 -- 40,468
LOSS FROM EARLY
EXTINGUISHMENT OF DEBT.... -- 24,167 -- -- -- 24,167
EQUITY EARNINGS (LOSS) FROM
SUBSIDIARY................ 55 (135) 4,476 -- (4,396) --
-------- -------- ------- -------- ------- --------
Income (loss) before
income taxes......... (18,831) 152 (3,222) 9,815 (4,396) (16,482)
PROVISION FOR INCOME
TAXES..................... (7,309) 97 (178) 2,430 -- (4,960)
-------- -------- ------- -------- ------- --------
NET INCOME (LOSS) BEFORE
PREFERRED STOCK
DIVIDENDS................. (11,522) 55 (3,044) 7,385 (4,396) (11,522)
PREFERRED STOCK DIVIDENDS... (2,601) -- -- -- -- (2,601)
-------- -------- ------- -------- ------- --------
NET INCOME (LOSS)
ATTRIBUTABLE TO COMMON
STOCKHOLDERS.............. $(14,123) $ 55 $(3,044) $ 7,385 $(4,396) $(14,123)
======== ======== ======= ======== ======= ========
</Table>
F-39
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
<Table>
<Caption>
USC
UNITED USC MAY EUROPE/MAY
STATES VERPACKUNGEN VERPACKUNGEN
U.S. CAN CAN HOLDING GMBH (NON- U.S. CAN
CORPORATION COMPANY (SUBSIDIARY GUARANTOR CORPORATION
(PARENT) (ISSUER) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
(000'S OMITTED)
CURRENT ASSETS:
Cash and cash
equivalents............ $ -- $ 5,707 $ -- $ 6,083 $ -- $ 11,790
Accounts receivable....... -- 43,623 -- 46,363 -- 89,986
Inventories............... -- 57,500 (600) 48,735 -- 105,635
Prepaid expenses and other
assets................. -- 11,719 1,977 8,500 -- 22,196
--------- -------- -------- -------- --------- ---------
Total current assets... -- 118,549 1,377 109,681 -- 229,607
NET PROPERTY, PLANT AND
EQUIPMENT................. -- 147,588 -- 94,086 -- 241,674
INTANGIBLE ASSETS........... -- 27,384 -- -- -- 27,384
OTHER ASSETS................ -- 66,216 606 13,339 -- 80,161
INTERCOMPANY ADVANCES....... -- 249,649 -- -- (249,649) --
INVESTMENT IN
SUBSIDIARIES.............. -- (48,265) 61,360 -- (13,095) --
--------- -------- -------- -------- --------- ---------
Total assets........... $ -- $561,121 $ 63,343 $217,106 $(262,744) $ 578,826
========= ======== ======== ======== ========= =========
CURRENT LIABILITIES
Current maturities of
long-term debt......... $ -- $ 11,078 $ -- $ 15,075 $ -- $ 26,153
Accounts payable.......... -- 47,901 -- 46,636 -- 94,537
Other current
liabilities............ -- 48,389 31 15,974 -- 64,394
--------- -------- -------- -------- --------- ---------
Total current
liabilities.......... -- 107,368 31 77,685 -- 185,084
TOTAL LONG TERM DEBT........ 854 503,238 -- 19,437 -- 523,529
OTHER LONG-TERM
LIABILITIES............... -- 48,317 673 31,936 -- 80,926
PREFERRED STOCK............. 133,133 -- -- -- -- 133,133
INTERCOMPANY LOANS.......... 112,057 -- 114,863 22,729 (249,649) --
INVESTMENT IN
SUBSIDIARIES.............. 97,802 -- -- -- (97,802) --
STOCKHOLDERS' EQUITY........ (343,846) (97,802) (52,224) 65,319 84,707 (343,846)
--------- -------- -------- -------- --------- ---------
Total liabilities and
stockholders'
equity............... $ -- $561,121 $ 63,343 $217,106 $(262,744) $ 578,826
========= ======== ======== ======== ========= =========
</Table>
F-40
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2001
<Table>
<Caption>
USC
UNITED USC MAY EUROPE/MAY
STATES VERPACKUNGEN VERPACKUNGEN
U.S. CAN CAN HOLDING GMBH (NON- U.S. CAN
CORPORATION COMPANY (SUBSIDIARY GUARANTOR CORPORATION
(PARENT) (ISSUER) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
(000'S OMITTED)
CURRENT ASSETS:
Cash and cash
equivalents............ $ -- $ 8,249 $ -- $ 6,494 $ -- $ 14,743
Accounts receivable....... -- 51,806 -- 43,468 -- 95,274
Inventories............... -- 52,625 (600) 48,651 -- 100,676
Prepaid expenses and other
assets................. -- 26,518 1,049 10,142 -- 37,709
--------- -------- ------- -------- --------- ---------
Total current assets... -- 139,198 449 108,755 -- 248,402
NET PROPERTY, PLANT AND
EQUIPMENT................. -- 152,779 -- 86,455 -- 239,234
INTANGIBLE ASSETS........... -- 40,611 1,544 24,282 -- 66,437
OTHER ASSETS................ -- 62,561 -- 17,716 -- 80,277
INTERCOMPANY ADVANCES....... -- 239,414 -- -- (239,414) --
INVESTMENT IN
SUBSIDIARIES.............. -- 11,044 72,287 -- (83,331) --
--------- -------- ------- -------- --------- ---------
Total assets........... $ -- $645,607 $74,280 $237,208 $(322,745) $ 634,350
========= ======== ======= ======== ========= =========
CURRENT LIABILITIES
Current maturities of
long-term debt......... $ -- $ 12,801 $ -- $ 2,182 $ -- $ 14,983
Accounts payable.......... -- 47,995 -- 48,690 -- 96,685
Other current
liabilities............ -- 51,834 (1,759) 22,362 -- 72,437
--------- -------- ------- -------- --------- ---------
Total current
liabilities.......... -- 112,630 (1,759) 73,234 -- 184,105
TOTAL LONG TERM DEBT........ 854 499,339 -- 21,600 -- 521,793
OTHER LONG-TERM
LIABILITIES............... -- 47,239 514 7,210 -- 54,963
PREFERRED STOCK............. 120,613 -- -- -- -- 120,613
INTERCOMPANY LOANS.......... 112,056 -- 93,283 34,075 (239,414) --
INVESTMENT IN
SUBSIDIARIES.............. 13,601 -- -- -- (13,601) --
STOCKHOLDERS' EQUITY........ (247,124) (13,601) (17,758) 101,089 (69,730) (247,124)
--------- -------- ------- -------- --------- ---------
Total liabilities and
stockholders'
equity............... $ -- $645,607 $74,280 $237,208 $(322,745) $ 634,350
========= ======== ======= ======== ========= =========
</Table>
F-41
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2002
<Table>
<Caption>
USC
UNITED USC MAY EUROPE/MAY
STATES VERPACKUNGEN VERPACKUNGEN
U.S. CAN CAN HOLDING (NON- U.S. CAN
CORPORATION COMPANY (SUBSIDIARY- GUARANTOR CORPORATION
(PARENT) (ISSUER) GUARANTOR) SUBSIDIARIES) CONSOLIDATED
----------- -------- ------------ ------------- ------------
(000'S OMITTED)
CASH FLOWS FROM OPERATING ACTIVITIES..... $-- $19,114 $(41,410) $28,460 $ 6,164
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................... -- (15,239) -- (11,996) (27,235)
Proceeds on the sale of property....... -- 817 -- 4,845 5,662
Investment in Formametal S.A........... -- (133) -- -- (133)
--- ------- -------- ------- --------
Net cash used in investing
activities........................ -- (14,555) -- (7,151) (21,706)
--- ------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany advances....... -- (10,195) 41,410 (31,215) --
Net borrowings under the revolving line
of credit........................... -- 13,600 -- -- 13,600
Borrowing of long-term debt............ -- -- -- 11,079 11,079
Payments of long-term debt, including
capital lease obligations........... -- (10,506) -- (2,183) (12,689)
--- ------- -------- ------- --------
Net cash (used in) provided by
financing activities.............. -- (7,101) 41,410 (22,319) 11,990
--- ------- -------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH................................... -- -- -- 599 599
--- ------- -------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ -- (2,542) -- (411) (2,953)
CASH AND CASH EQUIVALENTS, beginning of
year................................... -- 8,249 -- 6,494 14,743
--- ------- -------- ------- --------
CASH AND CASH EQUIVALENTS, end of
period................................. $-- $ 5,707 $ -- $ 6,083 $ 11,790
=== ======= ======== ======= ========
</Table>
F-42
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
USC
UNITED USC MAY EUROPE/MAY
STATES VERPACKUNGEN VERPACKUNGEN
U.S. CAN CAN HOLDING (NON- U.S. CAN
CORPORATION COMPANY (SUBSIDIARY- GUARANTOR CORPORATION
(PARENT) (ISSUER) GUARANTOR) SUBSIDIARIES) CONSOLIDATED
----------- -------- ------------ ------------- ------------
(000'S OMITTED)
CASH FLOWS FROM OPERATING ACTIVITIES.... $-- $ 3,658 $(10,186) $ (464) $ (6,992)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................. -- (14,981) -- (4,556) (19,537)
Acquisition of business, net of cash
acquired........................... -- (4,198) -- -- (4,198)
Proceeds on the sale of property...... -- -- -- 7,208 7,208
Investment in Formametal S.A.......... -- (7,891) -- -- (7,891)
--- -------- -------- ------- --------
Net cash used in investing
activities....................... -- (27,070) -- 2,652 (24,418)
--- -------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany advances...... -- (10,289) 10,186 103 --
Settlement of shareholder
litigation......................... -- (2,063) -- -- (2,063)
Net borrowings under the revolving
line of credit..................... -- 37,600 -- -- 37,600
Borrowing of Term C loan.............. -- 20,000 -- -- 20,000
Payments of long-term debt, including
capital lease obligations.......... -- (9,569) -- (4,533) (14,102)
Payment of debt financing costs....... -- (6,294) -- -- (6,294)
--- -------- -------- ------- --------
Net cash (used in) provided by
financing activities............. -- 29,385 10,186 (4,430) 35,141
--- -------- -------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH.................................. -- -- -- 228 228
--- -------- -------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... -- 5,973 -- (2,014) 3,959
CASH AND CASH EQUIVALENTS, beginning of
year.................................. -- 2,276 -- 8,508 10,784
--- -------- -------- ------- --------
CASH AND CASH EQUIVALENTS, end of
period................................ $-- $ 8,249 $ -- $ 6,494 $ 14,743
=== ======== ======== ======= ========
</Table>
F-43
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
USC MAY USC
UNITED VERPACKUNGEN EUROPE/MAY
U.S. CAN STATES CAN HOLDING VERPACKUNGEN U.S. CAN
CORPORATION COMPANY (SUBSIDIARY (NON-GUARANTOR CORPORATION
(PARENT) (ISSUER) GUARANTOR) SUBSIDIARIES) CONSOLIDATED
----------- ---------- ------------ -------------- ------------
(000'S OMITTED)
CASH FLOWS FROM OPERATING ACTIVITIES... $ 18,886 $ 14,231 $(8,809) $ 4,424 $ 28,732
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................. -- (16,371) -- (8,133) (24,504)
Proceeds on sale of business......... -- 12,088 -- -- 12,088
Proceeds on the sale of property..... -- 8,755 -- -- 8,755
Investment in Formametal S.A......... -- -- -- (4,914) (4,914)
--------- --------- ------- -------- ---------
Net cash used in investing
activities...................... -- 4,472 -- (13,047) (8,575)
--------- --------- ------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany advances..... 365,168 (392,408) 8,809 18,431 --
Issuance of common stock............. 53,333 -- -- -- 53,333
Issuance of preferred stock.......... 106,667 -- -- -- 106,667
Retirement of common stock and
exercise of stock options.......... (270,022) -- -- -- (270,022)
Purchase of treasury stock........... (488) -- -- -- (488)
Issuance of 12 3/8% notes............ -- 175,000 -- -- 175,000
Repurchase of 10 1/8% notes.......... (254,658) -- -- -- (254,658)
Net borrowings (payments) under the
old revolving line of credit and
changes in cash overdrafts......... -- (56,100) -- -- (56,100)
Borrowing of Tranche A loan.......... -- 80,000 -- -- 80,000
Borrowing of Tranche B loan.......... -- 180,000 -- -- 180,000
Borrowing of other long-term debt,
including capital lease
obligations........................ -- 18,500 -- 786 19,286
Payments of long-term debt, including
capital lease obligations.......... -- (7,377) -- (15,151) (22,528)
Payment of debt financing costs...... -- (16,137) -- -- (16,137)
Payment of recapitalization costs.... (18,886) -- -- -- (18,886)
--------- --------- ------- -------- ---------
Net cash (used in) provided by
financing activities............ (18,886) (18,522) 8,809 4,066 (24,533)
--------- --------- ------- -------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH................................. -- -- -- (537) (537)
--------- --------- ------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.......................... -- 181 -- (5,094) (4,913)
CASH AND CASH EQUIVALENTS, beginning of
year................................. -- 2,095 -- 13,602 15,697
--------- --------- ------- -------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................... $ -- $ 2,276 $ -- $ 8,508 $ 10,784
========= ========= ======= ======== =========
</Table>
F-44
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(18) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited interim results of operations
for each of the quarters in 2002 and 2001 (000's omitted).
<Table>
<Caption>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------------- ------------------- ------------------- -------------------
2002 2001 2002 2001 2002 2001 2002 2001
-------- -------- -------- -------- -------- -------- -------- --------
Net Sales............. $186,038 $191,168 $203,624 $193,329 $205,474 $204,175 $201,364 $183,516
Gross Income.......... 18,968 24,451 22,893 26,361 19,800 23,730 24,444 2,132
Special Charges(a).... -- -- -- -- 5,071 (284) 3,634 36,523
Income (loss) from
Operations before
Accounting Change... (2,382) (1,328) (876) 423 (5,229) (1,426) (44,987) (38,085)
Net Income (Loss)
Available for Common
Shareholders(b)..... $(23,658) $ (4,053) $ (3,957) $ (2,369) $ (8,387) $ (4,288) $(48,295) $(41,051)
</Table>
- ---------------
(a) See Note (4)
(b) Amount has been restated to reflect the Company's $18.3 million goodwill
impairment charge, net of tax, effective as of January 1, 2002. See Note
(15) for further detail.
F-45
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
----------------------------- -----------------------------
JUNE 29, 2003 JUNE 30, 2002 JUNE 29, 2003 JUNE 30, 2002
------------- ------------- ------------- -------------
(UNAUDITED)
(000'S OMITTED)
Net Sales.................................. $210,312 $203,624 $409,202 $389,662
Cost of Sales.............................. 185,602 180,731 363,148 347,801
-------- -------- -------- --------
Gross Income.......................... 24,710 22,893 46,054 41,861
Selling, General and Administrative
Expenses................................. 8,661 9,867 18,337 19,198
Special Charges............................ 591 -- 1,621 --
-------- -------- -------- --------
Operating Income...................... 15,458 13,026 26,096 22,663
Interest Expense........................... 14,159 14,100 28,261 27,843
-------- -------- -------- --------
Income (Loss) Before Income Taxes..... 1,299 (1,074) (2,165) (5,180)
Provision (Benefit) for Income Taxes....... 2,301 (198) 2,874 (1,922)
-------- -------- -------- --------
Net Loss Before Cumulative Effect of
Accounting Change........................ (1,002) (876) (5,039) (3,258)
Cumulative Effect of Accounting Change, net
of income taxes.......................... -- -- -- (18,302)
-------- -------- -------- --------
Net Loss Before Preferred Stock
Dividends................................ (1,002) (876) (5,039) (21,560)
Preferred Stock Dividend Requirement....... (3,400) (3,081) (6,646) (6,055)
-------- -------- -------- --------
Net Loss Attributable to Common
Stockholders............................. $ (4,402) $ (3,957) $(11,685) $(27,615)
======== ======== ======== ========
</Table>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-46
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
JUNE 29, DECEMBER 31,
2003 2002
--------- ------------
(UNAUDITED)
(000'S OMITTED, EXCEPT
PER SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 19,046 $ 11,790
Accounts receivable, net of allowances.................... 118,061 89,986
Inventories............................................... 107,634 105,635
Deferred income taxes..................................... 7,749 7,730
Other current assets...................................... 10,201 14,466
--------- ---------
Total current assets................................. 262,691 229,607
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation
and amortization.......................................... 238,743 241,674
GOODWILL.................................................... 27,384 27,384
DEFERRED INCOME TAXES....................................... 28,017 29,340
OTHER NON-CURRENT ASSETS.................................... 51,216 50,821
--------- ---------
Total assets......................................... $ 608,051 $ 578,826
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease
obligations............................................ $ 45,716 $ 26,153
Accounts payable.......................................... 104,491 94,537
Accrued expenses.......................................... 49,610 51,446
Restructuring reserves.................................... 7,613 11,990
Income taxes payable...................................... 1,913 958
--------- ---------
Total current liabilities............................ 209,343 185,084
LONG TERM DEBT.............................................. 522,142 523,529
LONG TERM LIABILITIES PURSUANT TO EMPLOYEE BENEFIT PLANS.... 75,305 74,574
OTHER LONG-TERM LIABILITIES................................. 6,960 6,352
--------- ---------
Total liabilities.................................... 813,750 789,539
REDEEMABLE PREFERRED STOCK, 200,000 shares authorized,
106,667 shares issued & outstanding....................... 139,780 133,133
STOCKHOLDERS' EQUITY:
Common stock, $10.00 par value, 100,000 shares authorized,
53,333 shares issued & outstanding..................... 533 533
Additional paid in capital................................ 52,800 52,800
Accumulated other comprehensive loss...................... (41,024) (51,076)
Accumulated deficit....................................... (357,788) (346,103)
--------- ---------
Total stockholders' equity/(deficit)................. (345,479) (343,846)
--------- ---------
Total liabilities and stockholders' equity........... $ 608,051 $ 578,826
========= =========
</Table>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets
F-47
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
FOR THE SIX MONTHS
ENDED
-------------------
JUNE 29, JUNE 30,
2003 2002
-------- --------
(UNAUDITED)
(000'S OMITTED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss before preferred stock dividend requirements..... $ (5,039) $(21,560)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization.......................... 18,326 17,663
Special charge......................................... 1,621 --
Cumulative effect of accounting change................. -- 18,302
Deferred income taxes.................................. 1,916 (3,546)
Change in operating assets and liabilities, net of effect
of acquired businesses:
Accounts receivable.................................... (24,332) (9,180)
Inventories............................................ 2,040 (5,662)
Accounts payable....................................... 6,162 10,278
Accrued expenses....................................... (5,520) (6,472)
Other, net............................................. (1,220) (3,984)
-------- --------
Net cash used in operating activities................ (6,046) (4,161)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures including restructuring capital...... (7,409) (11,036)
Proceeds from sale of property............................ 5,429 591
Investment in Formametal S.A.............................. -- (133)
-------- --------
Net cash used in investing activities................ (1,980) (10,578)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under the revolving line of credit......... 20,300 8,900
Borrowings of other debt.................................. 3,557 13,750
Payments of other debt, including capital lease
obligations............................................ (7,126) (5,689)
-------- --------
Net cash provided by financing activities............ 16,731 16,961
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (1,449) (452)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 7,256 1,770
CASH AND CASH EQUIVALENTS, beginning of year................ 11,790 14,743
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 19,046 $ 16,513
======== ========
</Table>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-48
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 2003
(UNAUDITED)
(1) PRINCIPLES OF REPORTING
The consolidated financial statements include the accounts of U.S. Can
Corporation (the "Corporation" or "U.S. Can"), its wholly owned subsidiary,
United States Can Company ("United States Can"), and United States Can's
subsidiaries (the "Subsidiaries"). The consolidated group is referred to herein
as "the Company". All significant intercompany balances and transactions have
been eliminated. These financial statements, in the opinion of management,
include all normal recurring adjustments necessary for a fair presentation.
Operating results for any interim period are not necessarily indicative of
results that may be expected for the full year. These financial statements
should be read in conjunction with the previously filed financial statements and
footnotes included in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 2002.
Certain prior year amounts have been reclassified to conform with the 2003
presentation. Additionally, results for the first six months of 2002 were
restated related to the Company's adoption of Statement of Financial Accounting
Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets" on January 1,
2002. Under the standard, goodwill and "indefinite-lived" intangibles are no
longer amortized, but are tested annually for impairment. During the fourth
quarter of 2002, the Company determined the amount of its goodwill impairment
and recorded a pre-tax goodwill impairment charge of $39.1 million ($18.3
million, net of tax) effective as of January 1, 2002. The charge has been
presented as a cumulative effect of a change in accounting principle.
STOCK-BASED COMPENSATION
The Company periodically issues stock options under the U.S. Can 2000
Equity Incentive Plan. The Company continues to use the intrinsic fair value
method under APB Opinion No. 25 to account for the plan; therefore, no
compensation costs are recognized in the Company's financial statements for
options granted.
During the three and six months ended June 29, 2003 and June 30, 2002, the
Company did not issue any stock options. In accordance with SFAS No. 148, the
following table presents (in thousands) what the Company's net loss would have
been had the Company determined compensation costs using the fair value-based
accounting method.
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JUNE 29, 3003 JUNE 30, 2002 JUNE 29, 2003 JUNE 30, 2002
------------- ------------- ------------- -------------
Net Loss................................... $(4,402) $(3,957) $(11,685) $(27,615)
Stock-Based Compensation Cost, net of
tax...................................... (20) (38) (40) (76)
------- ------- -------- --------
Pro-Forma Net Loss......................... $(4,422) $(3,995) $(11,725) $(27,691)
======= ======= ======== ========
</Table>
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 46, Amendment of
FASB Statement No. 13, and Technical Corrections" was issued in April 2002 and
is effective for fiscal years beginning after May 15, 2002. This statement
eliminates the current requirement that gains and losses on extinguishment of
debt be classified as extraordinary items in the statement of operations.
Instead, the statement requires that gains and losses on extinguishment of debt
be evaluated against the criteria in APB Opinion 30 to determine whether or not
such gains or losses should be classified as an extraordinary item. The
statement also contains other corrections to authoritative accounting literature
in SFAS 4, 44 and 46.
F-49
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with the pronouncement, the Company adopted the standard on
January 1, 2003. There was no impact to the financial position and results of
operations of the Company as a result of the adoption.
The Financial Accounting Standards Board (FASB) issued SFAS No. 146
"Accounting for Costs Associated With Exit or Disposal Activities," in July
2002. SFAS No. 146 requires that a liability for a cost associated with an exit
or disposal activity be recognized when the liability is incurred. SFAS No. 146
supercedes the guidance of Emerging Issues Task Force ("EITF") Issue No. 94-3
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity," which required that liabilities for exit costs be
recognized at the date of an entity's commitment to an exit plan. SFAS No. 146
is effective for exit or disposal activities that are initiated after December
31, 2002. As discussed in Note 3, the Company recorded restructuring charges in
2003 in accordance with the provisions of SFAS No. 146.
In May 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments including certain derivative
instruments embedded in other contracts and hedging activities under SFAS No.
133. It is effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. The adoption of
this standard is not expected to have a material impact on the Company's
financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain
Financial Instruments with Characteristics of Both Liabilities and Equity" which
establishes standards for how an issuer of financial instruments classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances) if, at
inception, the monetary value of the obligation is based solely or predominantly
on a fixed monetary amount known at inception, variations in something other
than the fair value of the issuer's equity shares or variations inversely
related to changes in the fair value of the issuer's equity shares. This
Statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. In accordance with the pronouncement, the
Company will adopt the standard on June 30, 2003. At June 29, 2003, the Company
had $139.8 million of redeemable preferred stock. As the Company's redeemable
preferred stock does not contain an unconditional obligation requiring the
Company to redeem it by transferring assets at a specified or determinable date,
or upon an event certain to occur, the adoption of SFAS No. 150 will not have an
impact on the Company's balance sheet or statement of operations.
(2) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest of approximately $21.8 million and $29.0 million
for the six months ended June 29, 2003 and June 30, 2002, respectively. The
Company paid $0.8 million in income taxes for the six months ended June 29, 2003
and $1.2 million for the six months ended June 30, 2002.
(3) SPECIAL CHARGES
2003
During the first six months of 2003, the Company recorded restructuring
charges of $1.6 million. $1.0 million of the charges were recorded in the first
quarter of 2003 related to position elimination costs in the U.S. and Europe.
The position eliminations consisted of 16 employees, including two management
level employees and an early termination program in one European facility. $0.6
million of the charges were recorded in the second quarter of 2003 related to
potential additional severance costs for a previously terminated employee at May
Verpackungen. The employee sued the Company for unfair dismissal requesting
additional severance in accordance with his employment agreement. In June 2003,
the
F-50
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company was informed that the courts intended to rule in favor of the terminated
employee and the Company recorded a charge for the potential additional
severance. The Company has not yet received the appeals court's opinion. See
Note (10).
The Company recorded the 2003 charges in accordance with SFAS No. 146,
"Accounting for Costs Associated With Exit or Disposal Activities." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred rather than at the
commitment date. The adoption of SFAS No. 146 did not have a material effect on
the timing of the special charge recorded in the second quarter of 2003. Total
cash payments in the first six months of 2003 were $6.0 million (primarily
severance and facility shut down costs) and the Company anticipates spending
another $11.3 million over the next several years. The remaining reserve
consists primarily of employee termination benefits paid over time for
approximately 29 salaried and 51 hourly employees (approximately 600 positions
were originally identified for elimination) and other ongoing facility exit
costs.
The table below presents the reserve categories and related activity as of
June 29, 2003:
<Table>
<Caption>
JANUARY 1, NET CASH JUNE 29,
2003 BALANCE ADDITIONS PAYMENTS 2003 BALANCE
------------ --------- -------- ------------
Employee Separation...................... $ 9.2 $1.6 $(3.3) $ 7.5
Facility Closing Costs................... 6.5 -- (2.7) 3.8
----- ---- ----- -----
Total.................................... $15.7 $1.6 $(6.0) $11.3(a)
===== ==== ===== =====
</Table>
- ---------------
(a) Includes $3.7 million classified as other long-term liabilities as of June
29, 2003.
2002
During 2002, restructuring programs resulted in the closure of the Burns
Harbor, Indiana lithography facility, the Columbia Specialty facility located in
Maryland and the Southall, England manufacturing facility. During the first six
months of 2002, the Company consolidated two plastics facilities into a new
facility in Atlanta, Georgia. Total cash payments in the first six months of
2002 were $6.2 million.
The table below presents the reserve categories and related activity as of
June 30, 2002:
<Table>
<Caption>
JANUARY 1, NET CASH JUNE 30,
2002 BALANCE ADDITIONS PAYMENTS OTHER(B) 2002 BALANCE
------------ --------- -------- -------- ------------
Employee Separation............. $21.2 $-- $(4.3) $0.4 $17.3
Facility Closing Costs.......... 10.7 -- (1.9) 1.7 10.5
----- --- ----- ---- -----
Total........................... $31.9 $-- $(6.2) $2.1 $27.8(a)
===== === ===== ==== =====
</Table>
- ---------------
(a) Includes $6.0 million classified as other long-term liabilities as of June
30, 2002.
(b) Non-cash foreign currency translation impact and the reversal of $1.5
million of asset write-offs previously expensed in the 2001 restructuring.
(4) INVENTORIES
All domestic inventories are stated at cost determined by the last-in,
first-out ("LIFO") cost method, not in excess of market. Subsidiaries'
inventories of approximately $55.9 million at June 29, 2003 and $48.1 million at
December 31, 2002 are stated at cost determined by the first-in, first-out
("FIFO") cost method, not in excess of market. FIFO cost of LIFO inventories
approximated their LIFO value at June 29, 2003 and at December 31, 2002.
F-51
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories reported in the accompanying balance sheets are classified as
follows (000's omitted):
<Table>
<Caption>
JUNE 29, DECEMBER 31,
2003 2002
-------- ------------
Raw materials............................................... $ 24,024 $ 23,492
Work in process............................................. 47,391 46,435
Finished goods.............................................. 36,219 35,708
-------- --------
$107,634 $105,635
======== ========
</Table>
(5) DEBT OBLIGATIONS
On July 22, 2003, the Company issued $125.0 million of 10 7/8% Senior
Secured Notes due 2010 and amended its Senior Secured Credit Facility. See Note
(8) for further information on the Senior Secured Notes and the Senior Secured
Credit Facility amendment.
The Senior Secured Credit Facility, the Senior Secured Notes and the Senior
Subordinated Notes contain a number of financial and restrictive covenants. The
covenants for the Senior Secured Credit Facility were amended on July 22, 2003,
effective as of June 29, 2003. Under the Company's Senior Secured Credit
Facility, it is required to meet certain financial tests, including achievement
of a minimum EBITDA level, a minimum interest coverage ratio, a minimum fixed
charge coverage ratio and a maximum leverage ratio. The restrictive covenants
limit the Company's ability to incur debt, pay dividends or make distributions,
sell assets or consolidate or merge with other companies. The Company was in
compliance with all of the required financial ratios and other covenants under
both facilities, as amended, at June 29, 2003.
May Verpackungen ("May") has various bank facilities originating under loan
agreements dated between 1996 and 1999. These agreements provided for up to
ten-year terms with floating interest rates, and among other things, included
provisions for the banks (i) to terminate the credit lines upon giving notice
and (ii) rightfully demand security for the credit lines, have a negative pledge
from May not to grant security without the bank's approval and the requirement
that any bank lending to May be treated on terms no less favorable than any
other bank's loans to May.
During April 2003, a formal demand for security was made by the lenders
under May's credit facilities. On April 30, 2003, May granted two of its banks a
collateral interest in its inventory and accounts receivable in exchange for
their agreement to allow the continuation of facilities in the amount of E11.8
million through June 30, 2003. In addition, United States Can Company made
payments of E1.5 million on May 7, 2003 and E1.0 on June 30, 2003 in full
payment of term loans for which one of May's lenders demanded early payment in
accordance with terms of the borrowings. These term loans were guaranteed by
U.S. Can. May has initiated discussions with several banks to secure a new
facility that would replace the existing facilities and allow it to meet its
seasonal borrowing needs and has received an extension of the existing
facilities through August 30, 2003. This facility is expected to be in an amount
comparable to historical credit lines and secured in the same manner as the
existing borrowings. Discussions with our banks are in the early stages;
however, management believes that it will be able to secure adequate financing
to meet May's working capital needs. If May is unable to secure adequate
substitute financing or defaults on payments of debt under its borrowing
agreements, the Company will need to provide financing for May from other
sources available to it, including currently existing or new lines of credit in
the United States and Europe. There can be no assurance that the existing banks
will extend or replace the current facilities, that new banks will extend the
required level of credit, that May will not default under its borrowing
agreements or that funds will be available from other sources to finance May's
requirements, each of which could have a material adverse effect on our
financial position.
F-52
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) BUSINESS SEGMENTS
Management monitors and evaluates business performance, customer base and
market share for four business segments. The segments have separate management
teams and distinct product lines. The Aerosol segment primarily produces steel
aerosol containers for personal care, household, automotive, paint and
industrial products. The International segment produces aerosol cans in Europe
and Latin America (through Formametal S.A., a joint venture in Argentina) as
well as steel food packaging in Europe. The Paint, Plastic & General Line
segment produces round cans for paint and coatings, oblong cans for such items
as lighter fluid and turpentine as well as plastic containers for paint and
industrial and consumer products. The Custom & Specialty segment produces a wide
array of functional and decorative tins, containers and other products.
The following is a summary of revenues from external customers and income
(loss) from operations for the three and six month periods ended June 29, 2003
and June 30, 2003, respectively (000's omitted):
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2003 2002 2003 2002
-------- -------- -------- --------
REVENUES FROM EXTERNAL CUSTOMERS:
Aerosol.................................... $ 94,768 $ 96,900 $183,546 $183,364
International.............................. 70,800 57,447 133,865 111,951
Paint, Plastic & General Line.............. 31,113 32,677 62,358 61,588
Custom & Specialty......................... 13,631 16,600 29,433 32,759
-------- -------- -------- --------
Total revenues............................. $210,312 $203,624 $409,202 $389,662
======== ======== ======== ========
INCOME (LOSS) FROM OPERATIONS:
Aerosol.................................... $ 17,378 $ 15,848 $ 31,386 $ 28,535
International.............................. 362 325 (467) 109
Paint, Plastic & General Line.............. 3,676 3,350 7,861 5,626
Custom & Specialty......................... 303 (355) 854 274
-------- -------- -------- --------
Total Segment Income From Operations....... 21,719 19,168 39,634 34,544
Corporate Expenses......................... (6,261) (6,142) (13,538) (11,881)
Interest Expense........................... (14,159) (14,100) (28,261) (27,843)
-------- -------- -------- --------
Income (Loss) Before Income Taxes.......... $ 1,299 $ (1,074) $ (2,165) $ (5,180)
======== ======== ======== ========
</Table>
(7) COMPREHENSIVE NET INCOME (LOSS)
The components of accumulated other comprehensive loss are as follows
(000's omitted):
<Table>
<Caption>
JUNE 29, DECEMBER 31,
2003 2002
-------- ------------
Foreign Currency Translation Adjustment..................... $(16,806) $(25,044)
Minimum Pension Liability Adjustment........................ (22,762) (22,346)
Unrealized Loss on Cash Flow Hedges......................... (1,456) (3,686)
-------- --------
Total Accumulated Other Comprehensive Loss.................. $(41,024) $(51,076)
======== ========
</Table>
F-53
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of comprehensive loss for the three and six months ended
June 29, 2003 and June 30, 2002 are as follows (000's omitted):
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2003 2002 2003 2002
-------- -------- -------- --------
Net Loss Before Preferred Stock Dividends..... $(1,002) $ (876) $(5,039) $(21,560)
Unrealized Gain (Loss) on Cash Flow
Hedges(a)................................... 1,200 (1,324) 2,230 (34)
Foreign Currency Translation Adjustment....... 5,524 14,127 7,822 1,203
------- ------- ------- --------
Comprehensive Income (Loss)................... $ 5,722 $11,927 $ 5,013 $(20,391)
======= ======= ======= ========
</Table>
- ---------------
(a) Net of reclassification of losses included in interest expense of $1.6
million and $1.4 million for the three months ended June 29, 2003 and June
30, 2002, respectively and $3.2 million and $2.8 million for the six months
ended June 29, 2003 and June 30, 2002, respectively.
(8) RECENT DEVELOPMENTS
On July 22, 2003, the Company completed an offering of $125 million of
10 7/8% Senior Secured Notes due 2010. The Notes are secured, on a second
priority basis, by substantially all of the collateral that currently secures
the Company's Senior Secured Credit Facility.
The Company also amended its Senior Secured Credit Facility to permit the
offering of the Second Priority Senior Secured Notes and adjust certain
financial covenants, among other things. These amendments also permit, from time
to time and subject to certain conditions, the Company to make borrowings under
its revolving credit facility for repurchases of a portion of its outstanding
12 3/8% senior subordinated notes.
The Company used the $125 million in proceeds generated from the offering
to prepay $23.3 million of its Tranche A term loan, $46.7 million of its Tranche
B term loan and to reduce its borrowings under its revolving credit facility by
$55.0 million. The repayments under the revolving credit facility did not reduce
the $110.0 million amount available for borrowings under the facility. The
Company expects to incur approximately $7.6 million of fees and expenses related
to the offering and senior secured credit facility amendment.
(9) COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
United States Can has been named as a potentially responsible party for
costs incurred in the clean-up of a groundwater plume partially extending
underneath United Sates Can's former site in San Leandro, California. We are a
party to an indemnity agreement related to this matter with the owner of the
property. Extensive soil and groundwater investigative work has been performed
at this site in a coordinated sampling event in 1999. The results of the
sampling were inconclusive as to the source of the contamination. In November
2002, as part of a larger sampling scheme, the State requested that the Company
sample existing monitoring wells at the San Leandro property. The Company
completed the sampling and received the results in the first quarter of 2003.
These results generally show that the concentration of contamination is
declining, which the Company views as a positive development. While the State of
California has not yet commented on either the 1999 or the 2003 sampling
results, the Company believes that the principal source of contamination is
unrelated to its past operations.
F-54
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LEGAL
The Company is involved in litigation from time to time in the ordinary
course of our business. In our opinion, the litigation is not material to our
financial condition or results of operations.
Walter Schmidt, former finance director at May Verpackungen GmbH ("May")
sued for unfair dismissal following termination of his employment contract. The
contract had a five-year term and Schmidt remains in pay status through its
notice period, ending January 31, 2005. Mr. Schmidt claims that he also is due a
severance settlement of five years' salary at the end of the notice period. In
July 2002, the labor courts of first instance ruled that Mr. Schmidt notice date
and termination should be effective December 31, 2005, and that the severance
settlement is due at that time. On January 7, 2003, May appealed this ruling. On
June 2, 2003, a German appeals court heard the appeal. On June 4, 2003, the
appeals court indicated to the parties that it intended to rule in Mr. Schmidt's
favor and would issue an opinion detailing its decision. We have not yet
received the appeals court's opinion.
(10) SUBSIDIARY GUARANTOR INFORMATION
The following presents the condensed consolidating financial data for U.S.
Can Corporation (the "Parent Guarantor"), United States Can Company (the
"Issuer"), USC May Verpackungen Holding Inc. (the "Subsidiary Guarantor"), and
the Issuer's European subsidiaries, including May Verpackungen GmbH & Co., KG
(the "Non-Guarantor Subsidiaries"), as of June 29, 2003 and December 31, 2002
and for the six months ended June 29, 2003 and June 30, 2002. Investments in
subsidiaries are accounted for by the Parent Guarantor, the Issuer and the
Subsidiary Guarantor under the equity method for purposes of the supplemental
consolidating presentation. Earnings of subsidiaries are, therefore, reflected
in their parent's investment accounts and earnings. This consolidating
information reflects the guarantors and non-guarantors of the Issuer's 12 3/8%
senior subordinated notes and 10 7/8% senior secured notes.
The 12 3/8% senior subordinated notes and 10 7/8% senior secured notes are
guaranteed on a full, unconditional, unsecured, senior subordinated, joint and
several basis by the Parent Guarantor, the Subsidiary Guarantor and any other
domestic restricted subsidiary of the Issuer. USC May Verpackungen Holding Inc.,
which is wholly owned by the Issuer, currently is the only Subsidiary Guarantor.
The Parent Guarantor has no assets or operations separate from its investment in
the Issuer.
Separate financial statements of the Issuer or the Subsidiary Guarantors
have not been presented as management has determined that such information is
not material to the holders of the 12 3/8% senior subordinated notes and 10 7/8%
senior secured notes.
F-55
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 29, 2003
<Table>
<Caption>
USC
EUROPE/MAY
UNITED USC MAY VERPACKUNGEN
STATES VERPACKUNGEN GMBH & CO.,
U.S. CAN CAN HOLDING KG (NON- U.S. CAN
CORPORATION COMPANY (GUARANTOR GUARANTOR CORPORATION
(PARENT) (ISSUER) SUBSIDIARIES) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
----------- -------- ------------- ------------- ------------ ------------
(UNAUDITED)
(000'S OMITTED)
NET SALES................... $ -- $275,337 $ -- $133,865 $ -- $409,202
COST OF SALES............... -- 235,235 -- 127,913 -- 363,148
-------- -------- ------- -------- ------- --------
Gross income........... -- 40,102 -- 5,952 -- 46,054
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES... -- 11,918 -- 6,419 -- 18,337
SPECIAL CHARGES............. -- 527 -- 1,094 -- 1,621
-------- -------- ------- -------- ------- --------
Operating income....... -- 27,657 -- (1,561) -- 26,096
INTEREST EXPENSE............ -- 23,453 3,192 1,616 -- 28,261
EQUITY IN LOSS OF
SUBSIDIARIES.............. (5,039) (7,558) (4,294) -- 16,891 --
-------- -------- ------- -------- ------- --------
Loss before income
taxes................ (5,039) (3,354) (7,486) (3,177) 16,891 (2,165)
PROVISION FOR INCOME
TAXES..................... -- 1,685 -- 1,189 -- 2,874
-------- -------- ------- -------- ------- --------
NET LOSS BEFORE PREFERRED
STOCK DIVIDENDS........... (5,039) (5,039) (7,486) (4,366) 16,891 (5,039)
PREFERRED STOCK DIVIDEND
REQUIREMENT............... (6,646) -- -- -- -- (6,646)
-------- -------- ------- -------- ------- --------
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS....... $(11,685) $ (5,039) $(7,486) $ (4,366) $16,891 $(11,685)
======== ======== ======= ======== ======= ========
</Table>
F-56
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
<Table>
<Caption>
USC
EUROPE/MAY
UNITED USC MAY VERPACKUNGEN
STATES VERPACKUNGEN GMBH & CO.,
U.S. CAN CAN HOLDING KG (NON- U.S. CAN
CORPORATION COMPANY (GUARANTOR GUARANTOR CORPORATION
(PARENT) (ISSUER) SUBSIDIARIES) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
----------- -------- ------------- ------------- ------------ ------------
(UNAUDITED)
(000'S OMITTED)
NET SALES................... $ -- $277,711 $ -- $111,951 $ -- $389,662
COST OF SALES............... -- 243,280 -- 104,521 -- 347,801
-------- -------- -------- -------- ------- --------
Gross income.............. -- 34,431 -- 7,430 -- 41,861
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES... -- 11,877 -- 7,321 -- 19,198
-------- -------- -------- -------- ------- --------
Operating income.......... -- 22,554 -- 109 -- 22,663
INTEREST EXPENSE............ -- 23,394 3,268 1,181 -- 27,843
EQUITY IN LOSS OF
SUBSIDIARIES.............. (21,560) (12,870) (16,027) -- 50,457 --
-------- -------- -------- -------- ------- --------
Loss before income
taxes.................. (21,560) (13,710) (19,295) (1,072) 50,457 (5,180)
PROVISION (BENEFIT) FOR
INCOME TAXES.............. -- (324) (1,992) 394 -- (1,922)
-------- -------- -------- -------- ------- --------
NET LOSS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGE.................... (21,560) (13,386) (17,303) (1,466) 50,457 (3,258)
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE, net of
income taxes.............. -- (8,174) 4,717 (14,845) -- (18,302)
-------- -------- -------- -------- ------- --------
NET LOSS BEFORE PREFERRED
STOCK DIVIDENDS........... (21,560) (21,560) (12,586) (16,311) 50,457 (21,560)
PREFERRED STOCK DIVIDEND
REQUIREMENT............... (6,055) -- -- -- -- (6,055)
-------- -------- -------- -------- ------- --------
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS....... $(27,615) $(21,560) $(12,586) $(16,311) $50,457 $(27,615)
======== ======== ======== ======== ======= ========
</Table>
F-57
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 29, 2003
<Table>
<Caption>
USC
EUROPE/MAY
UNITED USC MAY VERPACKUNGEN
STATES VERPACKUNGEN GMBH & CO.,
U.S. CAN CAN HOLDING KG (NON- U.S. CAN
CORPORATION COMPANY (GUARANTOR GUARANTOR CORPORATION
(PARENT) (ISSUER) SUBSIDIARIES) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
----------- -------- ------------- ------------- ------------ ------------
(UNAUDITED)
(000S OMITTED)
CURRENT ASSETS:
Cash and cash equivalents... $ -- $ 18,198 $ -- $ 848 $ -- $ 19,046
Accounts receivable......... -- 59,257 -- 58,804 -- 118,061
Inventories................. -- 51,743 (600) 56,491 -- 107,634
Deferred income taxes....... -- 5,535 1,977 237 -- 7,749
Other current assets........ -- 5,733 -- 4,468 -- 10,201
--------- -------- -------- -------- --------- ---------
Total current assets... -- 140,466 1,377 120,848 -- 262,691
NET PROPERTY, PLANT AND
EQUIPMENT...................... -- 142,476 -- 96,267 -- 238,743
GOODWILL......................... -- 27,384 -- -- -- 27,384
DEFERRED INCOME TAXES............ -- 26,951 606 460 -- 28,017
OTHER NON-CURRENT ASSETS......... -- 36,899 -- 14,317 -- 51,216
INTERCOMPANY ADVANCES............ -- 247,492 -- -- (247,492) --
INVESTMENT IN SUBSIDIARIES....... -- -- 60,511 -- (60,511) --
--------- -------- -------- -------- --------- ---------
Total assets........... $ -- $621,668 $ 62,494 $231,892 $(308,003) $ 608,051
========= ======== ======== ======== ========= =========
CURRENT LIABILITIES
Current maturities of
long-term debt............ $ -- $ 10,544 $ -- $ 35,172 $ -- $ 45,716
Accounts payable............ -- 48,921 -- 55,570 -- 104,491
Other current liabilities... -- 44,572 31 14,533 -- 59,136
--------- -------- -------- -------- --------- ---------
Total current
liabilities.......... -- 104,037 31 105,275 -- 209,343
TOTAL LONG TERM DEBT............. 854 521,288 -- -- -- 522,142
LONG TERM LIABILITIES PURSUANT TO
EMPLOYEE BENEFIT PLANS......... -- 44,645 672 29,988 -- 75,305
OTHER LONG-TERM LIABILITIES...... -- 3,958 -- 3,002 -- 6,960
PREFERRED STOCK.................. 139,780 -- -- -- -- 139,780
INTERCOMPANY LOANS............... 112,056 -- 118,056 17,380 (247,492) --
INVESTMENT IN SUBSIDIARIES....... 92,789 40,529 -- -- (133,318) --
STOCKHOLDERS' EQUITY/
(DEFICIT)...................... (345,479) (92,789) (56,265) 76,247 72,807 (345,479)
--------- -------- -------- -------- --------- ---------
Total liabilities and
stockholders'
equity............... $ -- $621,668 $ 62,494 $231,892 $(308,003) $ 608,051
========= ======== ======== ======== ========= =========
</Table>
F-58
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
<Table>
<Caption>
USC
UNITED USC MAY EUROPE/MAY
STATES VERPACKUNGEN VERPACKUNGEN
U.S. CAN CAN HOLDING GMBH (NON- U.S. CAN
CORPORATION COMPANY (SUBSIDIARY GUARANTOR CORPORATION
(PARENT) (ISSUER) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
(UNAUDITED)
(000'S OMITTED)
CURRENT ASSETS:
Cash and cash equivalents... $ -- $ 5,707 $ -- $ 6,083 $ -- $ 11,790
Accounts receivable......... -- 43,623 -- 46,363 -- 89,986
Inventories................. -- 57,500 (600) 48,735 -- 105,635
Deferred income taxes....... -- 5,535 1,977 218 -- 7,730
Other current assets........ -- 6,184 -- 8,282 -- 14,466
--------- -------- -------- -------- --------- ---------
Total current assets... -- 118,549 1,377 109,681 -- 229,607
NET PROPERTY, PLANT AND
EQUIPMENT...................... -- 147,588 -- 94,086 -- 241,674
GOODWILL......................... -- 27,384 -- -- -- 27,384
DEFERRED INCOME TAXES............ -- 28,312 606 422 -- 29,340
OTHER NON-CURRENT ASSETS......... -- 37,904 -- 12,917 -- 50,821
INTERCOMPANY ADVANCES............ -- 240,791 -- -- (240,791) --
INVESTMENT IN
SUBSIDIARIES................... -- -- 61,360 -- (61,360) --
--------- -------- -------- -------- --------- ---------
Total assets........... $ -- $600,528 $ 63,343 $217,106 $(302,151) $ 578,826
========= ======== ======== ======== ========= =========
CURRENT LIABILITIES
Current maturities of
long-term debt............ $ -- $ 11,078 $ -- $ 15,075 $ -- $ 26,153
Accounts payable............ -- 47,901 -- 46,636 -- 94,537
Other current liabilities... -- 48,389 31 15,974 -- 64,394
--------- -------- -------- -------- --------- ---------
Total current
liabilities.......... -- 107,368 31 77,685 -- 185,084
TOTAL LONG TERM DEBT............. 854 503,238 -- 19,437 -- 523,529
LONG TERM LIABILITIES PURSUANT TO
EMPLOYEE BENEFIT PLANS......... -- 44,603 672 29,299 -- 74,574
OTHER LONG-TERM LIABILITIES...... -- 3,714 -- 2,638 -- 6,352
PREFERRED STOCK.................. 133,133 -- -- -- -- 133,133
INTERCOMPANY LOANS............... 112,057 -- 114,864 13,870 (240,791) --
INVESTMENT IN SUBSIDIARIES....... 97,802 39,407 -- -- (137,209) --
STOCKHOLDERS' EQUITY/
(DEFICIT)...................... (343,846) (97,802) (52,224) 74,177 75,849 (343,846)
--------- -------- -------- -------- --------- ---------
Total liabilities and
stockholders'
equity............... $ -- $600,528 $ 63,343 $217,106 $(302,151) $ 578,826
========= ======== ======== ======== ========= =========
</Table>
F-59
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 29, 2003
<Table>
<Caption>
USC
UNITED USC MAY EUROPE/MAY
STATES VERPACKUNGEN VERPACKUNGEN
U.S. CAN CAN HOLDING (NON- U.S. CAN
CORPORATION COMPANY (SUBSIDIARY GUARANTOR CORPORATION
(PARENT) (ISSUER) GUARANTOR) SUBSIDIARIES) CONSOLIDATED
----------- -------- ------------ ------------- ------------
(UNAUDITED)
(000'S OMITTED)
CASH FLOWS (USED IN) PROVIDED BY
OPERATING ACTIVITIES............. $-- $ 7,148 $(7,495) $(5,699) $(6,046)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures............. -- (5,868) -- (1,541) (7,409)
Proceeds from sale of property... -- 256 -- 5,173 5,429
--- ------- ------- ------- -------
Net cash (used in) provided by
investing activities........ -- (5,612) -- 3,632 (1,980)
--- ------- ------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Changes in intercompany
advances...................... -- (6,561) 7,495 (934) --
Net borrowings under revolving
line of credit................ -- 20,300 -- -- 20,300
Payments of other long-term
debt.......................... -- (2,784) -- (4,342) (7,126)
Borrowings of other debt......... -- -- -- 3,557 3,557
--- ------- ------- ------- -------
Net cash (used in) provided by
financing activities........ -- 10,955 7,495 (1,719) 16,731
--- ------- ------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH............................. -- -- -- (1,449) (1,449)
--- ------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................. -- 12,491 -- (5,235) 7,256
CASH AND CASH EQUIVALENTS,
beginning of period.............. -- 5,707 -- 6,083 11,790
--- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of
period........................... $-- $18,198 $ -- $ 848 $19,046
=== ======= ======= ======= =======
</Table>
F-60
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
<Table>
<Caption>
USC
UNITED USC MAY EUROPE/MAY
STATES VERPACKUNGEN VERPACKUNGEN
U.S. CAN CAN HOLDING (NON- U.S. CAN
CORPORATION COMPANY (GUARANTOR GUARANTOR CORPORATION
(PARENT) (ISSUER) SUBSIDIARY) SUBSIDIARIES) CONSOLIDATED
----------- -------- ------------ ------------- ------------
(UNAUDITED)
(000'S OMITTED)
CASH FLOWS (USED IN) PROVIDED BY
OPERATING ACTIVITIES............. $-- $ 9,699 $(4,524) $(9,336) $ (4,161)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures............. -- (6,765) -- (4,271) (11,036)
Proceeds from the sale of
property...................... -- 475 -- 116 591
Investment in Formametal S.A..... -- (133) -- -- (133)
--- ------- ------- ------- --------
Net cash used in investing
activities.................. -- (6,423) -- (4,155) (10,578)
--- ------- ------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Changes in intercompany
advances...................... -- (4,179) 4,524 (345) --
Net borrowings under revolving
line of credit................ -- 8,900 -- -- 8,900
Payments of other long-term
debt.......................... -- (4,340) -- (1,349) (5,689)
Borrowings of other long-term
debt.......................... -- -- -- 13,750 13,750
--- ------- ------- ------- --------
Net cash provided by financing
activities.................. -- 381 4,524 12,056 16,961
--- ------- ------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH............................. -- -- -- (452) (452)
--- ------- ------- ------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................. -- 3,657 -- (1,887) 1,770
CASH AND CASH EQUIVALENTS,
beginning of period.............. -- 8,249 -- 6,494 14,743
--- ------- ------- ------- --------
CASH AND CASH EQUIVALENTS, end of
period........................... $-- $11,906 $ -- $ 4,607 $ 16,513
=== ======= ======= ======= ========
</Table>
F-61
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only upon the information contained in this prospectus. We have
not authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
UNITED STATES CAN COMPANY
EXCHANGE OFFER
$125,000,000
10 7/8% SERIES B SENIOR SECURED NOTES DUE 2010
---------------------
[USCAN LOGO]
---------------------
, 2003
Until , all dealers effecting transactions in the notes or the
exchange notes, whether or not participating in the exchange offer, may be
required to deliver a prospectus. This is in addition to the dealers' obligation
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
a corporation to indemnify and advance reasonable expenses to any person who was
a party, is a party, or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
corporation) by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. In addition, Section 145 of the DGCL
states that no indemnification may be made in respect of any claim, issue or
matter as to which such person is adjudged to be liable to us unless and only to
the extent that the Court of Chancery or the court in which the action was
brought determines that, despite the adjudication of liability but in view of
all of the circumstances of the case, he or she was fairly and reasonably
entitled to indemnity for the expenses which the court deems proper.
Our Certificate of Incorporation includes indemnification provisions that
mirror Section 145 of the DGCL Consequently, any of our directors or officers or
any person serving at our request in those capacities will be fully indemnified
against such judgments, penalties, fines, settlements and reasonable expenses
actually incurred, except if (1) he or she did not conduct himself or herself in
good faith and did not reasonably believe his or her conduct was in the
corporation's best interests; or (2) in the case of any criminal action or
proceeding, he or she had reasonable cause to believe his or her conduct was
unlawful.
Our Certificate of Incorporation also contains a provision eliminating
liability to us or our shareholders for monetary damages from breach of
fiduciary duty as a director, except under certain specified circumstances. The
inclusion of these indemnification provisions in our Certificate of
Incorporation and is intended to enable us to attract qualified persons to serve
as directors and officers who might otherwise be reluctant to serve.
ITEM 21. EXHIBITS
(a) Exhibits
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------
2.1 Agreement and Plan of Merger (the "Merger Agreement") dated
as of June 1, 2000 between U.S. Can Corporation and Pac
Packaging Acquisition Corporation (Exhibit 2 to the current
report on Form 8-K, filed on June 15, 2000).(1)
2.2 First Amendment to Merger Agreement dated as of June 28,
2000 (Exhibit 2.2 to the current report on Form 8-K, filed
on June 30, 2000).(1)
2.3 Second Amendment to Merger Agreement dated as of August 22,
2000 (Exhibit 2.3 to the current report on Form 8-K, filed
on August 31, 2000).(1)
3.1 Amended and Restated Certificate of Incorporation of U.S.
Can Corporation (Exhibit 3.7 to the quarterly report on Form
10-Q for the quarter ended June 29, 2003, filed on August 8,
2003).(1)
3.2 Amended and Restated By-laws of U.S. Can Corporation
(Exhibit 3.2 to the registration statement on Form S-4 (No.
333-53276), filed on January 5, 2001).(1)
3.3 Restated Certificate of Incorporation of United States Can
Company (Exhibit 3.3 to the registration statement on Form
S-4 (No. 333-53276), filed on January 5, 2001).(1)
</Table>
II-1
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------
3.4 Amended and Restated By-laws of United States Can Company
(Exhibit 3.4 to the registration statement on Form S-4 (No.
333-53276), filed on January 5, 2001).(1)
3.5 Certificate of Incorporation of USC May Verpackungen Holding
Inc (Exhibit 3.5 to the registration statement on Form S-4
(No. 333-53276), filed on January 5, 2001).(1)
3.6 By-Laws of USC May Verpackungen Holding Inc (Exhibit 3.6 to
the registration statement on Form S-4 (No. 333-53276),
filed on January 5, 2001).(1)
4.1 Indenture dated as of October 4, 2000 between United States
Can Company and Bank One Trust Company, N.A., as Trustee
(Exhibit 4.1 to the current report on Form 8-K, filed on
October 18, 2000).(1)
4.2 Indenture dated as of July 22, 2003 among U.S. Can
Corporation, United States Can Company, USC May Verpackungen
Holding Inc. and Wells Fargo Bank Minnesota, National
Association (Exhibit 4.3 to the current report on Form 8-K,
filed on July 22, 2003).(1)
4.3 Registration Rights Agreement dated as of July 22, 2003
among U.S. Can Corporation, United States Can Company, USC
May Verpackungen Holding Inc. and Citigroup Global Markets
Inc. (Exhibit 4.4 to the current report on Form 8-K, filed
on July 22, 2003).(1)
4.4 Form of Exchange Note (filed as an exhibit to the Indenture
relating to the notes -- see Exhibit 4.2).
5.1 Opinion of Ropes & Gray LLP.**
10.1 Credit Agreement dated as of October 4, 2000, among United
States Can Company, the guarantors and Bank of America, N.A.
and the other financial institutions listed therein, as
Lenders (Exhibit 10.1 to the current report on Form 8-K,
filed on October 18, 2000).(1)
10.2 Pledge Agreement dated as of October 4, 2000 among U.S. Can
Corporation, United States Can Company, each of the domestic
subsidiaries of United States Can Company and Bank of
America, N.A (Exhibit 10.2 to the registration statement on
Form S-4 (No. 333-53276), filed on January 5, 2001).(1)
10.3 Amended and Restated Security Agreement dated as of July 22,
2003 among U.S. Can Corporation, United States Can Company,
each of the domestic subsidiaries of United States Can
Company and Bank of America, N.A.*
10.4 Sublease Agreement, dated 2/10/89, relating to the Commerce,
CA property (Exhibit 10.10 to the quarterly report on Form
10-Q for the quarter ended April 6, 1997 (No. 001-13678),
filed on May 20, 1997).(1)
10.5 Lease Agreement, dated 1/1/76, as amended, relating to the
Weirton, WV property (Exhibit 10.11 to the quarterly report
on Form 10-Q, for the quarter ended April 6, 1997 (No.
001-13678), filed on May 20, 1997).(1)
10.6 First Amendment to Credit Agreement dated as of April 1,
2001 (Exhibit 10.27 to the quarterly report on Form 10-Q for
the period ended April 1, 2001, filed on May 15, 2001).(1)
10.7 Amendment No. 4 to the Lease Agreement, dated 1/1/76, as
amended, relating to the Weirton, WV property (Exhibit 10.7
to the registration statement on Form S-4 (No. 333-53276),
filed on January 5, 2001).(1)
10.8 Lease relating to Dragon Parc Industrial Estate, Merthyr
Tydfil, Wales, dated November 27, 1996 (Exhibit 10.24 to the
annual report on Form 10-K for the fiscal year ended
December 31, 1996 (No. 001-13678), filed on March 26,
1997).(1)
10.9 Nonqualified Supplemental 401(k) Plan (Exhibit 10.33 to the
annual report on Form 10-K for the fiscal year ended
December 31, 1995 (No. 001-13678), filed on March 26,
1996).(1)
10.10 Nonqualified Benefit Replacement Plan (Exhibit 10.34 to the
annual report on Form 10-K for the fiscal year ended
December 31, 1995 (No. 001-13678), filed on March 26,
1996).(1)
10.11 Lease Agreement between May Grundbesitz GmbH & Co. KG and
May Verpackungen GmbH & Co. KG (Exhibit 10.1 to the
quarterly report on Form 10-Q for the quarter ended July 2,
2000, filed on August 15, 2000).(1)
</Table>
II-2
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------
10.12 Amendment No. 3 to the Lease Agreement, dated 1/1/76, as
amended, relating to the Weirton, WV property (Exhibit 10.55
to the annual report on Form 10-K for the fiscal year ended
December 31, 1995 (No. 001-13678), filed on March 26,
1996).(1)
10.13 Employment Agreement dated October 4, 2000 by and among John
L. Workman, United States Can Company and U.S. Can
Corporation (Exhibit 10.14 to the registration statement on
Form S-4 (No. 333-53276), filed January 5, 2001).(1)
10.14 Lease Agreement dated June 15, 2000, related to Atlanta, GA
plastics facility (Exhibit 10.15 to the annual report on
Form 10-K for the fiscal year ended December 31, 2001, filed
on March 22, 2002).(1)
10.15 Employment Agreement dated October 4, 2000 by and among
Thomas A. Scrimo, United States Can Company and U.S. Can
Corporation (Exhibit 10.18 to the registration statement on
Form S-4 (No. 333-53276), filed January 5, 2001).(1)
10.16 U.S. Can Corporation Executive Deferred Compensation Plan
(Exhibit 10.30 to the annual report on Form 10-K for the
fiscal year ended December 31, 1998, filed on March 31,
1999).(1)
10.17 Amendment No. 1 to the U.S. Can Corporation Executive
Deferred Compensation Plan, dated as of October 4, 2000
(Exhibit 10.23 to the registration statement on Form S-4
(No. 333-53276), filed January 5, 2001).(1)
10.18 U.S. Can Corporation 2000 Equity Incentive Plan (Exhibit
10.24 to the registration statement on Form S-4 (No.
333-53276), filed January 5, 2001).(1)
10.19 United States Can Company Executive Severance Plan, dated as
of October 13, 1999 (Exhibit 10.34 to the annual report on
Form 10-K for the fiscal year ended December 31, 1999, filed
on March 30, 2000).(1)
10.20 U.S. Can Corporation Stockholders Agreement, dated as of
October 4, 2000 (Exhibit 10.26 to the registration statement
on Form S-4 (No. 333-53276), filed January 5, 2001).(1)
10.21 Berkshire Fee Letter dated December 18, 2001 (Exhibit 10.27
to the annual report on Form 10-K for the fiscal year ended
December 31, 2001, filed on March 22, 2002).(1)
10.22 Second Amendment to Credit Agreement dated December 18, 2001
(Exhibit 10.28 to the annual report on Form 10-K for the
fiscal year ended December 31, 2001, filed on March 22,
2002).(1)
10.23 Sale Agreement of the Scotts Road, Southall, United Kingdom
factory premises dated December 18, 2001 (Exhibit 10.29 to
the annual report on Form 10-K for the fiscal year ended
December 31, 2001, filed on March 22, 2002).(1)
10.24 Compromise Agreement and General Release between United
States Can Company and David R. Ford dated June 30, 2002.
(Exhibit 10(a) to the quarterly report on Form 10-Q, for the
quarter ended September 29, 2002, filed on November 12,
2002).(1)
10.25 Compromise Agreement and General Release between United
States Can Company and J. Michael Kirk dated October 16,
2002 (Exhibit 10(b) to the quarterly report on Form 10-Q,
for the quarter ended September 29, 2002, filed on November
12, 2002).(1)
10.26 Separation Agreement and General Release between United
States Can Company and Paul W. Jones dated November 26, 2002
(Exhibit 10.27 to the annual report on Form 10-K for the
fiscal year ended December 31, 2002, filed on March 26,
2003).(1)
10.27 Separation Agreement and General Release between United
States Can Company and Roger B. Farley dated March 27,
2003.*
10.28 Amendment No. 1 to the U.S. Can Corporation Nonqualified
Supplemental 401(k), dated as of February 25, 2002 (Exhibit
10.27 to the annual report on Form 10-K for the fiscal year
ended December 31, 2002, filed on March 26, 2003).(1)
10.29 Third Amendment to Credit Agreement dated July 22, 2003
(Exhibit 10.5 to the current report on Form 8-K, filed on
July 22, 2003).(1)
10.30 Security Agreement dated as of July 22, 2003 among United
States Can Company, U.S. Can Corporation, USC May
Verpackungen Holding Inc. and Wells Fargo Bank Minnesota,
National Association.*
</Table>
II-3
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------
10.31 Pledge Agreement dated as of July 22, 2003 among United
States Can Company, U.S. Can Corporation, USC May
Verpackungen Holding Inc. and Wells Fargo Bank Minnesota,
National Association.*
10.32 Lien Intercreditor Agreement dated as of July 22, 2003 among
Wells Fargo Bank Minnesota, National Association, Bank of
America, N.A., United States Can Company, U.S. Can
Corporation and USC May Verpackungen Holding Inc.*
12.1 Computation of Ratio of Earnings to Fixed Charges.*
21.1 Subsidiaries of the Registrant (Exhibit 21 to the annual
report on Form 10-K for the fiscal year ended December 31,
2002, filed on March 26, 2003).(1)
23.1 Independent Auditor's Consent.*
23.2 Consent of Ropes & Gray LLP (see Exhibit 5.1).**
24.1 Powers of Attorney (included on signature pages).
25.1 Statement of Eligibility and Qualification of Trustee on
Form T-1.*
99.1 Form of Letter of Transmittal used in connection with the
Exchange Offer.*
99.2 Form of Notice of Guaranteed Delivery used in connection
with the Exchange Offer.*
99.3 Form of Exchange Agent Agreement.**
</Table>
- ---------------
* Filed herewith.
** To be filed by amendment.
(1) Incorporated by reference.
(b) Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or the
accompanying notes.
ITEM 22. UNDERTAKINGS
(1) The undersigned registrants hereby undertake:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(x) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(y) to reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered, if the total
dollar value of securities offered would not exceed that which was
registered, and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(z) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
II-4
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities, other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any action,
suit or proceeding, is asserted by that director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(3) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this registration statement, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of this registration statement
through the date of responding to the request.
(4) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this registration statement when it became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lombard, State of
Illinois, on September 19, 2003.
U.S. CAN CORPORATION
By /s/ SANDRA K. VOLLMAN
------------------------------------
Sandra K. Vollman
Senior Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John L.
Workman and Sandra K. Vollman, and each of them singly, his or her true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement on Form S-4 and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to be done in and about the premises, as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on September 19, 2003.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ JOHN L. WORKMAN Director and Chief Executive Officer
- ------------------------------------------------ (Principal executive officer)
John L. Workman
/s/ SANDRA K. VOLLMAN Senior Vice President and Chief Financial Officer
- ------------------------------------------------ (Principal financial and accounting officer)
Sandra K. Vollman
/s/ CARL FERENBACH Chairman of the Board
- ------------------------------------------------
Carl Ferenbach
/s/ GEORGE V. BAYLY Director
- ------------------------------------------------
George V. Bayly
/s/ RICHARD K. LUBIN Director
- ------------------------------------------------
Richard K. Lubin
/s/ PHILIP R. MENGEL Director
- ------------------------------------------------
Philip R. Mengel
/s/ FRANCISCO A. SOLER Director
- ------------------------------------------------
Francisco A. Soler
/s/ LOUIS B. SUSMAN Director
- ------------------------------------------------
Louis B. Susman
</Table>
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lombard, State of
Illinois, on September 19, 2003.
UNITED STATES CAN COMPANY
By /s/ SANDRA K. VOLLMAN
------------------------------------
Sandra K. Vollman
Senior Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John L.
Workman and Sandra K. Vollman, and each of them singly, his or her true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement on Form S-4 and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to be done in and about the premises, as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on September 19, 2003.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ JOHN L. WORKMAN Director and Chief Executive Officer
- ------------------------------------------------ (Principal executive officer)
John L. Workman
/s/ SANDRA K. VOLLMAN Senior Vice President and Chief Financial Officer
- ------------------------------------------------ (Principal financial and accounting officer)
Sandra K. Vollman
/s/ CARL FERENBACH Chairman of the Board
- ------------------------------------------------
Carl Ferenbach
/s/ GEORGE V. BAYLY Director
- ------------------------------------------------
George V. Bayly
/s/ RICHARD K. LUBIN Director
- ------------------------------------------------
Richard K. Lubin
/s/ PHILIP R. MENGEL Director
- ------------------------------------------------
Philip R. Mengel
/s/ FRANCISCO A. SOLER Director
- ------------------------------------------------
Francisco A. Soler
/s/ LOUIS B. SUSMAN Director
- ------------------------------------------------
Louis B. Susman
</Table>
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lombard, State of
Illinois, on September 19, 2003.
USC MAY VERPACKUNGEN HOLDING INC.
By /s/ SANDRA K. VOLLMAN
------------------------------------
Sandra K. Vollman
Senior Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John L.
Workman and Sandra K. Vollman, and each of them singly, his or her true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement on Form S-4 and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to be done in and about the premises, as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on September 19, 2003.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ JOHN L. WORKMAN Director and Chief Executive Officer
- ------------------------------------------------ (Principal executive officer)
John L. Workman
/s/ SANDRA K. VOLLMAN Senior Vice President and Chief Financial Officer
- ------------------------------------------------ (Principal financial and accounting officer)
Sandra K. Vollman
/s/ PATRICIA M. COSGROVE Director, Assistant General Counsel and Acting
- ------------------------------------------------ Secretary
Patricia M. Cosgrove
</Table>
II-8