As filed with the Securities and Exchange Commission on February 11, 2004.
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
B&G FOODS HOLDINGS CORP.
(Exact name of Registrant as specified in its charter)
Delaware (State or Other Jurisdiction of Incorporation or Organization) |
2035 (Primary Standard Industrial Classification Code Number) |
13-3918742 (I.R.S. Employer Identification No.) |
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Four Gatehall Drive, Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) |
See Table of Additional Registrants on Next Page
David L. Wenner Four Gatehall Drive Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) |
With copies to: |
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Christopher G. Karras, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 (215) 994-4000 |
Jeffrey J. Rosen, Esq. Steven J. Slutzky, Esq. Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 (212) 909-6000 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this form is a post-effective amendment filed pursuant to Rule 462(c) 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. o
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. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o
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 this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered |
Proposed Maximum Aggregate Offering Price (1) |
Amount of Registration Fee |
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---|---|---|---|---|
Enhanced Income Securities (EISs) (2) | $565,000,000 | $71,586 | ||
Class A Common Stock, $0.01 par value (3) | ||||
% Subordinated Notes (4) | ||||
Subsidiary Guarantees of Subordinated Notes (5) | ||||
B&G FOODS HOLDINGS CORP.
Table of Additional Registrants
Name |
Jurisdiction of Incorporation or Organization |
Primary Standard Industrial Classification Number |
IRS Employer Identification Number |
|||
---|---|---|---|---|---|---|
B&G Foods, Inc. | Delaware | 2035 | 13-3916496 | |||
BGH Holdings, Inc. | Delaware | 2035 | 36-3867424 | |||
Bloch & Guggenheimer, Inc. | Delaware | 2035 | 36-1208070 | |||
Heritage Acquisition Corp. | Delaware | 2032, 2033 | 22-3640377 | |||
Maple Groves Farms of Vermont, Inc. | Vermont | 2099 | 03-0259252 | |||
Ortega Holdings Inc. | Delaware | 2099 | 90-0103279 | |||
Polaner, Inc. | Delaware | 2033 | 22-3210182 | |||
Trappey's Fine Foods, Inc. | Delaware | 2099, 2035, 2033 | 22-2934591 | |||
William Underwood Company | Massachusetts | 2013, 2032 | 04-1919830 |
The address, including zip code, telephone number and area code, of the principal executive offices of the additional registrants listed above is: Four Gatehall Drive, Suite 110, Parsippany, NJ 07054; their telephone number at that address is (973) 401-6500.
EXPLANATORY NOTE
Immediately prior to the offering contemplated by this Registration Statement, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., a holding company, the sole asset of which is its investment in the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc.
The information in this Prospectus is not complete and may be changed. We cannot sell these securities until the Securities and Exchange Commission declares our Registration Statement effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to completion, dated February 11, 2004
PROSPECTUS
Enhanced Income Securities (EISs)
B&G Foods Holdings Corp. is selling Enhanced Income Securities, or EISs, representing shares of Class A common stock and $ million aggregate principal amount of % subordinated notes due 2024. Each EIS represents:
Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by our current dividend policy, you will receive in the aggregate approximately $ per year in dividends and interest on the Class A common stock and subordinated notes represented by each EIS through , 2024, the maturity date of the subordinated notes.
This is the initial public offering of our EISs, and the shares of our Class A common stock and subordinated notes represented thereby. We anticipate that the public offering price will be between $ and $ per EIS. We will apply to list the EISs on The American Stock Exchange under the trading symbol " ." We do not anticipate that the subordinated notes will be separately listed on any exchange.
Holders of EISs will have the right to separate the EISs into the shares of our Class A common stock and subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Separation of all of the EISs will occur automatically upon the occurrence of any redemption of the subordinated notes or upon maturity of the subordinated notes. Similarly, any holder of shares of our Class A common stock and subordinated notes may, at any time, unless the EISs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of subordinated notes to form EISs.
Upon a subsequent issuance by us of EISs, a portion of your subordinated notes may be automatically exchanged for an identical principal amount of the subordinated notes issued in such subsequent issuance, and in that event your EISs will be replaced with new EISs. For more information regarding these automatic exchanges and the effect they may have on your investment, see "Description of Subordinated NotesCovenants Relating to EISsProcedures Relating to Subsequent Issuance" on page 104 and "Material U.S. Federal Income Tax ConsequencesConsequences to U.S. HoldersSubordinated NotesAdditional Issuances" on page 146.
Investing in our EISs and the shares of our Class A common stock and subordinated notes represented by the EISs involves risks. See "Risk Factors" section beginning on page 22 of this prospectus.
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Per EIS |
Total |
||||
---|---|---|---|---|---|---|
Public offering price | $ | $ | ||||
Underwriting discount | $ | $ | ||||
Proceeds to B&G Foods Holdings Corp. (before expenses) (1) | $ | $ |
We have granted the underwriters an option to purchase up to additional EISs to cover over-allotments, if any. We will use all of the proceeds from the sale of any additional EISs upon the exercise of the underwriters' over-allotment option to repurchase additional shares of outstanding Class B common stock from certain of our existing stockholders.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the EISs in book-entry form only through the facilities of The Depository Trust Company to purchasers on or about , 2004.
RBC CAPITAL MARKETS | CREDIT SUISSE FIRST BOSTON | MERRILL LYNCH & CO. |
LEHMAN BROTHERS |
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PIPER JAFFRAY |
, 2004
[On the inside front cover we will include a collage of our brands and logos.]
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Page |
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Summary | 1 | |
Risk Factors | 22 | |
Forward-Looking Statements | 36 | |
Use of Proceeds | 37 | |
Dividend Policy and Restrictions | 38 | |
Capitalization | 39 | |
Dilution | 40 | |
Selected Historical Consolidated Financial Data | 41 | |
Unaudited Pro Forma Condensed Combined Financial Data | 44 | |
Management's Discussion and Analysis of Financial Condition and Results of Operations | 50 | |
Business | 61 | |
Our Management | 73 | |
Ownership of Capital Stock | 80 | |
Certain Relationships and Related Transactions | 82 | |
Description of Certain Indebtedness | 84 | |
Description of Enhanced Income Securities (EISs) | 85 | |
Description of Capital Stock | 89 | |
Description of Subordinated Notes | 95 | |
Shares Eligible for Future Sale | 142 | |
Material U.S. Federal Income Tax Considerations | 143 | |
Underwriting | 153 | |
Legal Matters | 156 | |
Experts | 156 | |
Where You Can Find More Information | 157 | |
Index to Consolidated Financial Statements | F-1 |
In making your investment decision, you should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. If anyone provided you with different or inconsistent information, you should not rely on it. This prospectus may only be used where it is legal to sell these securities. You should assume the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, consolidated financial condition, results of operations, liquidity and prospects may have changed since that date. Neither the delivery of this prospectus nor any sale made hereunder shall under any circumstances imply that the information in this prospectus is correct as of any date subsequent to the date on the cover of this prospectus.
In this prospectus we rely on and refer to information and statistics regarding the food industry. We obtained this information and these statistics from various third-party sources, discussions with our customers and our own internal estimates. We believe that these sources and estimates are reliable, but we have not independently verified them and cannot guarantee their accuracy or completeness. Unless otherwise indicated, all statements in this prospectus regarding market share and brand position are measured by retail dollar share.
AC'CENT®, B&G®, B&M®, B&G BLOCH GUGGENHEIMER® (logo), B&G SANDWICH TOPPERS®, BRER RABBIT®, COZY COTTAGE®, JOAN OF ARC®, LAS PALMAS®, MAPLE GROVE FARMS OF VERMONT®, ORTEGA®, POLANER, POLANER ALL FRUIT®, REGINA, SA-SON AC'CENT®, TRAPPEY'S®, UNDERWOOD®, VERMONT MAID®, and WRIGHT's® are registered trademarks of our company or one of our subsidiaries and BLOCH & GUGGENHEIMER, RED DEVIL, SA-SON and UP-COUNTRY ORGANICS are trademarks of our company or one of our subsidiaries.
EMERIL'S® is a registered trademark of Emeril's Food of Love Productions, L.L.C. All other trademarks used in this prospectus are trademarks or registered trademarks of their respective owners.
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The following is a summary of the principal features of this offering of EISs and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus.
Immediately prior to this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal 2003 ended on January 3, 2004.
Overview
We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 11 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent of which was the acquisition of the Ortega line of branded Mexican food products in August 2003.
In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma fiscal 2003 net sales and EBITDA, reflecting the full year impact of the Ortega acquisition before the effect of potential cost savings, were $374.8 million and $67.7 million, respectively. During the three months ended January 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $101.2 million, $19.2 million and 19.0%, respectively, compared to net sales, EBITDA and EBITDA margin of $78.7 million, $13.4 million and 17.0%, respectively, for the comparable period in the prior year.
We sell and distribute our products through a multiple-channel sales and distribution system including to the following:
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The following is a brief description of the products we offer under our brands:
Brand |
Products |
Contribution to 2003 Pro Forma Net Sales |
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Salsa, spices, peppers, taco sauces, taco kits, Mexican ingredients and taco shells | 21.3 | % | |||
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Pure maple syrup, gourmet salad dressings, marinades and pancake mixes |
13.0 |
% |
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Pickles, relishes, peppers, olives and other related specialty items |
12.4 |
% |
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Fruit-based spreads and wet spices |
9.6 |
% |
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Seasonings, salad dressings, marinades, pepper sauces, pasta sauces, mustard and salsa |
6.8 |
% |
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Brick-oven baked beans and brown bread |
6.5 |
% |
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Meat spreads, including deviled ham, chicken and roast beef |
6.0 |
% |
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Mexican ingredients, including enchilada sauce, jalapenos, green chilis and crushed tomatillos |
5.5 |
% |
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All-natural flavor enhancer used generally on beef, poultry, fish and vegetables |
4.7 |
% |
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Peppers and hot sauces |
3.7 |
% |
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Vinegars and cooking wines |
3.1 |
% |
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Canned recipe beans |
3.0 |
% |
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Liquid smoke |
1.5 |
% |
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Flavor enhancer used primarily on beef, poultry, fish and vegetables |
1.3 |
% |
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Regular and blackstrap molasses |
0.8 |
% |
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Maple-flavored syrup |
0.8 |
% |
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100.0 |
% |
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Our Strengths
We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths:
Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product.
Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels.
Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company.
Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities.
Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the three months ended January 3, 2004, our EBITDA margins were 19.0%, as compared to EBITDA margins of 17.0% during the comparable period in the prior year, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform.
Business Strategy
Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives:
Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support.
Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions.
Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license.
Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform.
Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow.
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The Transactions
Concurrently with this offering we will:
We estimate that we will sell EISs in this offering and receive net proceeds of approximately $ million after deducting underwriting discounts, commissions, and other estimated offering expenses, assuming an initial public offering price of $ per EIS, which represents the mid-point of the range set forth on the cover page of this prospectus.
We will use the net proceeds of this offering together with the estimated $ million net proceeds from our new senior unsecured indebtedness and cash on hand, to:
If the underwriters exercise their over-allotment option in full, we will use all of the additional net proceeds to repurchase additional shares of our currently outstanding Class B common stock from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor) and Canterbury Mezzanine Capital II, L.P. and The CIT Group/Equity Investments, Inc. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors).
We refer to this offering, our entering into the new revolving credit facility, our incurrence of the new senior unsecured indebtedness, the repayment in full and termination of the existing senior credit facility, the repurchase of a portion of the outstanding Class B common stock including the exercise of outstanding warrants and options on the Class B common stock and all the preferred stock of our existing stockholders, the internal corporate transactions and the redemption of our existing senior subordinated notes collectively as the Transactions. We refer to all of the Transactions other than this offering as the other Transactions.
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The following table illustrates the estimated sources and uses of the funds for the Transactions, assuming the Transactions all occurred on January 3, 2004. Actual amounts may differ.
Total Sources and Uses of Funds
(Dollars in thousands)
Sources (1) |
Amount |
|||
---|---|---|---|---|
EISs offered hereby (2) | $ | |||
Cash on hand | ||||
New senior unsecured indebtedness | ||||
Total sources | $ | |||
Uses |
Amount |
|||
---|---|---|---|---|
Repayment of existing senior credit facility (3) | $ | 150,528 | ||
Repurchase of existing senior subordinated notes (4) | 235,881 | |||
Repurchase of preferred equity and repurchase of Class B common stock from existing investors (5) | ||||
Transaction fees, prepayment penalties and expenses | ||||
Total uses | $ | |||
The closing of this offering is conditioned on our completion of the other Transactions.
New Revolving Credit Facility. Concurrently with this offering, we will enter into an estimated $30.0 million new senior secured revolving credit facility. We anticipate that the new revolving credit facility will have a five-year maturity. The new revolving credit facility will contain restrictions on our ability to pay dividends on the shares of Class A common stock that constitute the EISs and our Class B common stock. We anticipate that the new revolving credit facility will be undrawn at closing and that we will have $28.7 million of availability immediately following the offering. See "Description of Certain IndebtednessNew Revolving Credit Facility" for a summary of the expected terms of the new revolving credit facility.
New Senior Unsecured Indebtedness. Concurrently with this offering, we anticipate that we will incur approximately $ million of new senior unsecured indebtedness, the form and terms of which
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are to be determined. We expect that the terms of our new senior unsecured indebtedness will contain restrictions on our ability to pay dividends on the shares of Class A common stock that constitute the EISs and our Class B common stock.
Redemption of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to call the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes for redemption. The terms of the existing senior subordinated notes currently permit us to redeem these notes, in whole or in part, at 103.208% of the principal amount, plus accrued and unpaid interest, with at least 30 days notice to the holders. We expect to pay approximately $227.1 million, plus accrued and unpaid interest up to the redemption date. At the closing of this offering and the consummation of the other Transactions, we will place cash into escrow in the amount that will be required to fully redeem our existing senior subordinated notes.
Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to pay the outstanding principal amount outstanding under the existing senior credit facility of $149.6 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at variable rates with a weighted average interest rate as of January 3, 2004 of 4.5% per year. The terms of the existing senior credit facility allow us to prepay without premium or penalty.
Our Existing Stockholders
Our existing financial investors, selected members of management and certain others, are the owners of all of our outstanding preferred stock, Class B common stock, options and warrants.
Upon consummation of the Transactions, we anticipate that our existing financial investors will own approximately shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock (or % if the over-allotment option is exercised in full). We anticipate that certain members of management will own approximately shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock (or % if the over-allotment option is exercised in full).
After the expiration of the 180-day lock-up period, the holders of our Class B common stock will have certain rights to convert or exchange their Class B common stock into Class A common stock and to further convert or exchange their Class A common stock into the equivalent value of EISs under certain circumstances. For a more complete description of this conversion or exchange right and other differences between our Class A and Class B common stock, see "Description of Capital Stock."
Other Information About This Prospectus
Unless we specifically state otherwise, the share information included in this prospectus reflect a to 1 stock split of our existing common stock (which we refer to as our Class B common stock) to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $ per EIS (comprised of $ principal amount allocated to each subordinated note and $ allocated to each share of Class A common stock), which represents the mid-point of the range set forth on the cover page of this prospectus. The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs.
Throughout this prospectus we use the terms "EBITDA" and "free cash flow," which are not indicators of performance or other measures determined in accordance with Generally Accepted Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations."
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Unless otherwise indicated, the pro forma statement of operations data contained in this prospectus for fiscal 2003 was prepared as if our acquisition of certain assets of The Ortega Brand of Business (which we refer to as Ortega or the Ortega line of products) from Nestlé Prepared Foods Company on August 21, 2003 was consummated on December 29, 2002, the first day of our fiscal 2003.
Our Corporate Information
We are a Delaware corporation. Our corporate headquarters is located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference.
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Summary of the EISs
We are offering EISs at an assumed initial public offering price of $ per EIS, which represents the mid-point of the range set forth on the cover page of this prospectus. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board upon consummation of this offering, you will receive in aggregate approximately $ per year in dividends and interest, respectively, on the Class A common stock and subordinated notes represented by each EIS through , 2024, the maturity date of the subordinated notes.
What are EISs?
EISs, or Enhanced Income Securities, are units comprised of our Class A common stock and subordinated notes. Each EIS initially represents one share of our Class A common stock and one % subordinated note with $ principal amount.
What payments can I expect to receive as a holder of EISs?
You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of subordinated notes represented by your EISs, or approximately $ per EIS per year.
You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your EISs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. The new revolving credit facility, the terms of the new senior unsecured indebtedness and the indenture governing our subordinated notes will each contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock. See "Dividend Policy and Restrictions." We will adopt a dividend policy which contemplates that initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its sole discretion, modify or repeal this dividend policy. We cannot assure you that we will pay dividends at this level in the future or at all.
We expect to make interest and dividend payments on , , and of each year to holders of record on the preceding , , and , respectively.
Will my rights as a holder of an EIS be any different than the rights of a beneficial owner of separately held Class A common stock and subordinated notes?
No. As a holder of EISs, you are the beneficial owner of Class A common stock and subordinated notes represented by your EISs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges, and preferences, including rights to receive distributions and interest, rights and preferences in the event of a default under the indenture governing our subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and subordinated notes, as applicable, would have through its broker or other financial institution and DTC.
Do I have voting rights as a holder of EISs?
Yes. As a holder of EISs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing financial investors, along with select members of our management, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EISs. Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Therefore,
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the existing financial investors, and selected members of our management, or their transferees, will greatly influence the outcome of all matters presented to our stockholders for a vote unless the underwriters exercise their over-allotment option. In addition, so long as our sponsor investor holds greater than 10% of the outstanding shares of Class A and Class B common stock in the aggregate, our sponsor investor will be entitled to elect two directors to the board of directors.
What will happen to the EIS units I hold upon a stock split, recombination or reclassification of the Class A common stock?
The ratio of Class A common stock to principal amount of subordinated notes represented by an EIS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each EIS will represent two shares of Class A common stock and the same principal amount of subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EIS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of subordinated notes as it previously represented.
Will the EISs be listed on an exchange?
Yes. We will apply to list our EISs on the American Stock Exchange under the trading symbol " ."
Can I separate my EISs into shares of Class A common stock and subordinated notes or recombine shares of Class A common stock and subordinated notes to form EISs?
Yes. Holders of EISs, whether purchased in this offering or in subsequent offerings of EISs of the same series, may, through their broker or other financial institution, separate the EISs into shares of Class A common stock and subordinated notes represented thereby at any time after the earlier of 45 days from the date of original issuance of the EISs or the occurrence of a change of control. Similarly, any holder of shares of Class A common stock and subordinated notes may, at any time, through his or her broker or other financial institution, recombine the applicable number of shares of Class A common stock and principal amount of subordinated notes to form EISs. Separation and recombination of EISs may involve transaction fees charged by your broker and/or financial intermediary.
Will the shares of our Class A common stock and the subordinated notes represented by the EISs be separately listed on an exchange?
The subordinated notes represented by the EISs will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the American Stock Exchange until a sufficient number of shares is held separately and not in the form of EISs as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EISs for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the American Stock Exchange. The subordinated notes and Class A common stock represented by the EISs will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act.
In what form will EISs and the shares of our Class A common stock and subordinated notes represented by the EISs be issued?
The EISs and the shares of our Class A common stock and subordinated notes represented by the EISs will be issued in book-entry form only. This means that you will not be a registered holder of EISs or the securities represented by the EISs, and you will not receive a certificate for your EISs or
9
the securities represented by the EISs. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of EISs and beneficial owner of Class A common stock and subordinated notes represented by your EISs.
Will my EISs automatically separate into shares of Class A common stock and subordinated notes upon the occurrence of certain events?
Yes. Separation of all of the EISs will occur automatically upon the redemption of all or a portion of the subordinated notes, upon maturity of the subordinated notes or upon certain bankruptcy events. See "Description of the Enhanced Income Securities (EISs)Automatic Separation."
What will happen if B&G Foods issues additional EISs of the same series in the future?
We may conduct future financings by selling additional EISs of the same series, which will have terms that are identical to those of the EISs being sold in this offering, except that if they are issued 45 days or more from the closing of this offering, they will be immediately separable, and if they are issued less than 45 days from the closing of this offering, they will be separable on the same date as the EISs issued hereunder may separate. Additional EISs will represent the same proportions of Class A common stock and subordinated notes as are represented by the then outstanding EISs. In addition, we will be required to issue additional EISs in the future upon the exercise of conversion or exchange rights by the holders of our Class B common stock. Although the subordinated notes represented by such EISs will have terms that are substantially identical (except for the issuance date) to the subordinated notes being sold in this offering and will be part of the same series of subordinated notes for all purposes under the indenture, it is possible that the new subordinated notes will be sold with original issue discount (referred to as OID) for U.S. federal income tax purposes. If such notes are issued with OID, all holders of EISs of the same series (including the EISs being offered hereby) and of outstanding subordinated notes not held in EISs will automatically exchange a ratable portion of their outstanding notes for a portion of the new notes, whether held directly or in the form of EISs, and will thereafter hold a unit consisting of new notes and old notes with a new CUSIP number or a new EIS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new notes among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. See "What will be the U.S. federal income tax considerations in connection with a subsequent issuance of subordinated notes of the same series?" In addition, if such notes are issued with OID, holders of such notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of the notes or a bankruptcy of the issuer prior to the maturity of the notes. See "Risk FactorsSubsequent issuances of subordinated notes may cause you to recognize OID and suffer other adverse consequences."
We will file with the Securities and Exchange Commission as soon as practicable a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of EIS components or changes in OID attributed to the subordinated notes.
What will be the U.S. federal income tax considerations in connection with an investment in EISs?
Certain aspects of the U.S. federal income tax consequences of the purchase, ownership, and disposition of the EISs being offered hereby are not entirely clear. We intend to treat the purchase of EISs in this offering as the purchase of shares of our Class A common stock and subordinated notes and, by purchasing EISs, you will agree to such treatment. You must allocate the purchase price of the EISs between those shares of Class A common stock and subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each of our % subordinated notes as $ . By purchasing EISs, you will agree to and be bound by this allocation, assuming an initial public offering price of $ per EIS, which represents the mid-point of the range set forth on the cover page of this prospectus.
10
We believe that the subordinated notes should be treated as debt for U.S. federal income tax purposes. However, this treatment is not free from doubt. If the subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then all or a portion of the stated interest on the subordinated notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow available to make dividend and interest payments on our common stock and subordinated notes. In addition, if any payments were treated as dividends, such payments to holders who are not U.S. persons would generally be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to non-U.S. holders would not be grossed-up on account of any such taxes.
Dividends paid on the Class A common stock through 2008, under current legislation and to the extent those dividends are paid out of our earnings and profits, will be taxable to you at long-term capital gains rates. Interest income on the subordinated notes will be taxable to you at ordinary income rates.
What will be the U.S. federal income tax considerations in connection with a subsequent issuance of subordinated notes of the same series?
The U.S. federal income tax consequences to you of the subsequent issuance of subordinated notes with OID upon a subsequent sale of EISs of the same series pursuant to an offering by us or upon an exercise of conversion or exchange rights by the holders of our Class B common stock are not clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes of the same series with a new CUSIP number having substantially identical terms as the notes, each holder of notes or EISs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect such exchanges. Consequently, immediately following each such subsequent issuance and exchange, without any further action by such holder, each holder of notes or EISs (as the case may be) will own an inseparable unit composed of notes of each separate issuance in the same proportion as each other holder (and, for any such holder of EISs, such inseparable unit composed of notes will be included in such holder's EISs). However, the aggregate stated principal amount of notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of notes for subsequently issued notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. Even if the exchange is not treated as a taxable event, such exchange may result in holders having to include OID in taxable income as it accrues on the subordinated notes, in addition to stated interest, and to suffer other potentially adverse U.S. federal income tax consequences. Because a subsequent issuance will affect the notes in the same manner regardless of whether the notes are held as part of EISs or directly, the recombination of notes and shares of Class A common stock to form EISs or the separation of EISs should not affect your tax treatment. See "Material U.S. Federal Income Tax Considerations."
Following the subsequent issuance and exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of notes and EISs, and each holder of notes and EISs will, by purchasing EISs, agree to report OID in a manner consistent with this approach. However, the IRS may assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge the holders' reporting of OID on their tax returns. Such a challenge could create significant uncertainties in the pricing of the EISs and notes and could adversely affect the market for EISs and notes.
Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EISs or instruments similar to the EISs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the EISs. For additional information, see "Material U.S. Federal Income Tax Considerations."
11
Issuer | B&G Foods Holdings Corp. | |
Shares of Class A common stock to be outstanding following the offering | shares (or shares if the underwriters exercise their over-allotment option in full). |
|
Shares of Class B common stock to be outstanding following the offering | shares (or shares if the underwriters exercise their over-allotment option in full). |
|
Total shares of common stock to be outstanding following the offering | shares (or shares if the underwriters exercise their over-allotment option in full). |
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Voting rights | Subject to applicable law, each outstanding share of our Class A and Class B common stock will carry one vote per share and will vote together as a single class on all matters presented to the stockholders for a vote. | |
Listing | The shares of our Class A common stock will be freely tradeable without restriction or further registration under the Securities Act, unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act of 1933. Our shares of Class A common stock will not be listed for separate trading on the American Stock Exchange until a sufficient number of shares is held separately and not in the form of EISs as may be necessary to satisfy any applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EISs for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the American Stock Exchange. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. |
12
Dividends | You will receive quarterly dividends on our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. We may not pay any dividends on our Class B common stock in any quarterly period unless and until all dividends on our Class A common stock for such quarterly period have been declared and paid in full in an amount that is at least the initial rate set forth herein for the Class A common stock. We will pay dividends on our Class B common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the subordinated notes indenture, our new revolving credit facility and the terms of our new senior unsecured indebtedness will each restrict our ability to declare and pay dividends on our Class A and Class B common stock as described in detail under "Dividend Policy and Restrictions." | |
The initial dividend rate is expected to be equal to $ per share of Class A common stock per annum and $ per share of Class B common stock per annum, and is in each case subject to adjustment by our board at its sole discretion. | ||
Dividend payment dates | If declared, dividends on our Class A and Class B common stock will be paid quarterly on , , and to holders of record on the preceding , , and , respectively. | |
Rights to exchange shares of Class B common stock for shares of Class A common stock or EISs | Holders of our Class B common stock have agreed to restrictions on the transferability of the Class B common stock. Beginning on the 181st day after the consummation of this offering, holders of our Class B common stock will have certain rights to convert or exchange their Class B common stock into Class A common stock on a 1 to 1 basis and to further convert or exchange their Class A common stock into the equivalent value of EISs under certain circumstances. See "Description of Capital Stock." |
13
Summary of the Subordinated Notes
Issuer | B&G Foods Holdings Corp. | |||
Subordinated notes to be outstanding following the offering | $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option in full). | |||
Interest rate | % per annum. | |||
Interest payment dates | Interest on the notes will be payable quarterly in arrears on , , and , commencing on , 2004. | |||
Maturity date | The subordinated notes will have a 20-year term and will mature on , 2024, unless earlier redeemed at our option as described under "Description of Subordinated NotesOptional Redemption." | |||
Optional redemption | On and after , 2009, we may redeem for cash all or part of the subordinated notes upon not less than 30 or more than 60 days' notice by mail to the owners of subordinated notes, at redemption prices described under "Description of Subordinated NotesOptional Redemption." If we redeem any subordinated notes, the subordinated notes and Class A common stock represented by each EIS will be automatically separated. | |||
In addition, at any time before , 2009, we may redeem all or part of the subordinated notes at a redemption price equal to the sum of the present values of the redemption price of the notes at the first optional redemption date pursuant to the preceding paragraph and all required interest payments on the subordinated notes through the first optional redemption date, discounted at the treasury rate plus 50 basis points, plus accrued and unpaid interest. See "Description of Subordinated NotesOptional Redemption." | ||||
Change of control | Upon the occurrence of a change of control, as defined under "Description of Subordinated NotesChange of Control," unless we have exercised our right to redeem all subordinated notes as described above, each holder of the subordinated notes will have the right to require us to repurchase that holder's subordinated notes at a price equal to 101% of the principal amount of the subordinated notes being repurchased, plus any accrued and unpaid interest to the date of repurchase. In order to exercise this right, a holder must separate the subordinated notes and Class A common stock represented by such holder's EISs. |
14
Ranking | The subordinated notes will be unsecured obligations and will be subordinated in right of payment to all of our existing and future senior secured and senior unsecured indebtedness, including the indebtedness under our new revolving credit facility and our new senior unsecured indebtedness. The subordinated notes will rank pari passu in right of payment with all of our subordinated indebtedness as defined in the indenture. | |||
At January 3, 2004, after giving effect to the Transactions, including the use of proceeds contemplated in this prospectus, we had approximately $ million of senior indebtedness. | ||||
Note guarantees | The subordinated notes will be guaranteed by all of our existing domestic subsidiaries and certain future domestic subsidiaries on an unsecured and subordinated basis on the terms set forth in the indenture. The subordinated note guarantees will be subordinated in right of payment to all existing and future senior indebtedness of the guarantors that does not expressly provide that it ranks pari passu with or subordinated to the guarantees, including the indebtedness under our new revolving credit facility and our new senior unsecured indebtedness. Our present foreign subsidiary and any future foreign or partially owned domestic subsidiaries will not be guarantors of our subordinated notes. | |||
At January 3, 2004, after giving pro forma effect to the Transactions and the use of proceeds contemplated in this prospectus, the guarantors had, in the aggregate, approximately $ million of senior indebtedness. | ||||
Restrictive covenants | The indenture governing the subordinated notes will contain covenants with respect to us and will restrict: | |||
| the incurrence of additional indebtedness and the issuance of capital stock; | |||
| the payment of dividends or distributions on, and redemption of, capital stock; | |||
| a number of other restricted payments, including certain investments; | |||
| specified creation of liens, sale-leaseback transactions and sales of assets; | |||
| fundamental changes, including consolidation, mergers and transfers of all or substantially all of our assets; and | |||
| specified transactions with affiliates. | |||
The limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Subordinated NotesCertain Covenants." |
15
Procedures relating to subsequent issuances | The indenture governing the subordinated notes will provide that in the event we issue additional subordinated notes with a new CUSIP number having terms that are otherwise substantially identical to the subordinated notes (except for the issuance date) in connection with the issuance by us of additional EISs, each holder of EISs or separately held subordinated notes, as the case may be, agrees that a portion of such holder's subordinated notes, whether held as part of EISs or separately, will be automatically exchanged for a portion of the subordinated notes acquired by the holders of such subsequently issued subordinated notes, and the records of any record holders of subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EISs or separately held subordinated notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each holder will not change as a result of such subsequent issuance and exchange. The indenture governing the subordinated notes will permit issuances of additional notes upon exchange or conversion of shares of Class B common stock by the holders of our Class B common stock into EISs and for other permitted purposes, subject to compliance with certain debt covenants. Any subsequent issuance of subordinated notes by us may adversely affect the tax and non-tax treatment of the EISs and subordinated notes. See "Risk FactorsSubsequent issuances of subordinated notes may cause you to recognize OID and suffer other adverse consequences." | |||
Conditions to the offering | This offering will occur concurrently with and is conditional upon the consummation of the other Transactions. | |||
Listing | The subordinated notes will not be separately listed on any exchange. |
You should carefully consider the information under the heading "Risk Factors" and all other information in this prospectus before investing in the EISs and the shares of our Class A common stock and subordinated notes represented by the EISs.
16
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following summary historical and pro forma financial consolidated data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Selected Historical Consolidated Financial Data," "Unaudited Pro Forma Condensed Combined Financial Data" and our audited consolidated financial statements and notes to those statements included in this prospectus. Our summary balance sheet data as of January 3, 2004 and historical consolidated statement of operations data for the years ended December 29, 2001 (fiscal 2001), December 28, 2002 (fiscal 2002) and January 3, 2004 (fiscal 2003) have been derived from our audited consolidated financial statements, included elsewhere in this prospectus.
The following unaudited pro forma statement of operations data for the year ended January 3, 2004, reflects the full year effect of our acquisition of the Ortega line of products. The unaudited pro forma as adjusted statement of operations data for the year ended January 3, 2004 reflect this offering and the other Transactions as if they had occurred on December 29, 2002 as well as the full year effect of our acquisition of the Ortega line of products. The unaudited pro forma and pro forma as adjusted consolidated financial data does not purport to represent what our results would have been if the acquisition of the Ortega line of products, this offering and the other Transactions had occurred at the dates indicated and it does not purport to represent a projection of our future results.
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Fiscal Year Ended |
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December 29, 2001 |
December 28, 2002 |
January 3, 2004 |
January 3, 2004 |
January 3, 2004 |
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Actual |
Actual |
Actual |
Pro Forma |
Pro Forma As Adjusted |
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(Unaudited) |
(Unaudited) |
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(Dollars in thousands, except ratios) |
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Statement of Operations Data(1): | ||||||||||||||||
Net sales | $ | 279,779 | (2) | $ | 293,677 | $ | 328,356 | $ | 374,813 | $ | 374,813 | |||||
Cost of goods sold | 192,525 | 203,707 | 226,174 | 253,569 | 253,569 | |||||||||||
Gross profit | 87,254 | 89,970 | 102,182 | 121,244 | 121,244 | |||||||||||
Sales, marketing and distribution expenses | 34,922 | (2) | 35,852 | 39,477 | 50,227 | 50,227 | ||||||||||
General and administrative expenses | 14,120 | (3) | 4,911 | 6,313 | (7) | 9,456 | (4)(7) | 9,456 | (4)(7) | |||||||
Management fees-related party | 500 | 500 | 500 | 500 | | |||||||||||
Environmental clean-up expenses | 950 | 100 | | | | |||||||||||
Operating income | 36,762 | 48,607 | 55,892 | 61,061 | 61,561 | |||||||||||
Gain on sale of assets | (3,112 | )(5) | | | | | ||||||||||
Derivative gain | | (2,524 | )(6) | | | | ||||||||||
Interest expense | 29,847 | 26,626 | 31,205 | 31,010 | ||||||||||||
Income before income taxes | 10,027 | 24,505 | 24,687 | 30,051 | ||||||||||||
Income taxes | 4,029 | 9,260 | 9,519 | 11,600 | ||||||||||||
Net income | $ | 5,998 | $ | 15,245 | $ | 15,168 | $ | 18,451 | $ | |||||||
Other Financial Data(1): | ||||||||||||||||
EBITDA(8) | $ | 54,164 | $ | 56,431 | $ | 61,906 | $ | 67,734 | (4) | $ | 67,734 | (4) | ||||
Cash flow from operations | 21,470 | 26,417 | 27,431 | N/A | N/A | |||||||||||
Capital expenditures | (3,904 | ) | (6,283 | ) | (6,442 | ) | N/A | N/A | ||||||||
Net cash used for purchase of business | | | (118,179 | ) | N/A | N/A | ||||||||||
Net cash received for sale of assets | 24,090 | | | N/A | N/A | |||||||||||
Cash flow (used in) provided by financing activities | (39,998 | ) | (19,351 | ) | 89,470 | N/A | N/A | |||||||||
Senior debt/ EBITDA | 3.1x | 1.0x | 2.4x | 2.2x | ||||||||||||
Total debt/ EBITDA | 5.3x | 4.9x | 6.0x | 5.4x | ||||||||||||
EBITDA/ Interest expense | 1.8x | 2.1x | 2.0x | 2.2x |
17
The table below shows unaudited summary historical financial data for our fiscal fourth quarters ended December 28, 2002 and January 3, 2004. The fiscal fourth quarter ended January 3, 2004 includes results of the Ortega acquisition subsequent to its integration into our business. This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Selected Historical Consolidated Financial Data" and our audited consolidated financial statements and notes to those statements included in this prospectus.
The results of operations for the fourth quarters ended December 28, 2002 and January 3, 2004 are not necessarily indicative of the results to be expected for the full years.
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Fourth Quarter Ended |
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December 28, 2002 |
January 3, 2004 |
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(Unaudited) |
(Unaudited) |
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(Dollars in thousands) |
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Statement of Operations Data(1): | |||||||
Net sales | $ | 78,717 | $ | 101,223 | |||
Cost of goods sold | 55,923 | 68,699 | |||||
Gross profit | 22,794 | 32,524 | |||||
Sales, marketing and distribution expenses | 9,370 | 13,258 | |||||
General and administrative expenses | 1,259 | 1,741 | |||||
Management fees-related party | 125 | 125 | |||||
Environmental clean-up expenses | 100 | | |||||
Operating income | 11,940 | 17,400 | |||||
Interest expense | 6,839 | 7,982 | |||||
Income before income taxes | 5,101 | 9,418 | |||||
Income tax expense | 1,442 | 3,747 | |||||
Net Income | $ | 3,659 | $ | 5,671 | |||
Other Financial Data: | |||||||
EBITDA(8) | 13,354 | 19,182 | |||||
Cash flow from operations | 12,115 | 19,711 | |||||
Capital expenditures | 1,015 | 2,043 | |||||
Cash flow used in financing activities | (4,999 | ) | (12,375 | ) |
The table below shows our summary balance sheet data as of January 3, 2004 on an actual basis and as adjusted basis to reflect the application of the proceeds of this offering and the effects of the other Transactions as if they had occurred on January 3, 2004.
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As of January 3, 2004 |
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Actual |
As Adjusted |
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(Unaudited) |
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Summary Balance Sheet Data: | ||||||
Cash and cash equivalents | $ | 8,092 | $ | |||
Net working capital(9) | 59,245 | |||||
Total assets | 549,939 | |||||
Total debt | 368,796 | |||||
Mandatorily redeemable preferred stock | 43,188 | |||||
Total stockholders' equity | 49,991 |
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Fiscal Year Ended |
Fourth Quarter Ended |
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December 29, 2001 |
December 28, 2002 |
January 3, 2004 |
January 3, 2004 |
January 3, 2004 |
December 28, 2002 |
January 3, 2004 |
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Actual |
Actual |
Actual |
Pro Forma |
Pro Forma As Adjusted |
Actual |
Actual |
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(Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
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(Dollars in thousands) |
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Net income | $ | 5,998 | $ | 15,245 | $ | 15,168 | $ | 18,451 | $ | $ | 3,659 | $ | 5,671 | |||||||||
Income taxes | 4,029 | 9,260 | 9,519 | 11,600 | 1,442 | 3,747 | ||||||||||||||||
Interest expense | 29,847 | 26,626 | 31,205 | 31,010 | 6,839 | 7,982 | ||||||||||||||||
Depreciation and amortization | 14,290 | 5,300 | 6,014 | 6,673 | 6,673 | 1,414 | 1,782 | |||||||||||||||
EBITDA | $ | 54,164 | $ | 56,431 | $ | 61,906 | $ | 67,734 | $ | $ | 13,354 | $ | 19,182 | |||||||||
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Interest and Dividend Payments to Holders of EISs
The table below shows certain information relating to our available cash before dividend payments for the fiscal year ended January 3, 2004 on a pro forma as adjusted basis to reflect the impact of the Transactions as well as the acquisition of the Ortega line of products and for the quarterly period ended January 3, 2004 on an as adjusted basis to reflect the impact of this offering and the other Transactions. The computation of available cash is based upon the definition of available cash as defined in the indenture governing the subordinated notes, the new revolving credit facility and the terms of our new senior unsecured indebtedness. Available cash and EBITDA are not indicators of performance or other measures determined in accordance with GAAP. EBITDA is fully described under "Summary Historical and Pro Forma Consolidated Financial Data." Available cash has the meaning set forth in the indenture for our subordinated notes. We present these non-GAAP financial measures here because we believe they are indicators of our ability to declare and pay dividends on our common stock, including the Class A and Class B common stock, pursuant to the anticipated restricted payments covenants under the indenture governing the subordinated notes, the new revolving credit facility and our new senior unsecured indebtedness.
We expect the new revolving credit facility to restrict us from paying dividends on the Class A and Class B common stock if we do not meet specified financial levels, including interest coverage ratio, total leverage ratio and senior leverage ratio. In addition, we expect the new senior unsecured indebtedness and the subordinated notes to restrict us from paying dividends on the Class A and Class B common stock if we fail to meet a specified fixed charge coverage ratio. We will pay interest and intend to pay dividends on a quarterly basis and we will be testing these restrictions on our dividends on a quarterly basis. We will report our available cash as presented below before dividend payments for the applicable periods in each annual and quarterly report that we file with the SEC as long as we are subject to these measures under our debt agreements.
The information presented in the table below assumes that the Transactions occurred on December 29, 2002.
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Fiscal Year Ended |
Quarter Ended |
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January 3, 2004 |
January 3, 2004 |
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Pro Forma As Adjusted |
Actual As Adjusted |
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(Dollars in thousands) |
||||||
Net income | $ | 18,451 | $ | 5,671 | |||
Income taxes | 11,600 | 3,747 | |||||
Interest expense | 31,010 | 7,982 | |||||
Depreciation | 6,673 | 1,782 | |||||
EBITDA | 67,734 | 19,182 | |||||
Add-back of management fees-related party | 500 | 125 | |||||
Add-back of excess corporate overhead costs allocated by the seller of Ortega(1) | 3,000 | | |||||
Reduction for estimated additional public company administrative costs | |||||||
Reduction for estimated cash income tax expense(2) | |||||||
Interest expense on % subordinated notes | |||||||
Interest expense on new senior unsecured indebtedness | |||||||
Capital expenditures | (6,442) | (3) | (2,043 | ) | |||
Available cash | |||||||
Class A common stock dividends | |||||||
Class B common stock dividends | |||||||
Remaining available funds | $ | $ | |||||
20
Based on the foregoing, aggregate payments to EIS holders during the twelve-month period ended January 3, 2004 would have been as follows:
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Aggregate |
Per EIS |
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Interest on subordinated notes represented by EISs | $ | $ | ||||
Dividends on shares of Class A common stock represented by EISs | ||||||
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Before you invest in the EISs, you should carefully consider the risk factors set forth below as well as the other information contained in this prospectus. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. Any of the following risks could materially and adversely affect our business, consolidated financial condition, results of operations or liquidity. In such case, you may lose all or part of your original investment.
Risks Relating to the EISs and the Shares of Class A Common Stock and Subordinated Notes Represented by the EISs
We have substantial indebtedness, which could:
We currently have and following this offering and the other Transactions will continue to have a significant amount of indebtedness. At January 3, 2004, after giving pro forma effect to this offering and the other Transactions, we would have had approximately $ million of senior indebtedness and $ million of subordinated indebtedness (and $ million if the over-allotment option is exercised), and a ratio of total debt to EBITDA of .
Our ability to pay dividends will be subject to applicable law and contractual restrictions contained in the instruments governing any indebtedness of ours and our subsidiaries, including our new revolving credit facility, which will be secured on a senior basis by substantially all of our and our subsidiaries' assets, and we expect the new senior unsecured indebtedness will also contain restrictions. The degree to which we are leveraged on a consolidated basis could have important consequences to the holders of the EISs, including:
Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial indebtedness.
While we expect that our new revolving credit facility and the new senior unsecured indebtedness will contain total leverage, senior leverage and cash interest coverage maintenance covenants that will restrict our ability to incur debt as described under "Description of Certain IndebtednessNew Revolving Credit Facility," as long as we meet these financial covenant tests we will be allowed to incur additional indebtedness. We anticipate that the indenture governing the subordinated notes will not restrict any of our subsidiary guarantors from incurring additional indebtedness that is expressly senior to its guarantee, even if such indebtedness is subordinated to that guarantor's senior indebtedness. In addition, the indenture governing the subordinated notes will allow us to issue additional subordinated
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notes with terms identical (other than issuance date) to the subordinated notes offered hereby under certain circumstances.
To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. We may not be able to repay or refinance the subordinated notes, the new revolving credit facility or our new senior unsecured indebtedness upon terms acceptable to us if at all.
Our ability to make payments on and to refinance our indebtedness, including the subordinated notes, and to fund planned capital expenditures will depend on our ability to generate cash flow from operations in the future. This ability, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
A significant portion of our cash flow from operations will be dedicated to servicing our debt requirements. In addition, we currently expect to distribute a significant portion of any remaining cash flow to our stockholders in the form of quarterly dividends. Moreover, prior to the maturity of our subordinated notes, we will not be required to make any payments of principal on our subordinated notes.
Our ability to continue to expand our business will, to a certain extent, be dependent upon our ability to borrow funds under our new revolving credit facility and to obtain other third-party financing, including through the sale of EISs or other securities. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness, including the subordinated notes, or to fund our other liquidity needs. The new revolving credit facility will be subject to periodic renewal or must otherwise be refinanced. Likewise, we expect that we will refinance our new senior unsecured indebtedness at or prior to maturity, which will be substantially prior to the maturity date of the subordinated notes. We cannot assure you that we will be able to refinance any of our indebtedness, including our new revolving credit facility or our new senior unsecured indebtedness, on commercially reasonable terms or at all.
We are a holding company and we rely on dividends, interest and other payments, advances and transfers of funds from our subsidiaries to meet our debt service and other obligations.
We are a holding company and all of our assets are held by our direct and indirect subsidiaries and we will rely on dividends and other payments or distributions from our subsidiaries to meet our debt service obligations and to enable us to pay dividends. The ability of our subsidiaries to pay dividends or make other payments or distributions to us will depend on their respective operating results and may be restricted by, among other things, the laws of their jurisdiction of organization (which may limit the amount of funds available for the payment of dividends), agreements of those subsidiaries, the new revolving credit facility, the terms of the new senior unsecured indebtedness and the covenants of any future outstanding indebtedness we or our subsidiaries incur.
We may amend our new revolving credit facility or the terms of our new senior unsecured indebtedness, or we may enter into new agreements that govern our senior indebtedness. The amended or new terms may significantly affect our ability to pay interest and dividends to EIS holders.
We expect our new revolving credit facility and the terms of our new senior unsecured indebtedness will contain significant restrictions on our ability to pay dividends on the shares of Class A and Class B common stock based on meeting specified financial ratios, and compliance with other conditions, as described in detail under "Description of Certain Indebtedness." As a result of general economic conditions, conditions in the lending markets, the results of our business or for any other reason, we may elect or be required to amend or refinance our new revolving credit facility or our new senior unsecured indebtedness, at or prior to maturity, or enter into additional agreements for senior indebtedness. Regardless of any protection you have in the indenture governing the subordinated notes,
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any such amendment, refinancing or additional agreement may contain covenants which could limit in a significant manner our ability to pay interest payments and dividends to you.
We will be subject to restrictive debt covenants and other requirements related to our debt that will limit our business flexibility by imposing operating and financial restrictions on our operations.
The agreements governing our indebtedness impose significant operating and financial restrictions on us. These restrictions prohibit or limit, among other things:
We expect that the new revolving credit facility and the new senior unsecured indebtedness will include other and more restrictive covenants and prohibit us from prepaying our other indebtedness, including the subordinated notes, while senior indebtedness is outstanding. The new revolving credit facility will require us to maintain specified financial ratios and satisfy financial condition tests, including, without limitation, the following: a maximum net leverage ratio, a minimum interest coverage ratio and a maximum senior leverage ratio.
Our ability to comply with the ratios or tests may be affected by events beyond our control, including prevailing economic, financial and industry conditions. A breach of any of these covenants, ratios or tests could result in a default under the new revolving credit facility, the terms of the new senior unsecured indebtedness and/or the subordinated notes indenture. We expect certain events of default under the new revolving credit facility and the terms of the new senior unsecured indebtedness would prohibit us from making payments on the subordinated notes, including payment of interest when due. In addition, upon the occurrence of an event of default under the new revolving credit facility or the terms of our new senior unsecured indebtedness, the lenders could elect to declare all amounts outstanding under the new revolving credit facility and our new senior unsecured indebtedness, together with accrued interest, to be immediately due and payable. If we were unable to repay those amounts, the lenders could proceed against the security granted to them to secure that indebtedness. If the lenders accelerate the payment of the indebtedness, our assets may not be sufficient to repay in full this indebtedness and our other indebtedness, including the subordinated notes.
You may not receive the level of dividends provided for in our dividend policy, which our board of directors is expected to adopt upon the closing of this offering, or any dividends at all.
Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. Our board of directors may decrease the level of dividends provided for in this dividend policy or entirely discontinue the payment of dividends. Future dividends with respect to shares of our capital stock, if any, will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, business opportunities, provisions of applicable law and other factors that our board of directors may deem relevant. The indenture governing our subordinated notes, the new revolving credit facility and the terms of the new senior unsecured indebtedness will contain significant restrictions on our ability to make dividend
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payments. In addition, certain provisions of the Delaware General Corporation Law may limit our ability to pay dividends.
The indenture governing our subordinated notes, our new revolving credit facility and the terms of our new senior unsecured indebtedness will permit us to pay a significant portion of our free cash flow to stockholders in the form of dividends.
Although we expect the indenture governing our subordinated notes, our new revolving credit facility and the terms of our new senior unsecured indebtedness will have some limitations on our payment of dividends, they will permit us to pay a significant portion of our free cash flow to stockholders in the form of dividends and, following completion of this offering, we intend to pay quarterly dividends as described herein. Specifically, the indenture governing our subordinated notes permits us to use up to 100% of our available cash (which is consolidated cash flow, as defined in the indenture, minus the sum of cash tax expense, cash interest expense, certain capital expenditures and certain repayment of indebtedness) for the four most recent fiscal quarters plus certain incremental funds described in the indenture for the payment of dividends so long as the fixed charge coverage ratio for such four-fiscal fiscal quarter period is not less than 1.6 to 1, as more fully described in "Description of Subordinated NotesCertain Covenants." In addition, at any time the fixed charge coverage ratio for such four-fiscal quarter period is less than 1.6 to 1, we may pay dividends on our common stock of up to $ million in the aggregate. The new revolving credit facility (subject to certain financial ratio requirements) and the terms of our new senior unsecured indebtedness will permit us to use up to 100% of our available cash, as defined in the new revolving credit facility and the terms of our new senior unsecured indebtedness and described in detail in "Description of Certain IndebtednessNew Senior Unsecured Indebtedness," and "New Revolving Credit Facility" plus certain other amounts under certain limited circumstances to fund dividends on our shares of common stock. Any amounts paid by us in the form of dividends will not be available in the future to satisfy our obligations under the subordinated notes.
The realizable value of our assets upon liquidation may be insufficient to satisfy claims.
At January 3, 2004 our total assets included intangible assets in the amount of $382.1 million, representing approximately 69.5% of our total consolidated assets. The value of these intangible assets will continue to depend significantly upon the continued profitability of the respective brands. As a result, in the event of a default on our subordinated notes or any bankruptcy or dissolution of our company, the realizable value of these assets may be substantially lower and may be insufficient to satisfy the claims of our creditors.
Because of the subordinated nature of the notes, holders of our subordinated notes may not be entitled to be paid in full, if at all, in a bankruptcy, liquidation or reorganization or similar proceeding.
As a result of the subordinated nature of our notes and related guarantees, upon any distribution to our creditors or the creditors of the subsidiary guarantors in bankruptcy, liquidation or reorganization or similar proceeding relating to us or the subsidiary guarantors or our or their property, the holders of our senior indebtedness and senior indebtedness of the subsidiary guarantors will be entitled to be paid in full in cash before any payment may be made with respect to our subordinated notes or the subsidiary guarantees.
In the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to us or the subsidiary guarantors, holders of our subordinated notes will participate with all other holders of unsecured indebtedness of ours or the subsidiary guarantors similarly subordinated in the assets remaining after we and the subsidiary guarantors have paid all senior indebtedness. In any of these cases, we and the subsidiary guarantors may not have sufficient funds to pay all of our creditors, and holders of our subordinated notes may receive less, ratably, than the holders of senior indebtedness.
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On a pro forma basis as of January 3, 2004, our subordinated notes and the subsidiary guarantees would have ranked junior, on a consolidated basis, to $ million of outstanding new senior unsecured indebtedness plus approximately $1.3 million of letters of credit. In addition, as of January 3, 2004, on a pro forma basis, we would have had the ability to borrow up to an additional amount of $30.0 million under the new revolving credit facility (less amounts reserved for letters of credit), which would have ranked senior in right of payment to our subordinated notes.
Holders of our subordinated notes will be structurally subordinated to the debt of our non-guarantor subsidiaries.
Our present foreign subsidiary and any future foreign or partially owned domestic subsidiaries will not be guarantors of our subordinated notes. As a result, no payments are required to be made to us from the assets of these subsidiaries.
In the event of bankruptcy, liquidation or reorganization of any of the non-guarantor subsidiaries, holders of their indebtedness, including their trade creditors, would generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us for payment to you. As a result, our subordinated notes are effectively subordinated to the indebtedness of the non-guarantor subsidiaries.
As of January 3, 2004, our non-guarantor subsidiary had no net sales and total assets of $0.7 million or 0.1% of our consolidated assets and total liabilities, excluding liabilities owed to us, of $1.3 million or 0.3% of our consolidated liabilities.
If the guarantees of the subordinated notes are held to be invalid or unenforceable or are limited in accordance with their terms, the subordinated notes would be structurally subordinated to the debt of our subsidiaries.
Under 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 debt of the guarantor, if, among other things, the guarantor, at the time that it assumed the guarantee:
In addition, any payment by the guarantor under its guarantee could be voided and required to be returned to the guarantor or to a fund for the benefit of the creditors of the guarantor or the guarantee could be subordinated to other debt of the guarantor.
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The measures of insolvency for the purposes of fraudulent transfer laws vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a person would be considered insolvent if, at the time it incurred the debt:
We believe that immediately after the issuance of the subordinated notes and the guarantees, we and each of the guarantors will be solvent, will have sufficient capital to carry on our respective businesses and will be able to pay our respective debts as they mature. However, we cannot be sure as to what standard a court would apply in making these determinations or that a court would reach the same conclusions with regard to these issues. Regardless of the standard that the court uses, we cannot be sure that the issuance by the subsidiary guarantors of the subsidiary guarantees would not be voided or the subsidiary guarantees would not be subordinated to their other debt.
The guarantee of our subordinated notes by any subsidiary guarantor could be subject to the claim that, since the guarantee was incurred for our benefit, and only indirectly for the benefit of the subsidiary guarantor, the obligations of the subsidiary guarantor were incurred for less than fair consideration. If such a claim were successful and it was proven that the subsidiary guarantor was insolvent at the time the guarantee was issued, a court could void the obligations of the subsidiary guarantor under the guarantee or subordinate these obligations to the subsidiary guarantor's other debt or take action detrimental to holders of the subordinated notes. If the guarantee of any subsidiary guarantor were voided, our subordinated notes would be effectively subordinated to the indebtedness of that subsidiary guarantor.
Interest on the notes may not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future cash flow and impact our ability to make interest and dividend payments.
While we believe that the notes should be treated as debt for U.S. federal income tax purposes, this conclusion is not free from doubt. If all or a portion of the notes were treated as equity rather than debt for U.S. federal income tax purposes, then a corresponding portion of the interest on the notes would not be deductible by us for U.S. federal income tax purposes. Our inability to deduct interest on the notes could materially increase our taxable income and, thus, our U.S. federal and applicable state income tax liability. This would reduce our after-tax cash flow and could materially and adversely impact our ability to make interest and/or dividend payments. In the case of foreign holders, treatment of the notes as equity for U.S. federal income tax purposes would subject payments to such holders in respect of the notes to withholding or estate taxes in the same manner as payments made with regard to common stock and could subject us to liability for withholding taxes that were not collected on payments of interest. Therefore, foreign holders would receive any such payments net of the tax withheld. For discussion of these tax related risks, see "Material U.S. Federal Income Tax Consequences."
Future changes that increase cash taxes payable by us could significantly decrease our future cash flow available to make interest and dividend payments with respect to our EISs.
We have been permitted and expect to continue to take certain deductions from our taxable income in computing our cash taxes. In connection with this offering and the other Transactions we have assumed that we will be able to take an aggregate of approximately $ million in incremental
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deductions from taxable income relating to the redemption or repayment of our outstanding indebtedness and other costs due to the exercise of certain management options. In addition, we are able to amortize certain intangible assets within the meaning of Section 197 of the Internal Revenue Code of 1986. This enables us to amortize for tax purposes approximately $16.0 million annually through 2011, approximately $14.4 million for fiscal 2012, approximately $12.9 million for fiscal 2013 and 2014, and approximately $7.1 million for fiscal 2015 through 2018. We project that this tax deduction will have a positive impact on free cash flow of approximately $6.4 million annually through 2011, $5.6 million for fiscal 2012, $4.8 million for fiscal 2013 and fiscal 2014, and $2.8 million for fiscal 2015 through 2018. If there is a change in U.S. federal tax policy that reduces any of these available deductions or results in an increase in our corporate tax rate, our cash taxes payable may increase, which could significantly reduce our future cash flow and impact our ability to make interest and dividend payments. As of January 3, 2004, we had net operating loss, or NOL, carryforwards for U.S. federal income tax purposes of approximately $3.6 million which are available to offset future U.S. federal taxable income, if any, through 2020 subject to certain limitations under Section 382 of the Internal Revenue Code of 1986. The realizable amount of these NOLs could be reduced in the near term if estimates of future taxable income during future periods are reduced.
The allocation of the purchase price of the EISs may not be respected.
The purchase price of each EIS must be allocated between the share of Class A common stock and subordinated notes represented thereby in proportion to their respective fair market values at the time of purchase. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each of our subordinated notes as $ and, by purchasing EISs, you will agree to and be bound by such allocation, assuming an initial public offering price of $ per EIS, which represents the mid-point of the range set forth on the cover page of this prospectus. If this allocation is not respected, it is possible that the subordinated notes will be treated as having been issued with OID (if the allocation to the subordinated notes were determined to be too high) or amortizable bond premium (if the allocation to the subordinated notes were determined to be too low). You generally would have to include OID in income in advance of the receipt of cash attributable to that income and would be able to elect to amortize bond premium over the term of the subordinated notes.
If we subsequently issue subordinated notes with significant original issue discount, we may not be able to deduct all of the interest on those subordinated notes.
It is possible that subordinated notes we issue in a subsequent issuance will be issued at a discount to their face value and, accordingly, could have "significant original issue discount" and thus be classified as "applicable high yield discount obligations," or AHYDOs. If any such subordinated notes were so treated, a portion of the OID on such notes would be nondeductible by us and the remainder would be deductible only when paid. This treatment would have the effect of increasing our taxable income and may adversely affect our cash flow available for interest payments and distributions to our equityholders.
Subsequent issuances of subordinated notes may cause you to recognize OID and suffer other adverse consequences.
The indenture governing our subordinated notes will provide that, in the event there is a subsequent issuance of subordinated notes with a new CUSIP number having terms that are otherwise identical (other than issuance date) to the subordinated notes represented by the EISs, each holder of EISs or separately held subordinated notes, as the case may be, agrees that a portion of such holder's subordinated notes will be automatically exchanged for a portion of the subordinated notes acquired by the holders of such subsequently issued subordinated notes. Consequently, immediately following such
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subsequent issuance and exchange, each holder of notes, held either as part of EISs or separately, will own an inseparable unit composed of a proportionate percentage of notes of each separate issuance. Therefore, subsequent issuances of subordinated notes with OID may adversely affect your tax treatment by increasing the OID, if any, that you were previously accruing with respect to the subordinated notes represented by your EISs. Furthermore, it is unclear whether the exchange of subordinated notes for subsequently issued subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange.
Following any subsequent issuance of subordinated notes with OID and exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EISs and separately held subordinated notes, and each holder of EISs and separately held subordinated notes will, by purchasing EISs or separately held subordinated notes, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge the holders' reporting of OID on their tax returns. In such case, the Internal Revenue Service might further assert that, unless a holder can establish that it is not a person that initially acquired such subsequently issued subordinated notes (or a transferee thereof), all of the subordinated notes held by such holder have OID. Any of these assertions by the Internal Revenue Service could create significant uncertainties in the pricing of EISs and subordinated notes and could adversely affect the market for EISs and subordinated notes.
For a discussion of these tax related risks, see "Material U.S. Federal Income Tax Consequences."
The aggregate stated principal amount of the subordinated notes owned by each holder will not change as a result of such subsequent issuance and automatic exchange. However, under New York and federal bankruptcy law, holders of subsequently issued subordinated notes having OID may not be able to collect the portion of their principal face amount that represents unamortized OID as at the acceleration or filing date in the event of an acceleration of the subordinated notes or our bankruptcy prior to the maturity date of the subordinated notes. As a result, an automatic exchange that results in a holder receiving a subordinated note with OID could have the effect of ultimately reducing the amount such holder can recover from us in the event of an acceleration or bankruptcy.
Before this offering, there has not been a public market for our EISs, shares of our Class A common stock or the subordinated notes. The price of the EISs may fluctuate substantially, which could negatively affect EIS holders.
None of the EISs, the shares of our Class A common stock or subordinated notes has a public market history. In addition, there has not been an active market in the United States for securities similar to the EISs. We cannot assure you that an active trading market for the EISs will develop in the future, or that an active trading market for the shares of our Class A common stock will develop until the subordinated notes are redeemed or mature, if at all. If the subordinated notes represented by your EISs are redeemed or mature, the EISs will automatically separate and you will then hold the shares of our Class A common stock. We do not intend to list our subordinated notes on any securities exchange.
The initial public offering price of the EISs will be determined by negotiations among us, our sponsor investor and the representatives of the underwriters and may not be indicative of the market price of the EISs after the offering. Factors such as quarterly variations in our financial results and dividend payments, announcements by us or others, developments affecting us, our clients and our suppliers, general interest rate levels and general market volatility could cause the market price of the EISs to fluctuate significantly.
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If interest rates rise, the trading value of our EISs may decline.
We cannot predict the interest rate environment or guarantee that interest rates will not rise in the near future. Should interest rates rise or should the threat of rising interest rates develop, debt markets may be adversely affected. As a result, the trading value of our EISs or subordinated notes and Class A common stock represented thereby may decline.
Future sales or the possibility of future sales of a substantial amount of EISs, shares of our Class A common stock or our subordinated notes may depress the price of the EISs and the shares of our Class A common stock and our subordinated notes.
Future sales or the availability for sale of substantial amounts of EISs or shares of our Class A common stock or a significant principal amount of our subordinated notes in the public market could adversely affect the prevailing market price of the EISs and the shares of our Class A common stock and our subordinated notes and could impair our ability to raise capital through future sales of our securities.
Upon consummation of this offering, we anticipate that our existing stockholders will own shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock (or shares of our Class B common stock, representing % of our common stock if the underwriters' over-allotment option is exercised in full).
The holders of our Class B common stock will have certain rights to convert or exchange their Class B common stock into Class A common stock and to further convert or exchange their Class A common stock into the equivalent value of EIS units under certain circumstances, which EISs could be sold pursuant to an underwritten or other registered offering under a registration rights agreement with us. Such sales could cause a decline in the market price of the EISs.
We may issue shares of our Class A common stock and subordinated notes, which may be in the form of EISs, or other securities from time to time as consideration for future acquisitions and investments. In the event any such acquisition or investment is significant, the number of shares of our Class A common stock and the aggregate principal amount of subordinated notes, which may be in the form of EISs, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be significant. In addition, we may also grant registration rights covering those EISs, shares of our Class A common stock, subordinated notes or other securities in connection with any such acquisitions and investments.
Our certificate of incorporation and by-laws and several other factors could limit another party's ability to acquire us and deprive our investors of the opportunity to obtain a takeover premium for their securities.
Our certificate of incorporation and by-laws contain certain provisions that may make it difficult for another company to acquire us and for you to receive any related takeover premium for your securities. For example, our certificate of incorporation authorizes the issuance of preferred stock without stockholder approval and upon such terms as the board of directors may determine. The rights of the holders of shares of our common stock will be subject to, and may be adversely affected by, the rights of holders of any class or series of preferred stock that may be issued in the future.
You will be immediately diluted by $ per share of Class A common stock if you purchase EISs in this offering.
If you purchase EISs in this offering, based on the book value of the assets and liabilities reflected on our balance sheet, you will experience an immediate dilution of $ per share of Class A common stock represented by the EISs which exceeds the entire price allocated to each share of Class A common stock represented by the EISs in this offering because there will be a net tangible
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book deficit for each share of Class A common stock outstanding immediately after this offering. Our net tangible book deficiency as of January 3, 2004, after giving effect to this offering, was approximately $ million, or $ per share of Class A common stock.
Risks Specific to Our Company
We face significant competition in our industry.
The food products industry is highly competitive. Numerous brands and products, including private label products, compete for shelf space and sales, with competition based primarily on product quality, convenience, price, trade promotion, consumer promotion, brand recognition and loyalty, customer service, effective advertising and promotional activities and the ability to identify and satisfy emerging consumer preferences. We compete with a significant number of companies of varying sizes, including divisions or subsidiaries of larger companies. Many of these competitors have multiple product lines, substantially greater financial and other resources available to them and may have lower fixed costs and/or are substantially less leveraged than our company. We cannot assure you that we will be able to continue to compete successfully with these companies. Competitive pressures or other factors could cause our products to lose market share or result in significant price erosion, which could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. See "BusinessCompetition."
We may be unable to maintain our profitability in the face of a consolidating retail environment.
Our largest customer, Wal-Mart Stores, Inc., accounted for 6.1% of our fiscal 2003 pro forma net sales and our ten largest customers together accounted for approximately 37.0% of our fiscal 2003 pro forma net sales. As the retail grocery trade continues to consolidate and our retail customers grow larger and become more sophisticated, our retail customers may demand lower pricing and increased promotional programs. Further, these customers are reducing their inventories and increasing their emphasis on private label products. If we fail to use our marketing expertise and unique products and category leadership positions to respond to these trends, or if we lower our prices or increase promotional support of our products and are unable to increase the volume of our products sold, our profitability may be adversely affected.
If we are unable to retain our key management personnel, our growth and future success may be impaired and our financial condition could suffer as a result.
Our success depends to a significant degree upon the continued contributions of senior management, certain of whom would be difficult to replace. Departure by our executive officers could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. We do not maintain key-man life insurance on any of our executive officers. We cannot assure you that the services of such personnel will continue to be available to us. See "Our Management."
Most of our food product categories are mature and certain categories have experienced declining consumption rates from time to time. We may be unable to offset any reduction in net sales in these categories through increased trade spending for these categories or an increase in net sales in other categories.
If consumption rates and sales in our mature food product categories continue to decline, our revenue and operating income may be adversely affected, and we may not be able offset this decrease in business with increased trade spending or an increase in sales or profitability of other products and product categories.
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We may have difficulties integrating our future acquisitions or identifying new licensing arrangements.
We may pursue additional acquisitions of food product lines and businesses. We cannot assure you, however, that we will be able to identify additional acquisitions or that we will be able to integrate and manage any acquired product lines or businesses successfully or achieve a substantial portion of any anticipated cost savings from these acquisitions and other anticipated benefits in the timeframe we anticipate, if at all. In addition, any acquired product lines or businesses may require a greater amount of trade and promotional spending than we anticipate. Historically, we have grown net sales for some but not all of the brands we have acquired. Acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies, services and products of the acquired companies, personnel turnover and the diversion of management's attention from other business concerns. Any inability by us to integrate any acquired companies in a timely and efficient manner or any unanticipated required increases in trade or promotional spending could adversely affect our business, consolidated financial condition, results of operations or liquidity. Moreover, future acquisitions by us could result in our incurring substantial additional indebtedness, being exposed to contingent liabilities or incurring the impairment of goodwill and other intangible assets, all of which could adversely affect our financial condition and results of operations. In addition, we intend to pursue licensing arrangements with third parties to expand our brand and product offerings. We cannot assure you that we will be able to identify additional licensing arrangements or achieve benefits anticipated from these arrangements.
We are vulnerable to fluctuations in the supply and price of raw materials and labor, manufacturing and other costs, and we may not be able to offset increasing costs by increasing prices to our customers.
We purchase agricultural products, meat and poultry, other raw materials and packaging supplies from growers, commodity processors, other food companies and packaging manufacturers. While all such materials are available from numerous independent suppliers, raw materials are subject to fluctuations in price attributable to a number of factors, including changes in crop size, federal and state agricultural programs, export demand, weather conditions during the growing and harvesting seasons, insects, plant diseases and fungi. Although we enter into advance commodities purchase agreements from time to time, these contracts do not protect us from all increases in raw material costs. In addition, the cost of labor and manufacturing and other costs related to the production and distribution of our food products have risen in recent years, and we believe that they may continue to rise in the foreseeable future. Over the past several years, due primarily to an increase in price competition, we and other manufacturers throughout the packaged food industry have been unable to offset increased costs by raising prices to our customers. If the cost of labor, raw materials or manufacturing or other costs of production and distribution of our food products continue to increase, and we are unable to offset these increases by raising prices or other measures, our profitability and financial condition could be negatively impacted.
We rely on co-packers for a significant portion of our manufacturing needs, and the inability to enter into additional or future co-packing agreements may result in our failure to meet customer demand.
We rely upon co-packers for a significant portion of our manufacturing needs. The success of our business depends, in part, on maintaining a strong sourcing and manufacturing platform. We believe that there are a limited number of competent, high-quality co-packers in the industry, and if we were required to obtain additional or alternative co-packing agreements or arrangements in the future, we could not assure you that we would be able to do so on satisfactory terms or in a timely manner. Our inability to enter into satisfactory co-packing agreements could limit our ability to implement our business plan or meet customer demand. See "BusinessFacilities and Production."
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The loss of our exclusive license with Emeril's Food of Love Productions, L.L.C. or events or rumors relating to the Emeril's brand could adversely impact our operating results.
Approximately 6.8% of our pro forma net sales come from our exclusive license agreement with Emeril's Food of Love Productions, L.L.C. (EFLP). The value of our license agreement depends in part on the reputation and integrity of Emeril Lagasse, under whose name the Emeril's products are marketed. Mr. Lagasse is a widely recognized chef who currently enjoys celebrity status for his ability to prepare gourmet foods. Consumer and customer recognition of Mr. Lagasse and the Emeril's brand and the association of this brand with safe and high quality food products form an integral part of our Emeril's products. Should Mr. Lagasse's popularity decline, or should our exclusive license with EFLP be lost or compromised for any reason, our operating results could be adversely impacted. In addition, EFLP may terminate the license agreement at any point if we fail to meet our obligations under the agreement.
We rely on the performance of major retailers, wholesalers, specialty distributors and mass merchants for the success of our business, and should they perform poorly or give higher priority to other brands or products, our business could be adversely affected.
We sell our products principally to retail outlets and wholesale distributors including, traditional supermarkets, food service outlets, mass merchants, warehouse clubs, non-food outlets and specialty food distributors. The replacement by or poor performance of our major wholesalers, retailers or chains or our inability to collect accounts receivable from our customers could materially and adversely affect our results of operations and financial condition. In addition, our customers offer branded and private label products that compete directly with our products for retail shelf space and consumer purchases. Accordingly, there is a risk that our customers may give higher priority to the products of our competitors. In the future, our customers may not continue to purchase our products or provide our products with adequate levels of promotional support.
We may be unable to anticipate changes in consumer preferences, which may result in decreased demand for our products.
Our success will depend in part on our ability to anticipate and offer products that appeal to the changing tastes, dietary habits and product packaging preferences of consumers in the market categories in which we compete. If we are not able to anticipate, identify or develop and market products that respond to these changes in consumer preferences, demand for our products may decline and our operating results may be adversely affected. In addition, we may incur significant costs related to developing and marketing new products or expanding our existing product lines in reaction to what we perceive to be increased consumer preference or demand. Such development or marketing may not result in the volume of sales or profitability anticipated.
Severe weather conditions and natural disasters can affect crop supplies and reduce our operating results.
Severe weather conditions and natural disasters, such as floods, droughts, frosts, earthquakes or pestilence, may affect the supply the raw materials that we use for our products. Our maple syrup products, for instance, are particularly susceptible to severe freezing conditions in Quebec, Canada and Vermont during the season in which the syrup is produced. Competing manufacturers can be affected differently by weather conditions and natural disasters depending on the location of their supplies. If our supplies of raw materials are reduced, we may not be able to find enough supplemental supply sources on favorable terms, which could adversely affect our business and operating results.
We are subject to environmental laws and regulations relating to hazardous materials, substances and waste used in or resulting from our operations. Liabilities or claims with respect to environmental matters could have a significant negative impact on our business.
As with other companies engaged in similar businesses, the nature of our operations expose us to the risk of liabilities and claims with respect to environmental matters, including those relating to the
33
disposal and release of hazardous substances. Furthermore, our operations are governed by laws and regulations relating to workplace safety and worker health which, among other things, regulate employee exposure to hazardous chemicals in the workplace. We cannot assure you that material costs will not be incurred in connection with such liabilities or claims. Based on our experience to date, we believe that the future cost of compliance with existing environmental laws and regulations (and liability for known environmental conditions) would not have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. We cannot predict, however, what environmental or health and safety legislation or regulations will be enacted in the future or whether future legislation or regulations would lead to an increase in compliance costs or how existing or future laws or regulations will be enforced, administered or interpreted.
Our operations are subject to numerous laws and governmental regulations, exposing us to potential claims and compliance costs that could adversely affect our business.
Our operations are subject to extensive regulation by the United States Food and Drug Administration (FDA), the United States Department of Agriculture (USDA) and other national, state and local authorities. For example, we are subject to the Food, Drug and Cosmetic Act and regulations promulgated thereunder by the FDA. This comprehensive regulatory program governs, among other things, the manufacturing, composition and ingredients, packaging and safety of foods. Under this program the FDA regulates manufacturing practices for foods through its current "good manufacturing practices" regulations and specifies the recipes for certain foods. Furthermore, our processing facilities and products are subject to periodic inspection by federal, state and local authorities. We cannot assure you that we are in compliance with currently applicable laws and regulations or that we will be able to comply with any or all future laws and regulations. Any changes in these laws and regulations could increase the cost of developing and distributing our products and otherwise increase the cost of conducting our business, which would adversely affect our financial condition. In addition, failure by us to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. See "BusinessGovernment Regulation."
We may be subject to significant liability should the consumption of any of our products cause injury, illness or death.
The sale of food products for human consumption involves the risk of injury to consumers. Such injuries may result from tampering by unauthorized third parties or product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents or residues introduced during the growing, storage, handling or transportation phases of production. We have from time to time been involved in product liability lawsuits, none of which have been material to our business. While we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, we cannot assure you that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused injury, illness or death could adversely affect our reputation with existing and potential customers and our corporate and brand image. Moreover, claims or liabilities of this sort might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. We maintain product liability insurance in an amount which we believe to be adequate. However, we cannot be sure that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage.
Furthermore, our products could potentially suffer from product tampering, contamination or spoilage or be mislabeled or otherwise damaged. Under certain circumstances, we may be required to recall products, leading to a material adverse effect on our business. Even if a situation does not
34
necessitate a recall, we cannot assure you that product liability claims will not be asserted against us. A product liability judgment against us or a product recall could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
Consumer concern regarding the safety and quality of food products or health concerns could adversely affect sales of certain of our products.
If consumers in our principal markets lose confidence in the safety and quality of certain food products, our business could be adversely affected. The food industry is also subject to recent publicity concerning the health implications of obesity and trans fatty acids. Developments in any of these areas could cause our results to differ materially from results that have been or may be projected. For example, negative publicity about genetically modified organisms, whether or not valid, may discourage consumers from buying certain of our products or result in production and delivery disruptions.
Litigation regarding our trademarks and any other proprietary rights may have a significant negative impact on our business.
We own 122 trademarks which are registered in the United States and 241 trademarks which are registered in foreign countries. In addition, we have nine trademark applications pending in the United States and foreign countries. We consider our trademarks to be of significant importance in our business. We cannot assure you that the actions we take to establish and protect our trademarks and other proprietary rights will be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as an alleged violation of their trademarks and proprietary rights. It may be necessary for us to initiate or enter into litigation in the future to enforce our trademark rights or to defend ourself against claimed infringement of the rights of others. Any legal proceedings could result in an adverse determination that could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
Our financial well-being could be jeopardized by unforeseen changes in our employees' collective bargaining agreements or shifts in union policy.
As of January 3, 2004, approximately 289 of our 774 employees were covered by collective bargaining agreements. Approximately 53 of our employees at our Roseland, New Jersey facility were represented by a collective bargaining agreement with the International Brotherhood of Teamsters, Chauffeurs, Warehousemen & Helpers of America (Local No. 863). Approximately 142 of our employees at our Portland and Biddeford, Maine facilities were represented by a collective bargaining agreement with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (AFL-CIO, Local No. 334). Approximately 94 of our employees at our Stoughton, WI facility were represented by a collective bargaining agreement with the Drivers, Salesmen, Warehousemen, Milk Processors, Cannery, Dairy Employees and Helpers Union (Local No. 695). These collective bargaining agreements expire on March 31, 2004 and May 1, 2004 and March 31, 2006, respectively. Although we consider our employee relations to be generally good, a prolonged work stoppage or strike at any facility with union employees could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. In addition, we cannot assure you that upon the expiration of existing collective bargaining agreements new agreements will be reached without union action or that any such new agreements will be on terms satisfactory to us. See "BusinessEmployees and Labor Relations."
The current grocer's strike in California, or similar organized movements in the future, could significantly impact our sales and profitability.
As of this filing, the grocer strike in California has not been resolved, and it is uncertain as to when it will be resolved. The strike, which began in October 2003 in response to proposed healthcare cuts by several large retail grocers, has effected over 70,000 grocery workers in California. Should the strike not be resolved shortly or should another similar strike occur in California or elsewhere, it may have a significant impact on our sales revenue and operating profits.
35
This prospectus includes forward-looking statements, including without limitation the statements under "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." The words "believes," "anticipates," "plans," "expects," "intends," "estimates," "projects" and similar expressions are intended to identify forward-looking statements. These forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by any forward-looking statements. We believe important factors that could cause actual results to differ materially from our expectations include the following:
Developments in any of these areas, which are more fully described elsewhere in this prospectus and which descriptions are incorporated into this section by reference, could cause our results to differ materially from results that have been or may be projected by or on our behalf.
All forward-looking statements included in this prospectus are based on information available to us on the date of this prospectus. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this prospectus.
We caution that the foregoing list of important factors is not exclusive. We urge you not to unduly rely on forward-looking statements contained in this prospectus.
36
The table below sets forth our estimate of the sources and uses of funds required to effect the Transactions, assuming the Transactions all occurred as of January 3, 2004. See "SummaryThe Transactions." The estimated sources and uses are based on an assumed initial public offering price of $ per EIS. Actual amounts may vary from the amounts shown below.
Total Sources and Uses of Funds
(Dollars in thousands)
Sources(1) |
Amount |
|||
---|---|---|---|---|
EISs offered hereby(2) | $ | |||
Cash on hand | ||||
New senior unsecured indebtedness | ||||
Total sources | $ | |||
Uses |
Amount |
|||
---|---|---|---|---|
Repayment of existing senior credit facility(3) | $ | 150,528 | ||
Repurchase of existing senior subordinated notes(4) | 235,881 | |||
Repurchase of preferred equity and repurchase of Class B common stock from existing stockholders(5) | ||||
Transaction fees, prepayment penalties and expenses | ||||
Total uses | $ | |||
37
DIVIDEND POLICY AND RESTRICTIONS
Upon the closing of this offering, our board of directors expects to adopt a dividend policy pursuant to which, if and to the extent we have available cash for distribution to the holders of shares of our common stock as of , , and of each fiscal year, and subject to applicable law, as described below, and our new revolving credit facility, the terms of our new senior unsecured indebtedness, the indenture governing our subordinated notes and any other then outstanding indebtedness of ours, our board of directors will declare cash dividends on our common stock. The initial dividend rate is expected to be $ per share of Class A common stock per annum and $ per share of Class B common stock per annum, in each case subject to adjustment. We will pay these dividends quarterly on , , and .
We may not pay any dividends on the Class B common stock for any quarterly period unless and until dividends have been declared and paid in full on the Class A common stock at at least the initial rate set forth for the Class A common stock.
If we have any remaining cash after the payment of dividends as contemplated above, our board of directors will, in its sole discretion, decide to use that cash for those purposes it decides necessary including, but not limited to, funding capital expenditures or acquisitions, repaying indebtedness, paying additional dividends or for general corporate purposes.
The indenture governing our subordinated notes will restrict our ability to declare and pay dividends on our common stock as follows:
See "Description of Subordinated Notes" for a complete description of this dividend restriction.
Our new revolving credit facility and our new senior unsecured indebtedness will also restrict our ability to declare and pay dividends on our common stock. See "Description of Certain Indebtedness."
Our board of directors may, in its discretion, amend or repeal this dividend policy with respect to the Class A common stock. Our board of directors may decrease the level of dividends provided for the Class A common stock in this dividend policy or discontinue entirely the payment of dividends.
Pursuant to our certificate of incorporation, so long as our sponsor investor has the right to elect two directors to our board, the board of directors may not, without the approval of these two members, amend or repeal the dividend policy with respect to the Class B common stock or decrease the level of or discontinue payment of dividends on the shares of our Class B common stock unless required to do so due to restrictions imposed by our indebtedness. However, in no event shall the Class B common stock be amended to eliminate the provision requiring prior payment of dividends in full on each share of Class A common stock at the rate initially set in this offering for any quarterly period.
Our ability to pay future dividends with respect to shares of our capital stock, if any, will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, provisions of applicable law and other factors that our board of directors may deem relevant. Under Delaware law, our board of directors may declare dividends only to the extent of our "surplus" (which is defined as total assets at fair market value minus total liabilities, minus statutory capital), or if there is no surplus, out of our net profits for the then current and/or immediately preceding fiscal years.
We have not paid dividends in the past.
38
The following table sets forth our cash and cash equivalents and capitalization as of January 3, 2004:
You should read this table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Use of Proceeds," the audited consolidated financial statements and the notes to those statements included elsewhere in this prospectus and the financial data set forth under "Summary" and "Summary Historical and Pro Forma Consolidated Financial Data."
|
As of January 3, 2004 |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
Actual |
As Adjusted Assuming No Exercise of the Underwriters' Over- Allotment Option |
As Further Adjusted Assuming Full Exercise of the Underwriters' Over- Allotment Option |
||||||||
|
(Dollars in thousands) |
||||||||||
Cash and cash equivalents | $ | 8,092 | $ | $ | |||||||
Long-term debt (including current maturities): | |||||||||||
Existing senior secured debt | $ | 149,625 | $ | | $ | | |||||
New revolving secured credit facility | | ||||||||||
New senior unsecured indebtedness | | ||||||||||
Existing 95/8% senior subordinated notes due 2007 | 219,171 | ||||||||||
New % subordinated notes due 2024 | | ||||||||||
Total debt | 368,796 | ||||||||||
Mandatorily redeemable preferred stock: |
|||||||||||
Series C senior preferred stock, $0.01 par value per share. Authorized 25,000 shares; issued and outstanding 25,000 shares in 2003. | 43,188 | ||||||||||
Stockholders' equity: |
|||||||||||
13% Series A cumulative preferred stock, $0.01 par value per share. Authorized 22,000 shares; issued and outstanding 20,341 shares in 2003. | | ||||||||||
13% Series B cumulative preferred stock, $0.01 par value per share. Authorized 35,000 shares; issued and outstanding 12,311 shares in 2003. | | ||||||||||
Common stock | 1 | (1) | |||||||||
Additional paid in capital | 31,329 | ||||||||||
Accumulated other comprehensive loss | (74 | ) | |||||||||
Retained earnings | 18,735 | ||||||||||
Treasury stock | | ||||||||||
Total stockholders' equity | 49,991 | ||||||||||
Total capitalization | $ | 461,975 | $ | $ | |||||||
39
Dilution is the amount by which the portion of the offering price paid by the purchasers of the EISs to be sold in the offering that is allocated to our shares of Class A common stock represented by the EISs exceeds the net tangible book value or deficiency per share of our common stock after the offering. Net tangible book value or deficiency per share of our common stock is determined at any date by subtracting our total liabilities from our total assets less our intangible assets and dividing the difference by the number of shares of common stock deemed to be outstanding at that date. For purposes of this section, references to our "common stock" after the offering includes the shares of Class A common stock to be issued as part of the EISs and the shares of Class B common stock to be held by our existing stockholders.
Our net tangible book deficiency as of January 3, 2004 was approximately $332.1 million, or $ per share of common stock. After giving effect to this offering and the Transactions, including the use of proceeds as described in this prospectus, our pro forma net tangible book deficiency as of January 3, 2004 as adjusted would have been approximately $ million, or $ per share of common stock. This represents an immediate increase in net tangible book value of $ per share of our common stock to our existing stockholders and an immediate dilution of $ per share of our common stock to new investors purchasing Class A common stock represented by the EISs in this offering.
The following table illustrates this substantial and immediate dilution to new investors:
|
Per Share of Common Stock Assuming No Exercise of the Over- Allotment Option |
Per Share of Common Stock Assuming Full Exercise of the Underwriters' Over- Allotment Option |
||||||
---|---|---|---|---|---|---|---|---|
Portion of the assumed initial offering price of $ per EIS allocated to one share of Class A common stock | $ | $ | ||||||
Net tangible book value (deficiency) per share as of January 3, 2004 (actual) | (332,119 | ) | (332,119 | ) | ||||
Increase per share attributable to cash payments made by investors in this offering | ||||||||
Net tangible book value (deficiency) as adjusted for this offering | ||||||||
Dilution in net tangible book value per share to new investors | $ | $ | ||||||
The following table sets forth on a pro forma basis as of January 3, 2004:
|
Shares of Common Stock Purchased |
|
|
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total Consideration |
|
||||||||||
|
Average Price Per Share of Common Stock |
|||||||||||
|
Number |
Percent |
Number |
Percent |
||||||||
Existing stockholders | % | % | $ | |||||||||
New investors | ||||||||||||
Total | 100.0 | % | 100.0 | % | $ | |||||||
40
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and related notes to those statements included in this prospectus. The selected historical consolidated financial data as of and for the years ended December 29, 2001 (fiscal 2001), December 28, 2002 (fiscal 2002) and January 3, 2004 (fiscal 2003) from our consolidated financial statements have been audited by KPMG LLP, independent accountants.
|
Fiscal Year Ended |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
January 1, 2000 |
December 30, 2000 |
December 29, 2001 |
December 28, 2002 |
January 3, 2004 |
||||||||||||
|
(unaudited) |
(unaudited) |
|
|
|
||||||||||||
|
(Dollars in thousands, except ratios) |
||||||||||||||||
Statement of Operations Data(1): | |||||||||||||||||
Net sales(2) | $ | 336,112 | $ | 351,416 | $ | 279,779 | $ | 293,677 | $ | 328,356 | |||||||
Cost of goods sold | 196,184 | 200,651 | 192,525 | 203,707 | 226,174 | ||||||||||||
Gross profit | 139,928 | 150,765 | 87,254 | 89,970 | 102,182 | ||||||||||||
Sales, marketing and distribution expenses(2) | 91,120 | 100,711 | 34,922 | 35,852 | 39,477 | ||||||||||||
General and administrative expenses(3) | 13,802 | 12,957 | 14,120 | 4,911 | 6,313 | (6) | |||||||||||
Management fees-related party | 450 | 500 | 500 | 500 | 500 | ||||||||||||
Environmental clean-up expenses | | | 950 | 100 | | ||||||||||||
Special severance expenses | | 250 | | | | ||||||||||||
Operating income | 34,556 | 36,347 | 36,762 | 48,607 | 55,892 | ||||||||||||
Gain on sale of assets | | | (3,112 | )(4) | | | |||||||||||
Derivative gain | | | | (2,524 | )(5) | | |||||||||||
Interest expense | 29,874 | 36,073 | 29,847 | 26,626 | 31,205 | ||||||||||||
Income before income tax expense | 4,682 | 274 | 10,027 | 24,505 | 24,687 | ||||||||||||
Income tax expense | 2,429 | 1,559 | 4,029 | 9,260 | 9,519 | ||||||||||||
Net income | $ | 2,253 | $ | (1,285 | ) | $ | 5,998 | $ | 15,245 | $ | 15,168 | ||||||
Less: preferred stock dividends accumulated | 6,885 | 9,095 | 10,352 | 11,739 | 13,336 | ||||||||||||
Net (loss) income available to common stockholders | $ | (4,632 | ) | $ | (10,380 | ) | $ | (4,354 | ) | $ | 3,506 | $ | 1,832 | ||||
Basic shares outstanding | 102.5 | 102.5 | 105.5 | 105.5 | 105.5 | ||||||||||||
Basic net (loss) income available to common stockholders per share | $ | (45.19 | ) | $ | (101.27 | ) | $ | (41.27 | ) | $ | 33.23 | $ | 17.36 | ||||
Diluted shares outstanding | 102.5 | 102.5 | 105.5 | 141.0 | 141.0 | ||||||||||||
Diluted net (loss) income available to common stockholders per share | $ | (45.19 | ) | $ | (101.27 | ) | $ | (41.27 | ) | $ | 24.87 | $ | 12.99 | ||||
Other Financial Data(1): |
|||||||||||||||||
EBITDA(7) | $ | 49,704 | $ | 52,101 | $ | 54,164 | $ | 56,431 | $ | 61,906 | |||||||
Cash flow from operations | 13,221 | 24,199 | 21,470 | 26,417 | 27,431 | ||||||||||||
Capital expenditures | (5,500 | ) | (5,891 | ) | (3,904 | ) | (6,283 | ) | (6,442 | ) | |||||||
Net cash used for purchase of business | (224,700 | ) | | | | (118,179 | ) | ||||||||||
Net cash received for sale of asset | | | 24,090 | | | ||||||||||||
Proceeds from sale of property, plant and equipment | | 211 | | | | ||||||||||||
Cash flow provided by (used in) financing activities | 224,125 | (12,831 | ) | (39,998 | ) | (19,351 | ) | 89,470 | |||||||||
Ratio of earnings to fixed charges(8) | 1.2x | 1.0x | 1.3x | 1.9x | 1.7x | ||||||||||||
Senior debt/ EBITDA | 4.4x | 4.0x | 3.1x | 1.0x | 2.4x | ||||||||||||
Total debt/ EBITDA | 6.9x | 6.3x | 5.3x | 4.9x | 6.0x | ||||||||||||
EBITDA/ Interest expense | 1.7x | 1.4x | 1.8x | 2.1x | 2.0x | ||||||||||||
Selected Balance Sheet Data(1): |
|||||||||||||||||
Cash and cash equivalents | $ | 7,745 | $ | 13,433 | $ | 15,055 | $ | 15,866 | $ | 8,092 | |||||||
Net working capital(9) | 51,668 | 55,610 | 34,831 | 54,100 | 59,245 |
41
Total assets | 477,057 | 457,016 | 426,006 | 430,673 | 549,939 | ||||||||||||
Total debt | 340,892 | 329,323 | 289,275 | 273,796 | 368,796 | ||||||||||||
Mandatorily redeemable preferred stock | 25,002 | 28,752 | 32,931 | 37,714 | 43,188 | ||||||||||||
Total stockholders' equity | 33,071 | 28,028 | 29,861 | 40,351 | 49,991 |
42
|
Fiscal Year Ended |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
January 1, 2000 |
December 30, 2000 |
December 29, 2001 |
December 28, 2002 |
January 3, 2004 |
|||||||||||
|
(unaudited) |
(unaudited) |
|
|
|
|||||||||||
|
(Dollars in thousands) |
|||||||||||||||
Net income | $ | 2,253 | $ | (1,285 | ) | $ | 5,998 | $ | 15,245 | $ | 15,168 | |||||
Income taxes | 2,429 | 1,559 | 4,029 | 9,260 | 9,519 | |||||||||||
Interest expense | 29,874 | 36,073 | 29,847 | 26,626 | 31,205 | |||||||||||
Depreciation and amortization | 15,148 | 15,754 | 14,290 | 5,300 | 6,014 | |||||||||||
EBITDA | $ | 49,704 | $ | 52,101 | $ | 54,164 | $ | 56,431 | $ | 61,906 | ||||||
43
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
On August 21, 2003, we acquired certain assets of Ortega for approximately $118.2 million including transaction costs, from Nestlé Prepared Foods Company. In connection with this transaction, we entered into a $200.0 million senior secured credit facility comprised of a $50.0 million five-year revolving credit facility and a $150.0 million six-year term loan facility. The proceeds of the term loan were used to fund the Ortega acquisition and refinance our then existing senior secured credit facility.
The following unaudited pro forma condensed combined financial information of B&G Foods Holdings Corp. and subsidiaries as of and for the year ended January 3, 2004 gives pro forma effect to the following transactions:
The unaudited pro forma as adjusted condensed combined financial information gives pro forma effect to:
The following table sets forth the allocation of the Ortega purchase price. The cost of the Ortega acquisition has been allocated to tangible and intangible assets as follows:
Property, plant and equipment | $ | 5,964 | ||
Goodwill | 76,310 | |||
Indefinite life intangible assetstrademarks | 30,700 | |||
Other assets, principally net current assets | 6,960 | |||
Other liabilities, principally net current liabilities | (2,039 | ) | ||
Deferred income tax asset | 284 | |||
$ | 118,179 | |||
The unaudited pro forma condensed combined statement of operations set forth below reflects pro forma adjustments that are based upon the historical statements of the acquired business giving effect to the transactions under the purchase method of accounting and the assumptions and adjustments described in the accompanying notes to the "Unaudited Pro Forma Condensed Combined Financial Statements" that we believe are reasonable. The unaudited pro forma condensed combined financial information does not purport to represent our results of operations or financial position that would have resulted had the transaction to which pro forma effect is given been consummated as of the date or for the period indicated.
44
The unaudited pro forma condensed combined statements of operations and balance sheets and accompanying notes should be read in conjunction with the historical consolidated financial statements of our company and Ortega included in this prospectus.
|
B&G Foods Holdings Corp. Unaudited Pro Forma Condensed Combined Statement of Operations For the Year Ended January 3, 2004 (Dollars in thousands except per share data) |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
B&G Foods Holdings Corp. (1) |
Ortega (2) |
Ortega Adjustments |
Pro Forma for the Ortega Acquisition |
Adjustments for the Transactions |
Pro Forma As Adjusted for the Transactions |
||||||||||||
Net sales |
$ |
328,356 |
$ |
46,457 |
$ |
|
$ |
374,813 |
$ |
|
$ |
374,813 |
||||||
Cost of goods sold | 226,174 | 27,395 | | 253,569 | | 253,569 | ||||||||||||
Gross profit | 102,182 | 19,062 | | 121,244 | | 121,244 | ||||||||||||
Sales, marketing and distribution expenses | 39,477 | 13,893 | (3,143) | (4) | 50,227 | 50,227 | ||||||||||||
General and administrative expenses | 6,313 | (3) | | 3,143 | (4) | 9,456 | (7) | 9,456 | ||||||||||
Management fees-related party | 500 | | | 500 | (500) | (7) | 0 | |||||||||||
Operating income | 55,892 | 5,169 | 0 | 61,061 | | 61,561 | ||||||||||||
Interest expense | 31,205 | | (195) | (5) | 31,010 | (8) | ||||||||||||
Income before income tax expense | 24,687 | 5,169 | 195 | 30,051 | ||||||||||||||
Income tax expense | 9,519 | | 2,081 | (6) | 11,600 | (6) | ||||||||||||
Net income(9) | $ | 15,168 | $ | 5,169 | $ | (1,886 | ) | $ | 18,451 | $ | $ | |||||||
Less: preferred stock dividends accumulated | 13,336 | | | 13,336 | ||||||||||||||
Income available to common stockholders | $ | 1,832 | $ | 5,169 | ($ | 1,886 | ) | $ | 5,115 | $ | $ | |||||||
Basic common shares outstanding | 105.5 | | | 105.5 | ||||||||||||||
Basic net income per common share | $ | 17.36 | N/A | N/A | $ | 48.48 | N/A | $ | ||||||||||
Diluted common shares outstanding | 141.0 | | | 141.0 | ||||||||||||||
Diluted net income per common share | $ | 12.99 | N/A | N/A | $ | 36.28 | N/A | $ | ||||||||||
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
45
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Unaudited Pro Forma Condensed and Combined Balance Sheets
(Dollars in thousands)
|
January 3, 2004 |
Adjustments for the Transactions |
As Adjusted for the Transactions |
|||||
---|---|---|---|---|---|---|---|---|
Assets | ||||||||
Cash and cash equivalents | $ | 8,092 | ||||||
Other current assets | 105,588 | |||||||
Property, plant and equipment, net | 43,940 | |||||||
Intangibles | 382,110 | |||||||
Other assets | 10,209 | |||||||
Total assets | $ | 549,939 | ||||||
Liabilities and Stockholders' Equity | ||||||||
Current installments of long-term debt | $ | 1,500 | (10) | |||||
Other current liabilities | 44,635 | |||||||
Due to related party | 208 | |||||||
Long-term debt, excluding current maturities | 367,296 | (10) | ||||||
Other liabilities | 347 | |||||||
Deferred income taxes | 42,774 | |||||||
Total liabilities | 456,760 | |||||||
Mandatorily redeemable preferred stock |
43,188 |
(11) |
||||||
Total stockholders' equity | 49,991 | (12) | ||||||
Total liabilities and stockholders' equity | $ | 549,939 | ||||||
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
46
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(Dollars in thousands)
Statement of Operations:
|
|
|||
---|---|---|---|---|
Historical net interest expense | $ | (31,205 | ) | |
$220,000 existing senior subordinated notes (95/8%) | 21,175 | |||
$150,000 term loan (5.0%) | 7,500 | |||
Amortization of deferred debt issuance costs. In connection with (i) the issuance of the existing senior subordinated notes with interest payable semiannually on February 1 and August 1 of each year, of which $120,000 principal amount was originally issued in August 1997 and $100,000 principal amount was originally issued in March 2002 and (ii) the entering into of our $200,000 senior credit facility on August 21, 2003, we incurred approximately $9,583 and $5,299, respectively, in deferred debt issuance costs which are being amortized over the life of the related debt. | 2,335 | |||
Incremental reduction in interest expense | $ | (195 | ) | |
A 12.5 basis point increase in interest rates, applied to our borrowings for fiscal 2003, would have resulted in an increase in interest expense and a corresponding reduction in cash flow of approximately $0.2 million.
47
|
|
|||
---|---|---|---|---|
Pro forma interest expense | $ | (31,010 | ) | |
Interest associated with this offering, including amortization of deferred financing costs. The interest expense reflects interest, at an assumed rate. | $ | |||
Incremental interest expense | $ | |||
|
For the Year Ended January 3, 2004 (dollars in thousands) |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
B&G Foods Holdings Corp. (1) |
Ortega (2) |
Ortega Adjustments |
Pro Forma for the Ortega Acquisition |
Adjustments for the Transactions |
Pro Forma As Adjusted for the Transactions |
||||||||||||
Net income | $ | 15,168 | $ | 5,169 | $ | (1,886 | ) | $ | 18,451 | $ | $ | |||||||
Income taxes | 9,519 | | 2,081 | 11,600 | ||||||||||||||
Interest expense | 31,205 | | (195 | ) | 31,010 | |||||||||||||
Depreciation | 6,014 | 659 | | 6,673 | | |||||||||||||
EBITDA | $ | 61,906 | $ | 5,828 | $ | 0 | $ | 67,734 | $ | | $ | |||||||
48
|
|
|
|
|
|
|
||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
(10) | Repay all outstanding borrowings under, and terminate, our current senior secured credit facility | $ | |||
Redeem our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007 | |||||
Incur $ million aggregate principal amount of new senior unsecured indebtedness | |||||
Enter into a $ million unsubordinated debt attached to the EIS units | |||||
Enter into a $30.0 million senior secured revolving credit facility | |||||
Net increase in debt | $ | ||||
(12) | Purchase shares of our currently outstanding Class B common stock | $ | |||
Elimination to reflect the liquidation of the Series A cumulative preferred stock and Series B cumulative preferred stock. Both Series of cumulative preferred stock include both face value and accreted dividends | |||||
Sell shares of Class A common shares attached to the EIS units | |||||
Net increase in stockholders' equity | $ | ||||
49
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading "Risk Factors" and elsewhere in this prospectus. The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this prospectus.
General
We manufacture, sell and distribute a diversified portfolio of high quality, shelf-stable, branded food products, many of which have leading regional or national retail market shares. In general, we position our branded products to appeal to the consumer desiring a high quality and reasonably priced branded product.
We completed the acquisition of certain assets of The Ortega Brand of Business from Nestlé Prepared Foods Company on August 21, 2003, which we refer to in this prospectus as "Ortega" or the "Ortega acquisition." The Ortega acquisition has been accounted for using the purchase method of accounting and, accordingly, the assets acquired, liabilities assumed and results of operations of the acquired business are included in our consolidated financial statements from the date of the acquisition. Ortega pro forma net sales for the year ended January 3, 2004 were $79.8 million. On January 17, 2001, we completed the sale of our wholly owned subsidiary, Burns & Ricker, Inc., to Nonni's Food Company, Inc. pursuant to a stock purchase agreement of the same date under which we sold all of the issued and outstanding capital stock of Burns & Ricker to Nonni's. The Ortega acquisition and the application of the purchase method of accounting and sale of Burns & Ricker affect comparability between periods.
We are subject to a number of challenges that may adversely affect our businesses. These challenges, which are discussed below and under the headings "Forward-Looking Statements," "Risk Factors" and "Business" and elsewhere in this prospectus, include:
Fluctuations in Commodity Prices: We purchase raw materials, including agricultural products, meat and poultry from growers, commodity processors, other food companies and packaging manufacturers. Raw materials are subject to fluctuations in price attributable to a number of factors. We manage this risk by entering into short-term supply contracts and advance commodities purchase agreements from time to time, and if necessary, by raising prices.
Consolidation in the Retail Trade and Consequent Inventory Reductions: As the retail grocery trade continues to consolidate and our retail customers grow larger and become more sophisticated, our retail customers may demand lower pricing and increased promotional programs. These customers are also reducing their inventories and increasing their emphasis on private label products. To date we have been able to offset these trends by using our marketing expertise, unique products and category leadership to maintain and increase volume.
Changing Customer Preferences: Consumers in the market categories in which we compete frequently change their taste preferences, dietary habits and product packaging preferences. By anticipating, identifying or developing and marketing products that respond to these changes in consumer preferences, we have largely been able to offset this challenge.
Consumer Concern Regarding Food Safety, Quality and Health: The food industry is subject to consumer concerns regarding the safety and quality of certain food products, including the health implications of genetically modified organisms, obesity and trans fatty acids. By complying with
50
applicable food and safety laws and regulations, we have been able to produce food products that generate consumer confidence in the safety and quality of our food products.
Changing Valuations of the Canadian Dollar in Relation to the U.S. Dollar: We purchase most of our maple syrup requirements from manufacturers located in Quebec, Canada. Over the past year the U.S. dollar has weakened against the Canadian dollar, which has in turn increased our costs relating to the production of our maple syrup products.
To confront these challenges, we continue to take steps to build the value of our brands, to improve our existing portfolio of products with new product and marketing initiatives, to reduce costs through productivity and to address consumer concerns about food safety, quality and health.
Fluctuations in commodity prices can lead to retail price volatility and intensive price competition, and can influence consumer and trade buying patterns. In fiscal 2003, our commodity costs for maple syrup, cucumbers and peppers have been higher than those incurred in fiscal 2002.
Critical Accounting Policies; Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires our management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates made by management involve trade and consumer promotion expenses, allowances for excess, obsolete and unsaleable inventories, and the recoverability of goodwill, trademarks, property, plant and equipment and deferred tax assets. Actual results could differ from those estimates.
Our significant accounting policies are described in note 2 to our consolidated financial statements included elsewhere in this prospectus. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.
Trade and Consumer Promotion Expenses. We offer various sales incentive programs to customers and consumers, such as price discounts, in-store display incentives, slotting fees and coupons. The recognition of expense for these programs involves use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other factors. Actual expenses may differ if the level of redemption rates and performance vary from estimates.
Inventories. Inventories are valued at the lower of cost or market value and have been reduced by an allowance for excess, obsolete and unsaleable inventories. The estimate is based on our management's review of inventories on hand compared to estimated future usage and sales.
Long-Lived Assets. Long-lived assets, such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Goodwill and intangible assets (trademarks) not subject to amortization are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's fair value.
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Income Tax Expense Estimates and Policies. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe the recovery is not likely, we must establish a valuation allowance. Further, to the extent that we establish a valuation allowance or increase this allowance in a financial accounting period, we must include a tax provision, or reduce our tax benefit in our consolidated statement of operations. We use our judgment to determine our provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.
We have recorded deferred tax assets, a portion of which represents net operating loss carryforwards. A valuation allowance has been recorded for certain state net operating loss carryforwards.
However, various factors may cause those tax assumptions to change in the near term, and we may have to record a valuation allowance against our deferred tax assets. We cannot predict whether future U.S. federal income tax laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes to the U.S. federal income tax laws and regulations on a regular basis and update the assumption and estimates used to prepare our financial statements when new regulation and legislation is enacted.
Non-GAAP Financial Measures
Certain disclosures in this document include "non-GAAP (Generally Accepted Accounting Principles) financial measures." A non-GAAP financial measure is defined as a numerical measure of a company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in our consolidated balance sheets and related consolidated statements of operations, stockholders' equity, and cash flows. We present EBITDA because we believe it is a useful indicator of our historical debt capacity and ability to service debt. We also present this discussion of EBITDA because covenants in the indenture governing our subordinated notes, our new revolving credit facility and the terms of our new senior unsecured indebtedness will contain ratios based on this measure.
A reconciliation of EBITDA (earnings before interest, taxes, depreciation and amortization) and "free cash flow" with the most directly comparable GAAP measure is included below for the fifty-three weeks ended January 3, 2004, the fifty-two weeks ended December 28, 2002 and the fifty-two weeks ended December 29, 2001 (dollars in millions) along with the components of EBITDA.
EBITDA margin is calculated as a percentage of net sales.
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Results of Operations
The following table sets forth the percentages of net sales represented by selected items reflected in our Consolidated Statements of Operations. The year-to-year comparisons of financial results are not necessarily indicative of future results:
|
Fiscal Year Ended |
|||||||
---|---|---|---|---|---|---|---|---|
|
December 29, 2001 |
December 28, 2002 |
January 3, 2004 |
|||||
|
Actual |
Actual |
Actual |
|||||
Common Size Income Statement: | ||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||
Cost of goods sold | 68.8 | 69.4 | 68.9 | |||||
Gross profit | 31.2 | 30.6 | 31.1 | |||||
Sales, marketing and distribution expenses |
12.5 |
12.2 |
12.0 |
|||||
General and administrative expenses | 5.0 | 1.7 | 1.9 | |||||
Management fees-related party | 0.2 | 0.2 | 0.2 | |||||
Environmental clean-up expenses | 0.3 | 0.0 | 0.0 | |||||
Operating income | 13.1 | 16.6 | 17.0 | |||||
Gain on sale of assets |
(1.1 |
) |
0.0 |
0.0 |
||||
Derivative gain | 0.0 | (0.9 | ) | 0.0 | ||||
Interest expense | 10.7 | 9.1 | 9.5 | |||||
Income before income taxes | 3.6 | 8.3 | 7.5 | |||||
Provision for income taxes | 1.4 | 3.2 | 2.9 | |||||
Net income | 2.1 | % | 5.2 | % | 4.6 | % | ||
As used in this section the terms listed below have the following meanings:
Net Sales. Our net sales represents gross sales of products shipped to customers plus amounts charged customers for shipping and handling, less cash discount, coupon redemption, slotting fees and trade promotional spending.
Gross Profit. Our gross profit is equal to our net sales less cost of goods sold. The primary components of our cost of goods sold are cost of internally manufactured products, purchases of finished goods from co-packers plus freight costs to our distribution centers and to our customers.
Sales, Marketing and Distribution Expenses. Our sales, marketing and distribution expenses include costs for marketing personnel, consumer programs, internal sales forces, brokerage costs and warehouse facilities.
General and Administrative Expenses. Our general and administrative expenses includes administrative employee compensation and benefit costs, as well as information technology infrastructure and communication costs, office rent and supplies, professional services, management fees and other general corporate expenses.
Year Ended January 3, 2004 Compared to Year Ended December 28, 2002
Net Sales. Net sales increased $34.7 million or 11.8% to $328.4 million for the 53 week period ended January 3, 2004 (fiscal 2003) from $293.7 million for the 52 week period ended December 28, 2002 (fiscal 2002). The Ortega acquisition accounted for $33.4 million of the sales increase during fiscal 2003. Sales of our Maple Grove Farms of Vermont, Underwood, Emeril's and Bloch & Guggenheimer brands increased $2.2 million, $1.0 million, $0.9 million and $0.8 million or 4.8%, 4.7%, 3.7% and
53
1.7%, respectively, largely reflecting higher unit volume. Sales of our Joan of Arc, Regina, Ac'cent, Polaner and Sa-són brands decreased by $0.8 million, $0.7 million, $0.6 million, $0.5 million and $0.3 million, or 6.4%, 5.8%, 3.5%, 1.3% and 6.6%, respectively, largely reflecting lower unit volume. All other brands decreased, in the aggregate by, $0.7 million or 0.9%.
Gross Profit. Gross profit increased $12.2 million or 13.6% to $102.2 million in fiscal 2003 from $90.0 million in fiscal 2002. Gross profit expressed as a percentage of net sales increased to 31.1% in fiscal 2003 from 30.6% in fiscal 2002. The increase in gross profit percentage was primarily the result of the favorable business impact of the Ortega acquisition and a reduction in co-pack costs for our Underwood, Joan of Arc and Las Palmas brands, partially offset by higher costs of maple syrup, the increased costs of pickle and pepper production and an increase in trade spending.
Sales, Marketing and Distribution Expenses. Sales, marketing and distribution expenses increased $3.6 million or 10.1% to $39.5 million for fiscal 2003 from $35.9 million for fiscal 2002. These expenses expressed as a percentage of net sales decreased to 12.0% in fiscal 2003 from 12.2% in fiscal 2002. The Ortega acquisition accounted for $3.3 million of the increase in sales and marketing expenses for fiscal 2003. For brands other than Ortega, marketing costs increased $0.2 million or 2.2% relating to additional spending on consumer marketing programs and brokerage expenses increased $0.4 million or 6.7% during fiscal 2003 as compared with prior year. All other expenses decreased $0.1 million during fiscal 2003.
General and Administrative Expenses. General and administrative expenses and management fees increased $1.4 million or 25.9% to $6.8 million in fiscal 2003 from $5.4 million in fiscal 2002. Included in fiscal 2003 is a bad debt write-off of $0.6 million relating to Fleming Companies, Inc., which filed Chapter 11 bankruptcy on April 1, 2003. Transitional expenses related to the Ortega acquisition accounted for $0.2 million of the increase, incentive compensation increased $0.4 million and computer equipment depreciation increased $0.2 million during fiscal 2003 as compared with prior year.
Environmental Clean-Up Expenses. We recorded a charge of $0.1 million, in fiscal 2002, relating to the Combe Fill South Landfill in New Jersey as described under "Business-Environmental Matters."
Operating Income. As a result of the foregoing, operating income increased $7.3 million or 15.0% to $55.9 million in fiscal 2003 from $48.6 million in fiscal 2002. Operating income expressed as a percentage of net sales increased to 17.0% in fiscal 2003 from 16.6% in fiscal 2002.
Derivative Gain. Income of $2.5 million was recorded in fiscal 2002 reflecting the change in fair value of our interest rate swap agreement since the date we entered into the agreement (March 21, 2002). The interest rate swap was terminated during the latter part of fiscal 2002.
Interest Expense. Interest expense increased $4.6 million to $31.2 million in fiscal 2003 from $26.6 million in fiscal 2002. The increase is due primarily to the write-off of $1.8 million of deferred financing costs in connection with the payment in full during fiscal 2003 of the term loan B under our then existing term loan agreement dated as of March 15, 1999. In addition, total debt increased due to borrowings under a credit facility in connection with the purchase of the Ortega acquisition.
Income Tax Expense. Income tax expense increased $0.2 million to $9.5 million in fiscal 2003 from $9.3 million in fiscal 2002. Our effective tax rate for fiscal 2003 was 38.6% as compared with 37.8% for fiscal 2002. Cash taxes due were $5.1 million in fiscal 2003 and $3.7 million in fiscal 2002.
54
Use of Non-GAAP Financial Measures.
|
Fiscal 2001 |
Fiscal 2002 |
Fiscal 2003 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
(Dollars in millions) |
||||||||||
Net income(1) | $ | 6.0 | $ | 15.2 | $ | 15.2 | |||||
Depreciation | 14.3 | 5.3 | 6.0 | ||||||||
Income tax expense | 4.0 | 9.3 | 9.5 | ||||||||
Interest expense | 29.8 | 26.6 | 31.2 | ||||||||
EBITDA(2) | 54.1 | 56.4 | 61.9 | ||||||||
Income tax expense | (4.0 | ) | (9.3 | ) | (9.5 | ) | |||||
Interest expense | (29.8 | ) | (26.6 | ) | (31.2 | ) | |||||
Deferred income taxes | 3.8 | 5.5 | 4.4 | ||||||||
Amortization of deferred financing and bond discount | 2.0 | 2.7 | 2.8 | ||||||||
Write-off of pre-existing deferred debt issuance costs | | | 1.8 | ||||||||
Gain on sale of assets | (3.1 | ) | | | |||||||
Changes in assets and liabilities, net of effects of business combination |
(1.5 |
) |
(2.3 |
) |
(2.8 |
) |
|||||
Net cash provided by operating activities | 21.5 | 26.4 | 27.4 | ||||||||
Capital expenditures | (3.9 | ) | (6.3 | ) | (6.5 | ) | |||||
Free cash flow(3) | $ | 17.6 | $ | 20.1 | $ | 20.9 | |||||
55
Year Ended December 28, 2002 Compared to Year Ended December 29, 2001
Net Sales. Net sales increased $13.9 million or 5.0% to $293.7 million fiscal 2002 from $279.8 million for the 52 week period ended December 29, 2001 (fiscal 2001). Sales of our Emeril's, Las Palmas, Maple Grove Farms of Vermont, Ac'cent, Trappey's, Wright's and Polaner brands increased $7.6 million, $2.6 million, $2.2 million, $2.2 million, $0.6 million, $0.3 million and $0.3 million or 45.1%, 14.5%, 5.1%, 13.5%, 4.2%, 6.0% and 0.7%, respectively, largely reflecting higher unit volume. Sales of our B&M baked beans and Sa-són brands decreased by $0.7 million and $0.5 million, or 2.6% and 9.3%, respectively. Our fiscal 2002 net sales increase was offset by $0.7 million, reflecting the disposition of the Burns & Ricker brand early in fiscal 2001.
Gross Profit. Gross profit increased $2.7 million or 3.1% to $90.0 million for fiscal 2002 from $87.3 million in fiscal 2001. Gross profit expressed as a percentage of net sales decreased to 30.6% in fiscal 2002 from 31.2% in fiscal 2001. The decrease in gross profit percentage resulted from higher costs of maple syrup, increased costs from the co-packers of the Underwood, Joan of Arc and Las Palmas brands and an increase in trade spending which is now included as a reduction to, net sales. These cost increases were offset by a mix shift of products sold by us and a reduction in delivery expenses in an amount equal to 0.4% of net sales.
Sales, Marketing and Distribution Expenses. Sales, marketing and distribution expenses increased $0.9 million or 2.7% to $35.9 million for fiscal 2002 from $34.9 million for fiscal 2001. These expenses expressed as a percentage of net sales decreased to 12.2% in fiscal 2002 from 12.5% in fiscal 2001. Selling expenses increased $1.0 million or 8.4% relating to sales compensation and brokerage. Marketing costs increased $0.6 million or 7.5% relating to additional spending on consumer programs. These increases were partially offset by a decrease in warehousing costs of $0.8 million or 14.7% due to reductions in headcount and the elimination of one distribution center. All other costs increased $0.1 million or 1.2%.
General and Administrative Expenses. General and administrative expenses (including amortization of goodwill and trademark intangibles in fiscal 2001) and management fees decreased $9.2 million or 63.0% to $5.4 million in fiscal 2002 from $14.6 million in fiscal 2001. Amortization of goodwill and trademark intangibles with indefinite useful lives decreased from $8.5 million in fiscal 2001 to $0.0 in fiscal 2002 as a result of the implementation of the provisions of the Financial Accounting Standard Board's (FASB) Statement No. 142. All other general and administrative expenses collectively decreased $0.7 million due to a decrease in incentive compensation costs in fiscal 2002.
Environmental Clean-Up Expenses. As further described below under "BusinessEnvironmental Matters," we recorded a charge of $0.1 million, in fiscal 2002, relating to the Combe Fill South Landfill in New Jersey. We recorded a charge of $1.0 million, net of insurance proceeds, in fiscal 2001 relating to the fuel oil tank leak at our Roseland, New Jersey facility.
Operating Income. As a result of the foregoing, operating income increased $11.8 million or 32.2% to $48.6 million in fiscal 2002 from $36.8 million in fiscal 2001. Operating income expressed as a percentage of net sales increased to 16.6% in fiscal 2002 from 13.1% in fiscal 2001.
Gain on Sale of Assets. As further described in note 1 to our consolidated financial statements, we recorded a $3.1 million gain on the Burns & Ricker disposition in fiscal 2001.
Derivative Gain. Income of $2.5 million was recorded in fiscal 2002 reflecting the change in fair value of our interest rate swap agreement since the date we entered into the agreement (March 21, 2002). The interest rate swap was terminated during the latter part of fiscal 2002.
56
Interest Expense. Interest expense decreased $3.2 million to $26.6 million in fiscal 2002 from $29.8 million in fiscal 2001 as a result of lower outstanding debt balances and reduced interest rates in fiscal 2002.
Income Tax Expense. Income tax expense increased $5.2 million to $9.3 million in fiscal 2002 from $4.0 million in fiscal 2001. Our effective tax rate for fiscal 2002 was 37.8% as compared with 40.2% for fiscal 2001. The decrease in the effective rate reflects the effect of the amortization of nondeductible goodwill and other intangibles and the implementation of state tax planning initiatives, resulting in the reduction in current and deferred state tax liabilities. Cash taxes due were $3.7 million in fiscal 2002 and $0.2 million in fiscal 2001. Cash taxes due in each year are less than GAAP income tax expense due to the favorable impact of goodwill amortization expense deductible for tax-purposes resulting from our previous acquisitions.
Liquidity and Capital Resources
Our primary liquidity requirements include debt service, capital expenditures, working capital needs and financing for acquisitions. We will fund our liquidity needs primarily through cash generated from operations and to the extent necessary, through borrowings under the new revolving credit facility that we expect to enter into as part of the Transactions.
Cash Flows. Cash provided by operating activities increased $1.0 million or 3.8% to $27.4 million in fiscal 2003 from $26.4 million in fiscal 2002. This increase was primarily due to an increase in accounts payable, amortization of deferred debt issuance costs and depreciation partially offset by increases in accounts receivable and inventory. Working capital at January 3, 2004 was $67.3 million, a decrease of $2.7 million over working capital at December 28, 2002 of $70.0 million.
Net cash used in investing activities for fiscal 2003 was $124.6 million compared to net cash used in investing activities for fiscal 2002 of $6.3 million. Capital expenditures during fiscal 2003, which included purchases of manufacturing and computer equipment, were $6.4 million compared to $6.3 million for fiscal 2002. Investment expenditures during fiscal 2003 included $118.2 million for the Ortega acquisition.
Net cash provided by financing activities for fiscal 2003 was $89.5 million compared to net cash used in financing activities for fiscal 2002 of $19.4 million. During fiscal 2003, we entered into a $150.0 million term loan in connection with the Ortega acquisition. The net cash provided by this financing activity was reduced by $54.9 million, $5.3 million and $0.3 million to pay-off existing debt under our previous credit facility, to pay new deferred debt issuance costs and to make a required payment toward the new term loan, respectively. The net cash used by financing activities for fiscal 2002 included payments of deferred debt financing fees of $3.7 million, a payment of $38.3 million toward the remaining balance of the term loan A and a partial prepayment of $75.8 million toward the term loan B, which such payments were partially offset by proceeds from the issuance of long-term debt of $98.8 million. The payments made toward term loan A and term loan B totaled $114.1 million, and included $95.8 million in prepayments of term loan A and term loan B, our required $0.4 million quarterly payments under term loan B and an additional prepayment of $17.9 million under term loan B. In addition, a payment of $0.3 million was made toward capital leases in fiscal 2002.
We believe however, based on a number of factors including our trademark and goodwill amortization from our prior acquisitions, our call premium on our outstanding subordinated notes, other write-offs of existing deferred financing costs and the compensation expense associated with the exercise of certain management stock options, that we will realize a significant reduction in cash taxes in 2004, and further, we will realize a benefit to our cash taxes payable from the depreciation of our acquired trademarks and goodwill for the taxable years 2004 through 2018, which will result in a further significant reduction in our cash taxes from 2005 through fiscal 2018.
57
Acquisitions. Our liquidity and capital resources have been significantly impacted by acquisitions and may be impacted in the foreseeable future by additional acquisitions. We have historically financed acquisitions with borrowings and cash flows from operations. Our interest expense has increased significantly as a result of additional indebtedness we have incurred as a result of our recent acquisitions, and will increase with any additional indebtedness we may incur to finance potential future acquisitions, if any. To the extent future acquisitions, if any, are financed by additional indebtedness, the resulting increase in debt and interest expense could have a negative impact on liquidity.
On August 21, 2003, we consummated the Ortega acquisition for approximately $118.2 million in cash, including transaction costs, from Nestlé Prepared Foods Company. In connection with this transaction, we entered into a $200.0 million senior secured credit facility comprised of a $50.0 million five-year revolving credit facility and a $150.0 million six-year term loan facility. The proceeds of such senior secured credit facility were used to fund the Ortega acquisition and refinance our then-existing credit facility.
In connection with the Ortega acquisition, we paid transaction fees to Bruckmann, Rosser, Sherrill and Co., Inc., a related party, aggregating $1.0 million for financial advisory services. We recorded such transaction fees as part of the transaction costs included in the Ortega purchase price.
The Ortega acquisition has been accounted for using the purchase method of accounting and, accordingly, the assets acquired, liabilities assumed, and results of operations are included in the consolidated financial statements from the date of the Ortega acquisition. The excess of the Ortega purchase price over the fair value of identifiable net assets acquired represents goodwill. Trademarks are deemed to have an indefinite useful life and are not amortized.
The following table sets forth the allocation of the Ortega purchase price. The cost of the Ortega acquisition has been allocated to tangible and intangible assets as follows:
Property, plant and equipment | $ | 5,964 | |||
Goodwill | 76,310 | ||||
Indefinite life intangible assetstrademarks | 30,700 | ||||
Other assets, principally net current assets | 6,960 | ||||
Other liabilities, principally net current liabilities | (2,039 | ) | |||
Deferred income tax asset | 284 | ||||
Total | $ | 118,179 | |||
Environmental Clean-Up Costs. See "BusinessEnvironmental Matters," for a description of environmental matters.
Debt. We have outstanding $220.0 million of 95/8% senior subordinated notes due 2007 with interest payable semiannually on February 1 and August 1 of each year. Subject to and as soon as practicable after the consummation of this offering and the Transactions, we will redeem all of the existing senior subordinated notes at the redemption price of 103.208% of the principal amount plus accrued and unpaid interest on the existing senior subordinated notes redeemed to the applicable redemption date, estimated to be $227.1 million and $8.8 million, respectively. We will be required to place in escrow cash sufficient to redeem all of the existing senior subordinated notes as a condition to this offering.
On August 21, 2003, we entered into a newly amended and restated $200.0 million senior secured credit facility, which was further amended and restated as of September 9, 2003, comprised of a $50.0 million five-year revolving credit facility and a $150.0 million six-year term loan facility. The proceeds of the term loan and of certain drawings under the revolving credit facility were used to fund the Ortega acquisition and to pay related transaction fees and expenses and to fully pay off our
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remaining obligations under term loan B of our then-existing term loan agreement dated as of March 15, 1999. In connection therewith, we capitalized approximately $5.3 million of new deferred debt issuance costs related to the senior credit facility and, in accordance with the applicable guidance of the FASB's Emerging Issues Task Force, wrote off $1.8 million of deferred financing costs related to the our then-existing term loan B. For the senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.52% at January 3, 2004). The senior credit facility is secured by substantially all of our assets. The outstanding balances for the revolving credit facility and the term loan at January 3, 2004 were $0.0 million and $149.6 million, respectively. The available borrowing capacity under the revolving credit facility, net of outstanding letters of credit of $1.3 million, was approximately $48.7 million at January 3, 2004. We will use a portion of the net proceeds of this offering and the estimated $ million net proceeds from our new senior unsecured indebtedness and cash on hand, to repay all outstanding borrowings under, and terminate our existing senior credit facility.
Concurrently with this offering, we will enter into a $30.0 million senior secured revolving credit facility. Interest will be determined based on several alternative rates as stipulated in the new revolving credit facility, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin. The new revolving credit facility will be secured by substantially all of our assets. The new revolving credit facility provides for mandatory prepayment based on asset dispositions and certain issuances of securities, as defined. The new revolving credit facility contains covenants that will restrict, among other things, our ability of to incur additional indebtedness, pay dividends and create certain liens. The new revolving credit facility also contains certain financial maintenance covenants, which, among other things, specify maximum capital expenditure limits, a minimum interest coverage ratio and a maximum senior and total leverage ratio, each ratio as defined. Proceeds of the new revolving credit facility will be restricted to funding our working capital requirements, capital expenditures and acquisitions of companies in the same line of business as our company, subject to specified criteria. We anticipate that the new revolving credit facility will be undrawn on the date of consummation of the offering.
In addition, concurrently with this offering, we anticipate that we will incur approximately $ million of new senior unsecured indebtedness. We expect that the terms of our new senior unsecured indebtedness will contain restrictions on our ability to pay dividends on our common stock.
Future Capital Needs
We are highly leveraged. On January 3, 2004, after giving pro forma effect to this offering and the other Transactions, our total long-term debt would have been $ and our stockholders' equity would have been $ .
Our ability to generate sufficient cash to fund our operations depends generally on the results of our operations and the availability of financing. Our management believes that cash flows from operations in conjunction with the available borrowing capacity under the revolving credit facility, net of outstanding letters of credit, of approximately $28.7 million at January 3, 2004, after giving pro forma effect to this offering and the other Transactions, will be sufficient for the foreseeable future to fund operations, meet debt service requirements, make future acquisitions, if any, and fund capital expenditures. We expect to make capital expenditures of between $7.0 to $8.0 million for each of fiscal 2004 and 2005.
Recent Accounting Pronouncements
In 2003, the FASB revised Statement No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits". This Statement requires new annual disclosures about the types of plan assets, investment strategy, measurement date, plan obligations, and cash flows as well as the
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components of the net periodic benefit cost recognized in interim periods. In addition, SEC registrants are now required to disclose its estimates of contributions to the plan during the next fiscal year and the components of the fair value of total plan assets by type (i.e. equity securities, debt securities, real estate, and other assets). We adopted the provisions of this Statement, except for expected future benefit payments, which must be disclosed for fiscal years ending after June 15, 2004.
Commitments and Contractual Obligations
Our contractual obligations and commitments principally include obligations associated with our outstanding indebtedness and future minimum operating lease obligations as set forth in the following tables (the second of which gives pro forma effect to our acquisition of Ortega and is adjusted for this offering and the other Transactions):
|
Actual Payments Due by Period |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations: |
Total |
2004 |
2005 |
2006 |
2007 |
2008 |
||||||||||||
|
(In thousands) |
|||||||||||||||||
Long-term debt | $ | 368,796 | $ | 1,500 | $ | 1,500 | $ | 1,500 | $ | 220,671 | $ | 143,625 | ||||||
Operating leases | 12,391 | 3,742 | 3,238 | 1,927 | 1,438 | 2,046 | ||||||||||||
Management fees-related parties | 1,500 | 500 | 500 | 500 | 0 | 0 | ||||||||||||
Purchase commitments | 8,926 | 8,926 | 0 | 0 | 0 | 0 | ||||||||||||
Total contractual cash obligations | $ | 391,613 | $ | 14,668 | $ | 5,238 | $ | 3,927 | $ | 222,109 | $ | 145,671 | ||||||
|
Pro Forma Payments Due by Period |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations: |
Total |
2004 |
2005 |
2006 |
2007 |
2008 |
||||||||||||
|
(In thousands) |
|||||||||||||||||
Long-term debt | $ | $ | $ | $ | $ | $ | ||||||||||||
Operating leases | 12,391 | 3,742 | 3,238 | 1,927 | 1,438 | 2,046 | ||||||||||||
Purchase commitments | 8,926 | 8,926 | 0 | 0 | 0 | 0 | ||||||||||||
Total contractual cash obligations | $ | $ | $ | $ | $ | $ | ||||||||||||
Quantitative and Qualitative Disclosures About Market Risk
In the normal course of operations, we are exposed to market risks arising from adverse changes in interest rates. Market risk is defined for these purposes as the potential change in the fair value of financial assets or liabilities resulting from an adverse movement in interest rates. As of January 3, 2004, our only variable rate borrowings were under the term loan and the revolving credit facility, which bear interest at several alternative variable rates as stipulated in the senior secured credit facility. A 100 basis point increase in interest rates, applied to our borrowings at January 3, 2004, would result in an annual increase in interest expense and a corresponding reduction in cash-flow of approximately $0.9 million.
We also have outstanding $220 million of 95/8% senior subordinated notes due August 1, 2007 with interest payable semiannually on February 1 and August 1 of each year, of which $120 million principal amount was originally issued in August 1997 and $100 million principal amount was issued by us through a private offering of the notes completed on March 7, 2002. The fair value of the $220 million senior subordinated notes at January 3, 2004, based on quoted market prices, was $226.6 million.
Upon consummation of this offering and the Transactions and the use of proceeds therefrom, we anticipate that our only variable rate borrowings will be under our new revolving credit facility which will be undrawn as of the closing date.
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Overview
We manufacture, sell and distribute a diverse portfolio of high quality, shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 11 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our results over the past five years were achieved through a combination of internal growth plus the addition of eight brands through acquisitions and one brand through a long-term license agreement, our most recent of which was the acquisition of the Ortega line of branded Mexican food products in August 2003. During the three months ended January 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $101.2 million, $19.2 million and 19.0%, respectively, compared to net sales, EBITDA and EBITDA margin of $78.7 million, $13.4 million and 17.0% respectively, for the comparable period in the prior year.
Products and Markets
The following is a brief description of our brands and product lines:
The Ortega brand has been in existence since 1897 and its products span the shelf-stable Mexican food segment including taco shells, seasonings, dinner kits, taco sauce, peppers, refried beans, salsa and related food products. Ortega products are distributed nationally. Ortega has the leading market share nationally in taco sauce.
The Maple Grove Farms of Vermont brand is the number two brand of pure maple syrup in the United States. Other products under the Maple Grove Farms of Vermont label include a line of gourmet salad dressings, marinades, fruit syrups, confections and pancake mixes. Maple Grove Farms of Vermont products are distributed nationwide.
The Bloch & Guggenheimer brand originated in 1889, and its pickle, pepper/pimentos and relish products are the leading brand in the New York metropolitan area. This line consists of shelf-stable pickles, relishes, peppers, olives and other related specialty items.
The Polaner brand was introduced in 1880 and is comprised of a broad array of fruit-based spreads as well as jarred or bottled wet spices such as chopped garlic and basil. Polaner All Fruit is the leading national brand of fruit-juice sweetened fruit spread. The spreads are available in more than a dozen flavors. Recently, we introduced Polaner Reduced Sugar and Polaner No Sugar Fruit Spreads in Polaner's key markets.
The Emeril's brand was introduced in 2000 under a licensing agreement with celebrity chef Emeril Lagasse. We offer a line of seasonings, salad dressings, marinades, pepper sauces, barbecue sauces and pasta sauces under the Emeril's brand name. In addition, we recently introduced mustards and sauces under the Emeril's brand name. In the three years since its introduction, our sales of Emeril's products have increased to $25.4 million.
The B&M brand was introduced in 1927 and is the original brand of brick-oven baked beans. The B&M line includes a variety of baked beans and brown bread. The B&M brand currently has the leading market share in the New England region.
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The Underwood brand's "Underwood Devil" (logo) is among the oldest registered trademarks for a prepackaged food product in the United States. We market meat spreads of several types, including deviled ham, chicken and roast beef as well as liver pate and sardines under the Underwood brand name. We believe that no competitors offer a directly comparable product to our meat spreads.
The Las Palmas brand originated in 1922 and primarily includes authentic Mexican enchilada sauce and various pepper products. The Las Palmas brand is the number two brand of enchilada sauce in the United States.
The Ac'cent brand was introduced in 1947 as an all-natural flavor enhancer for meat preparation and is generally used on beef, poultry, fish and vegetables. We believe that Ac'cent is positioned as a unique flavor enhancer.
The Trappey's brand includes two major categories of products under the brand, high quality peppers and hot sauces.
The Regina brand includes vinegars and cooking wines. Vinegars and cooking wines are most commonly used in the preparation of salad dressings as well as in a variety of recipe applications, including sauces, marinades and soups. Regina brand wine vinegar is the number two selling wine vinegar in supermarkets nationwide.
The Joan of Arc brand includes a full range of canned beans including kidney, chili and other beans under the Joan of Arc brand. Joan of Arc products are sold nationally with significant sales in the Midwest region.
The Wright's brand was introduced in 1895 and is an all-natural seasoning that reproduces the flavor and aroma of pit smoking in meats, chicken and fish. Wright's is the number two brand in the United States and is offered in two flavors: Hickory and Mesquite.
The Sa-són brand was introduced in 1947 as a flavor enhancer used primarily for Puerto Rican and Hispanic food preparation. The product is generally used on beef, poultry, fish and vegetables. The brand is the number three flavor enhancer in Puerto Rico as of 2002, the latest year for which we have data available. The brand's flavor enhancer is offered in four flavors: Original, Coriander and Achiote, Garlic and Onion, and Tomato.
The Brer Rabbit brand currently offers mild and full-flavored molasses products and a black strap molasses product. Mild molasses is designed for table use and full-flavored molasses is typically used in baking, barbeque sauces and as a breakfast syrup. The Brer Rabbit brand currently holds the number two market share in the United States.
The Vermont Maid brand has been in existence since 1919 and we offer maple-flavored syrup under the brand name. Vermont Maid syrup is available in regular, lite and butter lite varieties. Vermont Maid is mainly distributed in New England.
We sell and distribute our products through a multiple-channel sales and distribution system including the following:
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We believe our presence in these channels allows us to distribute additional product volume cost effectively. We sell our brands primarily through broker sales networks to supermarket chains, food service outlets, mass merchants, warehouse clubs, non-food outlets and specialty food distributors. Our broker sales network handles the sale of our products at the customer level. Our sales managers supervise our broker activities as well as support our relationship with buyers from our key accounts. We distribute our products in the greater New York metropolitan area primarily through our direct-store-organization sales and distribution system, which we refer to as our DSO system. Our DSO system supports an organization of sales personnel who directly service over 2,000 individual grocery stores.
Processed Food Industry
The processed food industry is one of the United States' largest industries. Due to its maturity, it is characterized by relatively stable sales growth, based on modest price and population increases. Over the last several years, the industry has experienced consolidation as competitors have shed non-core business lines and made strategic acquisitions to complement category positions, maximize economies of scale in raw material sourcing, production and distribution. A series of large mergers over the last twenty years has led to the formation of a few, very large companies with a presence in a variety of branded product categories.
Retailers are demanding higher margins, while at the same time reducing inventory levels and increasing their emphasis on private label products in certain categories. The importance of sustaining strong relationships with retailers has become a critical success factor for food companies and is driving many initiatives such as category management and efficient customer response. These two initiatives focus on retailers' need to minimize inventory investment and maximize dollar sales for allocated store shelf space. Food companies with category leadership positions, value-added distribution and strong retail relationships have increasingly benefited from these initiatives as a way to maintain shelf space and maximize distribution efficiencies. In addition, the specialty foods, mass merchandiser, food service and private label markets and channels provide additional opportunities of growth for food companies.
Our Strengths
We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow due to the following competitive strengths:
Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Additionally, our leading market positions provide a platform from which we can introduce new products and extend existing product lines.
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The following table lists our brands with number one, two or three retail market position in their relevant markets for the 52 weeks ended December 28, 2003, according to Information Resources, Inc., a nationally recognized independent research service.
|
|
Retail Market Share |
|||||
---|---|---|---|---|---|---|---|
Brand |
|
||||||
Category(1) |
Share Position |
Percentage(2) |
|||||
B&M | Baked Beans | #3 National | 6.8 | % | |||
Bloch & Guggenheimer | Pickles and Relish | #1 Greater NY Metro | 33.2 | % | |||
Bloch & Guggenheimer | Peppers/Pimentos | #1 Greater NY Metro | 31.7 | % | |||
Brer Rabbit | Molasses | #2 National | 22.9 | % | |||
Las Palmas | Enchilada Sauce | #2 National #1 Los Angeles Metro |
34.3 76.4 |
% % |
|||
Maple Grove Farms of Vermont | Pure Maple Syrup | #2 National | 27.2 | % | |||
Polaner | All Fruit | #1 National | 46.3 | % | |||
Polaner | Wet Spices | #3 National | 15.9 | % | |||
Regina | Wine Vinegar | #2 National | 19.9 | % | |||
Ortega | Taco Sauce | #1 National | 42.2 | % | |||
Wright's | Liquid Smoke | #2 National | 35.0 | % | |||
Underwood | Deviled Meats | #2 National | 6.1 | % | |||
Ac'cent | All-natural Flavor Enhancer | Unique Product | N/A |
Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels. Our distribution efforts have focused on traditional supermarkets, food service outlets, mass merchants, warehouse clubs, non-food outlets, specialty food distributors and DSO channels. Our customers include The Kroger Co., Ahold USA, Safeway Inc., Wal-Mart Stores, Inc., SAM's CLUB, Costco Wholesale Corporation, SYSCO Corporation, US Food Service, Cracker Barrel Old Country Store, Gourmet Awards, Kehe Food Distributors, Inc., Hadden House Food Products Inc., Wakefern Food Corp., Pathmark Stores Inc. and Stop and Shop Supermarket Co. In recent years, we have expanded our distribution efforts to also include specialty distributors, food service, specialty markets and export channels. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Our diverse distribution channels have also contributed to our ability to maintain a broad customer base, with sales to our ten largest customers accounting for approximately 37.0% of our pro forma net sales in fiscal year 2003 and no single customer accounting for more than 6.1% of our pro forma net sales in fiscal year 2003. Our focused DSO system, concentrated in the greater New York metropolitan area, provides us with strong relationships at the fragmented independent and small chain food retailer level, superior store penetration and preferred shelf product placement. This sales and distribution system enables us to introduce and sell new products effectively to our existing grocery customers. In fiscal 2003, 9.9% of our net sales were in the greater New York metropolitan area.
Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Our management team has operated successfully within a leveraged capital structure and has developed and implemented a business strategy which has enabled us to become one of the more successful manufacturers and distributors of a diverse portfolio of shelf-stable branded food products. Our senior management team has a strong interest in our continued success and will continue to hold approximately % of our fully diluted common shares outstanding following this offering.
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Successful track record of acquisitions and integration. Since 1996, we have successfully acquired and integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Our management has demonstrated an ability to improve performance of acquired operations by expanding distribution channels, enlarging geographic reach, managing trade and promotional spending more effectively, improving packaging and introducing new product line extensions. Our acquisitions have broadened our product offerings, and expanded our geographic reach and many have significantly increased our net sales and free cash flow reach. We believe that our ability to achieve operating efficiencies and economies of scale has enabled us to acquire and integrate new acquisitions in a timelier manner than most of our competitors.
Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the three months ended January 3, 2004, our EBITDA margins were 19.0%, as compared to EBITDA margins of 17.0% during the comparable period in the prior year, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Historically, we have utilized debt and cash flow from operations to finance growth in our business, including our acquisitions and we have operated successfully with a leveraged capital structure. We have been able to maintain and increase our profitability and free cash flow due to our strong market positions, strong relationships with our customers and suppliers, minimal corporate overhead, efficient and flexible manufacturing and sourcing and focused promotional and marketing spending.
Business Strategy
Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives:
Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Consumer marketing support, which has been limited historically, can help us to increase our sales within existing distribution channels and attract new consumers to our portfolio of brands. Additional slotting can also help us to broaden the geographic distribution of certain of our brands.
Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system is one of our primary competitive strengths, allowing us to capitalize on growth opportunities quickly and efficiently. Our sales and distribution system enables us to introduce and sell new products effectively to existing and new customers. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Grocery retailers have been the traditional market for our products. We believe that there are certain other retail markets that have the potential to grow faster than the grocery retail industry as a whole and that these other markets present growth opportunities for our brands. These other retail markets include mass merchants, warehouse club stores, convenience stores, drug stores and food services.
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Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Our management has a demonstrated capability of introducing new products, including Emeril's branded products, Cozy Cottage Sugar-free Syrup, the Polaner Sugar-free line and Underwood Premium Chunk Chicken Breast. We believe we are quicker and more economical in developing and launching new products than most traditional processed food companies as evidenced by our successful launch of our Emeril's branded products within four months of the product line's conception and its profitability in its first year of introduction.
Capitalize on higher growth Mexican segment of food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins enabling us to leverage our distribution platform. With the acquisition of Ortega, we have established a strong national presence in the Mexican food segment. Combined with our Las Palmas and Trappey's brands, we are well-positioned to capitalize on this ethnic foods segment, which is expected to grow at a faster rate than the food industry as a whole. During the three months ended January 3, 2004, the first full fiscal quarter following the acquisition of Ortega, we have been able to increase Ortega's net sales by over 15.8% versus the comparable prior year period when the business was not owned by us.
Expand brand portfolio with new licensing arrangements. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. By selling Emeril's branded products to specialty food distributors in addition to grocery retailers, we were able to grow sales of Emeril's branded products since their introduction in September 2000 to $25.4 million in fiscal 2003. We intend to pursue additional licensing arrangements with third parties to introduce and market other products and to build on the success we achieved with our Emeril's line. See "Trademarks and Licensing Agreements."
Acquisition Strategy
Since 1996, we have successfully acquired and integrated 16 separate brands into our operations. We believe we are an attractive acquirer for small to mid-size independent food companies and brands and non-core divisions of larger processed food companies who have made a strategic decision to divest those properties. Successful future acquisitions can enhance our portfolio of existing businesses, further leveraging our existing platform.
We intend to make selective acquisitions of processed food companies and non-core brands of larger processed food companies that have the following characteristics:
We have a disciplined approach and significant experience identifying, evaluating, acquiring, and integrating prospective acquisition targets. For each acquisition we have completed, we have utilized a multi-discipline internal task force with expertise in sourcing, manufacturing, distribution, billing, human resources and information technology as a means to quickly and successfully integrate acquired companies into our operations. For example, following our recent acquisition of the Ortega line of products, we integrated the entire business into our existing business within the first 30 days following the close of the acquisition. During the three months ended January 3, 2004, the first full fiscal quarter following the acquisition of Ortega, we have been able to increase net sales of the Ortega line of
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products by over 15.8% versus the comparable prior year period when the business was not owned by us. Additionally, we were able to expand our EBITDA margin to 19.0%, compared to our EBITDA margin of 17.0% in the prior year period. We intend to continue to pursue acquisitions in which we believe we have opportunities to realize sales, earnings and free cash flow growth.
The following table lists our acquisitions completed since 1996:
Year Acquired |
Company |
Brands |
Purchase Price(1) (Dollars in millions) |
||||
---|---|---|---|---|---|---|---|
2003 |
Ortega |
Ortega |
$ |
118.2 |
|||
1999 |
Heritage Brands |
B&M |
$ |
194.1 |
|||
Underwood |
|||||||
Ac'cent |
|||||||
Joan of Arc |
|||||||
Sa-són |
|||||||
Las Palmas |
|||||||
1999 |
Polaner |
Polaner |
$ |
30.6 |
|||
1998 |
Maple Grove Farms of Vermont |
Maple Grove Farms of Vermont |
$ |
32.8 |
|||
1997 |
Trappey's Brands |
Trappey's |
$ |
12.5 |
|||
Red Devil |
|||||||
1997 |
Selected Nabisco Brands |
Regina |
$ |
50.6 |
|||
Wright's |
|||||||
Brer Rabbit |
|||||||
Vermont Maid |
|||||||
1996 |
Bloch & Guggenheimer and Burns & Ricker |
Bloch & Guggenheimer Burns & Ricker® (2) |
$ |
70.0 |
|||
Sales, Marketing and Distribution
Sales. Our sales organization is aligned by distribution channels and consists of 87 employees, 22 regional sales managers and key account managers. Regional sales managers sell our products nationwide through national and regional food brokers, with separate organizations focusing on specialty, food service, grocery chain accounts and special markets. Our sales managers coordinate our broker sales efforts and make key account calls with buyers or distributors and supervise retail coverage of the products at the store level through brokers.
Our sales strategy is centered around the individual brands. We set quotas for our sales force and allocate promotional spending for each of the brands. Regional sales managers coordinate promotions with customers. Additionally, our marketing department works in conjunction with the sales department to coordinate special account activities and marketing support, such as couponing and public relations.
Over the past several years, we established a national sales force that is capable of supporting our current business as well as potential new acquisitions. We have primarily developed our national sales force internally, and did not integrate sales and marketing personnel from acquired companies in connection with most of our brand acquisitions. In the case of the Maple Grove Farms of Vermont
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acquisition, management retained the brand's sales force to serve the specialty channel related to that brand and for future specialty-oriented brands that we might develop, license or acquire in the future. This same sales force subsequently launched the Emeril's brand. The current national sales force is very experienced and was able to integrate Ortega within 30 days following the close of the acquisition.
Our DSO sales force consists of seven managers and 32 sales representatives that work with individual stores in the New York metropolitan area. These sales representatives visit the 2,000 stores within the DSO area on a weekly or bi-weekly basis.
Marketing. Our marketing organization is aligned by brand and is responsible for the strategic planning for each of our brands. We focus on deploying promotional dollars where the spending will have the greatest impact. Marketing and trade spending support, on a national basis, typically consists of advertising trade promotions, coupons and cross-promotions with supporting products. Marketing support for the products distributed through the DSO system consists primarily of trade promotions aimed at gaining display activity to produce impulse sales. Consumer promotion and coupons supplement this activity. Our trade spending has remained stable as a percent of sales throughout fiscal 2002 and fiscal 2003, countering industry trends. Our rigorous in-house system tracks spending through the planning and execution phases and is used as a check on customer invoicing and deductions, as well. This system has allowed us to address rapidly any unauthorized deductions, improving the chance of recovering funds.
Distribution. We distribute our products through a multiple-channel system that we have developed as we have grown our business. The system operates primarily from three major distribution centers, which ship approximately 72% of orders on a full truckload basis via common carriers. We believe our distribution system has sufficient capacity to accommodate incremental product volume in a cost-effective manner, as demonstrated recently in the Ortega acquisition.
Customers
Our top ten customers accounted for approximately 37% of our fiscal 2003 pro forma net sales and no single customer accounted for more than 6.1% of our fiscal 2003 pro forma net sales.
Seasonality
Sales of a number of our products tend to be seasonal. In the aggregate, however, our sales are not heavily weighted to any particular quarter due to the diversity of our product and brand portfolio.
We purchase most of the produce used to make our shelf-stable pickles, relishes, peppers and other related specialty items during the months of July through October, and we purchase all of our maple syrup requirements during the months of April through July. Consequently, our liquidity needs are greatest during these periods.
Competition
We face competition in each of our product lines. Numerous brands and products compete for shelf space and sales, with competition based primarily on product quality, convenience, price, trade promotion, consumer promotion, brand recognition and loyalty, customer service, advertising and other activities and the ability to identify and satisfy emerging consumer preferences. We compete with numerous companies of varying sizes, including divisions or subsidiaries of larger companies. Many of these competitors have multiple product lines, substantially greater financial and other resources available to them and may have lower fixed costs and/or be substantially less leveraged than we. Our ability to grow our business could be impacted by the relative effectiveness of, and competitive response to, our product initiatives, product innovation, advertising and promotional activities. In addition, from time to time, we experience margin pressure in certain markets as a result of competitors' pricing practices.
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Our most significant competitors for our pickles and peppers products are Vlasic® and Mt. Olive® branded products. In addition, J.M. Smucker is the main competitor for our fruit spread products marketed under the Polaner label. The Maple Grove Farms of Vermont pure maple syrup competes directly with the SpringTree brand in the pure maple syrup category. Our Vermont Maid syrup products, also has a number of competitors in the general pancake syrup market, including Aunt Jemima®, Mrs. Buttersworth and Log Cabin®. The B&M Baked Bean and Joan of Arc products compete with Bush's® brand products. Ortega products compete with the Old El Paso® and Taco Bell® brands.
In addition, our products compete not only against other brands in their respective product categories, but also against products in similar or related product categories. For example, our shelf-stable pickles compete not only with other brands of shelf-stable pickles, but also with products found in the refrigerated sections of grocery stores, and all our brands compete against private label store brands to varying degrees.
Facilities and Production
Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, NJ 07054 in an office building where we lease approximately 21,000 square feet.
Our manufacturing plants are generally located near major customer markets and raw materials. Of our six manufacturing facilities, five are owned and one is leased, as of January 3, 2004. Approximately 124,000 square feet of our manufacturing facility space is leased. Management believes that our manufacturing plants have sufficient capacity to accommodate our planned growth. As of January 3, 2004, we operated the manufacturing and warehouse facilities described in the table below:
Facility Location |
Owned/ Leased |
Description |
Approximate Sq. Ft. |
|||
---|---|---|---|---|---|---|
Hurlock, MD | Owned | Manufacturing/Warehouse | 236,000 | |||
Portland, ME | Owned | Manufacturing/Warehouse | 225,000 | |||
New Iberia, LA | Owned | Manufacturing/Warehouse | 158,000 | |||
Stoughton, WI | Owned | Manufacturing/Warehouse | 65,000 | |||
St. Johnsbury, VT | Owned | Manufacturing/Warehouse | 200,000 | |||
Hurlock, MD | Owned | Warehouse | 80,000 | |||
St. Evariste, Quebec | Owned | Storage Facility | 50,000 | |||
Sharptown, MD | Owned | Storage Facility | 3,000 | |||
Parsippany, NJ | Leased | Headquarters | 21,000 | |||
Roseland, NJ | Leased | Manufacturing/Warehouse | 124,000 | |||
La Vergne, TN | Leased | Distribution Center | 175,000 | |||
Houston, TX | Leased | Distribution Center | 104,000 | |||
Biddeford, ME | Leased | Distribution Center | 117,835 | |||
Seaford, DE | Leased | Distribution Center | 210,000 | |||
Bentonville, AR | Leased | Sales Office | 1,040 |
Co-Packing Arrangements. In addition to our own manufacturing plants, we source a significant portion of our products under "co-packing" agreements, a common industry practice in which manufacturing is outsourced to other companies. We regularly evaluate our co-packing arrangements to ensure the most cost effective manufacturing of our products and to utilize Company-owned manufacturing facilities most effectively. Third parties produce Regina, Underwood, Las Palmas and Joan of Arc brand products and certain Emeril's and Ortega brand products under co-packing agreements or purchase orders. Underwood brand products are produced pursuant to a co-packing agreement that expires December 31, 2006, with automatic one-year extensions thereafter unless either party provides at least one year's prior notice. Las Palmas brand products are produced under a co-packing agreement that expires on December 31, 2005, with automatic one-year extensions thereafter unless either party provides at least nine months' prior notice. Joan of Arc brand products
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are produced under a co-packing agreement that continues in effect unless either party provides written notice to the other party at least eighteen months in advance of a specified final shipment date. Regina brand products and certain Emeril's brand products are produced by co-packers on a purchase order basis. Ortega brand salsa and peppers are co-packed under agreements that expire on December 31, 2006 (after which we have three one-year extension options) and June 30, 2004 (with two automatic one-year extensions), respectively. Each of our co-packers produces products for other companies as well. We believe that there are alternative sources of co-packing production readily available for our products, although we may experience short term disturbances in our operations if we are required to change our co-packing productions.
Raw Materials
We purchase agricultural products and other raw materials from a variety of suppliers, including growers, commodity processors and other food companies. Our principal raw materials include peppers, cucumbers, other vegetables, fruits, maple syrup, meat and poultry. We purchase our agricultural raw materials in bulk or pursuant to short-term supply contracts. We purchase most of our agricultural products between July 1 and October 31. We also use packaging materials, particularly glass jars and cans.
The profitability of our business relies in part on the prices of raw materials, which can fluctuate due to a number of factors, including changes in crop size, national, state and local government-sponsored agricultural programs, export demand, natural disasters, weather conditions during the growing and harvesting seasons, general growing conditions and the effect of insects, plant diseases and fungi. Although we enter into advance commodities purchase agreements from time to time, we are still exposed to potential increases in raw material costs. Moreover, due to the competitive environment in which we operate, we may be unable to increase the prices of our products to offset any increase in the cost of raw materials. As a result, any such increase could have a material adverse effect on our profitability, financial condition, results of operations or liquidity.
Trademarks and Licensing Agreements
We own 122 trademarks that are registered in the United States and 241 trademarks that are registered in foreign countries. In addition, we have nine trademark applications pending in the United States and foreign countries. Examples of our trademarks and registered trademarks include Ac'cent, B&G, B&G Sandwich Toppers, B&M, Bloch & Guggenheimer, Brer Rabbit, Cozy Cottage, Joan of Arc, Las Palmas, Maple Grove Farms of Vermont, Ortega, Polaner, Regina, Sa-són, Trappey's, Underwood, Vermont Maid and Wright's. We consider our trademarks to be of special significance in our business. We are not aware of any circumstances that would negatively impact our trademarks. Our new revolving credit facility will be secured by substantially all of our assets, including our rights to our intellectual property.
In June 2000 we entered into a license agreement with Emeril's Food of Love Productions, L.L.C. (EFLP). This license agreement grants us an exclusive license to use the intellectual property owned by EFLP relating to Mr. Lagasse, including the name "Emeril Lagasse" and pictures, photographs and other personality material, in connection with the manufacturing, marketing and distribution of dry seasoning, liquid seasoning, condiments, sauces, dressings and certain other products through retail channels in the United States, the Caribbean and Canada. We also have the right of first negotiation with respect to other shelf-stable grocery products. Under the license agreement, EFLP owns all of the recipes that it provides to us and all of our Emeril's brand products and related marketing materials are subject to the prior approval of EFLP, which may not be unreasonably withheld. In addition, we are prohibited from entering into similar arrangements with other chefs or celebrities in connection with any of the products covered by our agreement with EFLP.
The license agreement has been extended through June 2005 and is subject to extension and renewal at our option for an indefinite period if we meet specified annual net sales results. Among other things, we are obligated to introduce and market new products in each year of the license
70
agreement and to pay EFLP royalties based on annual net sales of our Emeril's brand products. The license agreement may be terminated by EFLP if we are in breach or default of any of our material obligations thereunder. We have also agreed to indemnify EFLP with respect to claims under the license agreement, including claims relating to any alleged unauthorized use of any mark, personality or recipe by us in connection with the products in the Emeril's line of products.
Employees and Labor Relations
As of January 3, 2004, our workforce consisted of 774 employees. Of that total, 529 employees were engaged in manufacturing, 97 were engaged in marketing and sales, 115 were engaged in distribution and 33 were engaged in administration. Approximately 289 of our 774 employees, as of January 3, 2004, were covered by collective bargaining agreements. In general, we consider our employee and union relations to be good.
Legal Proceedings
In the ordinary course of business, we are involved in various legal proceedings. We do not believe the outcome of these proceedings will have a material adverse effect on our consolidated financial condition, results of operations or liquidity.
In January 2002, we were named as a third-party defendant in an action regarding environmental liability under the Comprehensive Environmental Response, Compensation and Liability Act, or Superfund, for alleged disposal of waste by White Cap Preserves, an alleged predecessor of our company, at the Combe Fill South Landfill, a Superfund site. In February 2003, we paid $0.1 million in settlement of all asserted claims arising from this matter, and in March 2003 a bar order was entered by the United States District Court for the District of New Jersey protecting us, subject to a limited re-opener clause, from any claims for contribution, natural resources damages and certain other claims related to the action until such time that the litigation is dismissed. The $0.1 million and a portion of the legal fees were reimbursed by the purchaser of White Cap Preserves pursuant to an indemnity wherein they acquired that liability.
Government Regulation
Our operations are subject to extensive regulation by the United States Food and Drug Administration, the United States Department of Agriculture and other federal, state and local authorities regarding the processing, packaging, storage, distribution and labeling of our products. Our processing facilities and products are subject to periodic inspection by federal, state and local authorities. We believe that we are currently in substantial compliance with all material governmental laws and regulations and maintain all material permits and licenses relating to our operations. Nevertheless, there can be no assurance that the we are in full compliance with all such laws and regulations or that we will be able to comply with any future laws and regulations in a cost-effective manner. Failure by us to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, all of which could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
We are also subject to the Food, Drug and Cosmetic Act and the regulations promulgated thereunder by the FDA. This comprehensive regulatory program governs, among other things, the manufacturing, composition and ingredients, labeling, packaging and safety of food. For example, the FDA regulates manufacturing practices for foods through its current "good manufacturing practices" regulations and specifies the recipes for certain foods. In addition, the Nutrition Labeling and Education Act of 1990 prescribes the format and content of certain information required to appear on the labels of food products. We are subject to regulation by certain other governmental agencies, including the U.S. Department of Agriculture. Our management believes that our facilities and
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practices are sufficient to maintain compliance with applicable governmental regulations, although there can be no assurances in this regard.
We are also subject to the U.S. Bio-Terrorism Act of 2002 which imposes on us new import and export regulations. Under the Act, among other things, we are required to provide specific information about the food products we ship into the U.S. and to register our manufacturing facilities with the FDA.
Environmental Matters
Except as described below, we have not made any material expenditures during the last three fiscal years in order to comply with environmental laws or regulations. Based on our experience to date, we believe that the future cost of compliance with existing environmental laws and regulations (and liability for known environmental conditions) will not have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity, except as noted below. However, we cannot predict what environmental or health and safety legislation or regulations will be enacted in the future or how existing or future laws or regulations will be enforced, administered or interpreted, nor can we predict the amount of future expenditures that may be required in order to comply with such environmental or health and safety laws or regulations or to respond to such environmental claims.
On January 17, 2001, we became aware that fuel oil from our underground storage tank at our Roseland, New Jersey facility had been released into the ground and into a brook adjacent to such property. Since January 17, 2001, together with our environmental services firms, we have worked to clean-up the oil in cooperation with the New Jersey Department of Environmental Protection (NJDEP). After completion of the work we submitted our findings to the NJDEP along with recommendations for no further action. The NJDEP responded that additional investigation was required before it could agree to the no further action recommendations. The additional work has been conducted and we are awaiting the NJDEP's response. While the NJDEP could assert that more work is required, the cost of such work is not expected to have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
We recorded a charge of $1.1 million in the first quarter of fiscal 2001 to cover the expected cost of the clean-up, which approximates the actual amount spent as of December 29, 2001. In the third quarter of fiscal 2001, we received an insurance reimbursement of $0.2 million and accrued an additional $0.1 million for certain remaining miscellaneous expenses. Our management believes that substantially all estimated expenses relating to this matter have been incurred and paid as of January 3, 2004.
In January 2002, we were named as a third-party defendant in an action regarding environmental liability under the Comprehensive Environmental Response, Compensation and Liability Act, or Superfund, for alleged disposal of waste by White Cap Preserves, an alleged predecessor of our company, at the Combe Fill South Landfill in New Jersey, a Superfund site. In February 2003, we paid $0.1 million in settlement of all asserted claims arising from this matter and in March 2003, a bar order was entered by the United States District Court for the District of New Jersey protecting us, subject to a limited re-opener clause, from any claims for contribution, natural resources damages and certain other claims related to the action until such time that the litigation is dismissed. The $0.1 million and a portion of the legal fees were reimbursed by the purchaser of White Cap Preserves pursuant to an indemnity wherein they acquired that liability.
We are involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of our management, the ultimate disposition of these other matters will not have a material adverse effect on our business, consolidated financial position, results of operations or liquidity.
We are subject to environmental regulations in the normal course of business. Our management believes that the cost of compliance with such regulations will not have a material adverse effect on our business, consolidated financial position, results of operations or liquidity.
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Executive Officers and Directors
The following table sets forth certain information with respect to our executive officers and the members of our Board of Directors. Other officers may also be appointed to fill certain positions. Each of our directors holds office until the next annual meeting of our stockholders or until his successor has been elected and qualified.
Name |
Age |
Position |
||
---|---|---|---|---|
Leonard S. Polaner | 72 | Chairman of the Board of Directors of B&G Foods | ||
David L. Wenner | 54 | President, Chief Executive Officer and Director of B&G Holdings and B&G Foods | ||
Robert C. Cantwell | 47 | Executive Vice President of Finance and Chief Financial Officer of B&G Holdings and B&G Foods | ||
David H. Burke | 62 | Executive Vice President of Sales of B&G Foods | ||
James H. Brown | 61 | Executive Vice President of Manufacturing of B&G Foods | ||
Albert J. Soricelli, Jr. | 51 | Executive Vice President of Marketing and Strategic Planning of B&G Foods | ||
Thomas J. Baldwin | 44 | Director B&G Holdings and B&G Foods | ||
William F. Callahan III | 62 | Director of B&G Foods | ||
James R. Chambers | 46 | Director of B&G Foods | ||
Nicholas B. Dunphy | 55 | Director of B&G Holdings and B&G Foods | ||
Alfred Poe | 54 | Director of B&G Foods | ||
Stephen C. Sherrill | 50 | Director of B&G Holdings and B&G Foods |
Leonard S. Polaner, Chairman of the Board: Leonard Polaner has been Chairman of the Board of B&G Foods since March 1993 when the Polaner business was sold to International Home Foods, Inc. Prior to that time, Mr. Polaner was the President and Chief Executive Officer of Polaner/B&G Inc., positions which he assumed upon joining the company in 1986. Mr. Polaner began his career in the food products industry in 1956 when, after earning his Masters Degree from Harvard Business School, he joined Polaner, a family-run business. He has been active in many industry trade groups, including the New York Preservers Association, where he served as President, and the International Jelly and Preservers Association, where he served as President and a member of the Board of Directors.
David L. Wenner, President, Chief Executive Officer and Director: David Wenner is President and Chief Executive Officer of B&G Holdings and B&G Foods, positions he has held since March 1993, and has been a director of B&G Holdings and B&G Foods since August 1997. Mr. Wenner joined our company in 1989 as Assistant to the President and was directly responsible for our distribution and Bloch & Guggenheimer operations. In 1991, he was promoted to Vice President. He continued to be responsible for distribution and assumed responsibility for all company operations. Prior to joining our company, Mr. Wenner spent 13 years at Johnson & Johnson in supervision and management positions, responsible for manufacturing, maintenance and purchasing. Mr. Wenner is active in industry trade groups and has served as President of Pickle Packers International.
Robert C. Cantwell, Executive Vice President of Finance and Chief Financial Officer: Robert Cantwell is the Executive Vice President of Finance and Chief Financial Officer of B&G Holdings and B&G Foods. Mr. Cantwell joined our company in 1983 as the Assistant Vice President of Finance. In that position, Mr. Cantwell had responsibility for all financial reporting, including budgeting.
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Mr. Cantwell was promoted to his current position in 1991, assuming full responsibility for all financial matters, as well as management information systems, data processing, administration and corporate human resources. Prior to joining us, Mr. Cantwell spent four years at Deloitte & Touche, where he received accreditation as a Certified Public Accountant.
David H. Burke, Executive Vice President of Sales: David Burke is Executive Vice President of Sales of B&G Foods. Mr. Burke has an extensive background with major consumer products companies. His experience includes eight years with Procter & Gamble in sales and sales management and 12 years at Quaker Oats, where he was a Regional Sales Manager and later Director of Broker Sales. Mr. Burke also spent four years with Pet Inc. as Vice President of sales for their frozen foods business. Mr. Burke joined our company in 1990 as Vice President of Sales and was and continues to be responsible for sales of all our company's brands.
James H. Brown, Executive Vice President of Manufacturing: James Brown is Executive Vice President of Manufacturing of B&G Foods and has 28 years of experience in manufacturing with our company and Polaner. Mr. Brown has been responsible for all manufacturing at the Roseland facility since 1981. In 1994, he assumed responsibility for our company's other manufacturing facilities. Prior to joining Polaner in 1972, Mr. Brown worked at Kraft Foods for two years as a project engineer and spent four years in the U.S. Navy.
Albert J. Soricelli, Jr. Executive Vice President of Marketing & Strategic Planning: Albert Soricelli is Executive Vice President of Marketing and Strategic Planning of B&G Foods. Prior to joining our company in 2000, Albert Soricelli held various executive positions in the food and consumer products industry. Mr. Soricelli spent 18 years at American Home Foods in Madison, New Jersey where he held the position of Senior Vice President/General Manager. More recently, Mr. Soricelli served as President, Consumer Division, of Nice Pak Inc. in Orangeburg, New York, a baby wipe and wet wipe consumer product company. As Executive Vice President of Marketing & Strategic Planning for our company, Mr. Soricelli is responsible for marketing, acquisitions and divestitures.
Thomas J. Baldwin, Director: Thomas Baldwin has been a director of B&G Holdings and B&G Foods since 1997. Since March 2000, Mr. Baldwin has been a Managing Director of Bruckmann, Rosser, Sherrill & Co., Inc. From 1995 until February 2000, Mr. Baldwin was the Chief Executive Officer and a founding stockholder of Christmas Corner, Inc., a specialty retail chain that owns and operates seasonal Christmas stores. From 1990 until 1995, Mr. Baldwin was a Managing Director of the leveraged buyout firm Invus Group, Ltd. Mr. Baldwin is a director of The Sheridan Group, Inc.
William F. Callahan III, Director: William Callahan has been a director of B&G Foods since our company acquired Maple Grove Farms of Vermont, Inc. in 1998. Prior to that, Mr. Callahan was the Chief Executive Officer and owner of Maple Grove Farms of Vermont, Inc. Mr. Callahan began his career in the specialty foods business in 1975 when he acquired Maple Grove Farms of Vermont, Inc. Prior to such acquisition, Mr. Callahan was Vice President, Sales of Blyth, Eastman, Dillon and Co. in New York and a trial attorney for the U.S. Securities and Exchange Commission in New York. Mr. Callahan is a graduate of Georgetown University and the Boston University Law School. He has served as a member of the State of Vermont Chamber of Commerce, a member of the Vermont Maple Industry Council and the State of Vermont Agriculture Commissioner's Task Force.
James R. Chambers, Director: James Chambers has been a director of B&G Foods since 2001. Mr. Chambers is President and Chief Executive Officer of Remy Amerique, Inc., a subsidiary of Remy Cointreau. Prior to Remy, Mr. Chambers was Chief Executive Officer of Paxonix, Inc., a wholly owned subsidiary of MeadWestvaco Inc. from 2001 to 2002. During 2000, he was Chief Executive Officer and President of Netgrocer.com, Inc., an online grocery retailer. Prior to that, Mr. Chambers was Group President of Information Resources, Inc., one of the largest research consultancies in the United States, from 1997 to 1999. From 1981 through 1996, Mr. Chambers held various positions with Nabisco, Inc.,
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including President-Refrigerated Foods, Senior Vice President of Sales and Customer Service and Vice President, Information Technology.
Nicholas B. Dunphy, Director: Nicholas Dunphy has been a director of B&G Holdings and B&G Foods since 2000. Mr. Dunphy is a Managing Partner of Canterbury Capital II, LLC, with more than 20 years' business and investment banking experience. Prior to co-founding Canterbury Capital II, LLC, in 1996, he was a managing director and founding partner of Barclays Mezzanine Group. Before joining Barclays in 1980, Mr. Dunphy qualified as a Chartered Accountant in Canada and subsequently spent five years with Toronto Dominion Bank. Mr. Dunphy earned a B.Sc. from Manchester University in England and a Masters in Business Administration from York University in Canada.
Alfred Poe, Director: Alfred Poe has been a director of B&G Foods since 1997. He is currently the Chief Executive Officer of Aja Restaurant Corp., serving as such since 1999. He was the Chief Executive Officer of Superior Nutrition Corporation, a provider of nutrition products, from 1997 to 2002. He was Chairman of the Board of the MenuDirect Corporation, a provider of specialty meals for people on restricted diets, from 1997 to 1999. Mr. Poe was a Corporate Vice President of Campbell's Soup Company from 1991 through 1996. From 1993 through 1996, he was the President of Campbell's Meal Enhancement Group. From 1982 to 1991, Mr. Poe held various positions, including Vice President, Brands Director and Commercial Director with Mars, Inc.
Stephen C. Sherrill, Director: Stephen Sherrill has been a director of B&G Holdings and B&G Foods since 1997. Mr. Sherrill has been a Managing Director of Bruckmann, Rosser, Sherrill & Co., Inc. since its formation in 1995. Mr. Sherrill was an officer of Citicorp Venture Capital from 1983 until 1994. Prior to that, he was an associate at the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison. Mr. Sherrill is a director of Galey & Lord, Inc., Doane Pet Care Enterprises, Inc., Remington Arms Company, Inc. and Alliance Laundry Systems LLC.
Committees of the Board
The standing committees of our board of directors will consist of an audit committee, a compensation committee and a corporate governance committee. We anticipate that each of and will be appointed to each of the committees listed below upon completion of this offering. Messrs. and are both "independent" as defined in the rules of the Securities and Exchange Commission and the American Stock Exchange as such term relates to the relevant board of director committees. Further, the Board of Directors have determined that is an "audit committee financial expert" as defined by the rules of the Securities and Exchange Commission and the American Stock Exchange.
Audit Committee
The principal duties and responsibilities of our audit committee will be as follows:
The audit committee will have the power to investigate any matter brought to its attention within the scope of its duties. It will also have the authority to retain counsel and advisors to fulfill its responsibilities and duties.
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Compensation Committee
The principal duties and responsibilities of the compensation committee will be as follows:
Nominating and Governance Committee
The principal duties and responsibilities of the nominating and governance committee will be as follows:
Director Compensation and Arrangements
Non-employee members of our Board of Directors receive compensation for their services as directors in the amount of $1,000 to $2,000 per meeting of the Board of Directors. Our directors are entitled to reimbursement of their reasonable out-of-pocket expenses in connection with their travel to and attendance at meetings of the Board of Directors or committees thereof.
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Executive Compensation
The following table sets forth certain information with respect to annual and long-term compensation for services in all capacities for fiscal years 2003, 2002 and 2001 paid to our five most highly compensated executive officers who were serving as such at January 3, 2004.
|
Annual Compensation |
|
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name and Principal Position |
Long-Term Compensation(3) |
All Other Compensation(4) |
||||||||||||||
Year |
Salary |
Bonus(1) |
Other(2) |
|||||||||||||
David L. Wenner President and Chief Executive Officer |
2003 2002 2001 |
$ |
325,111 299,621 274,573 |
$ |
325,500 250,005 275,000 |
$ |
10,000 10,000 10,000 |
|
$ |
6,000 6,000 5,100 |
||||||
Robert C. Cantwell Executive Vice President of Finance and Chief Financial Officer |
2003 2002 2001 |
$ |
241,132 229,854 216,688 |
$ |
175,000 139,653 159,600 |
$ |
10,000 10,000 10,000 |
|
$ |
6,000 6,000 5,100 |
||||||
David H. Burke Executive Vice President of Sales of B&G Foods |
2003 2002 2001 |
$ |
233,102 222,102 209,698 |
$ |
163,100 129,502 147,000 |
$ |
10,000 10,000 10,000 |
|
$ |
6,000 6,000 5,100 |
||||||
Albert J. Soricelli Executive Vice President of Marketing and Strategic Planning of B&G Foods |
2003 2002 2001 |
$ |
224,871 212,852 199,525 |
$ |
157,500 124,253 140,000 |
$ |
10,000 10,000 10,000 |
700 |
$ |
6,000 6,000 5,100 |
||||||
James H. Brown Executive Vice President of Manufacturing of B&G Foods |
2003 2002 2001 |
$ |
201,332 191,640 181,294 |
$ |
145,600 116,669 133,000 |
$ |
13,101 12,350 12,350 |
|
$ |
6,000 6,000 5,100 |
Annual Bonus Plan
We maintain an annual bonus plan that provides for annual incentive awards to be made to key executives upon our company's attainment of pre-set annual financial objectives. The amount of the annual award to each executive is based upon a percentage of the executive's annualized base salary. Awards are normally paid in cash in a lump sum following the close of each plan year. Executives generally must be employed on the last day of a plan year to receive an award, however, the plan provides for proration of awards in the event of certain circumstances such as the executive's promotion or demotion, death or retirement.
Stock Option Plan
In order to attract, retain and motivate selected employees and officers of our company, we adopted the B&G Foods Holdings Corp. 1997 Incentive Stock Option Plan for our and our subsidiaries' key employees. The option plan authorizes for grant to key employees and officers options for up to 6,700 shares of our common stock. The option plan authorizes us to grant either (i) options
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intended to constitute incentive stock options under the Internal Revenue Code of 1986 or (ii) non-qualified stock options. The option plan provides that it may be administered by the Company's board of directors. Options granted under the option plan will be exercisable in accordance with the terms established by our board of directors. Upon the occurrence of a change in control as defined in the option plan any unvested outstanding options accelerate and become immediately exerciseable in full. Under the option plan, the board of directors determines the exercise price of each option granted, which in the case of incentive stock options, cannot be less than fair value. All option grants have been made at fair value as determined by a third party valuation. Options will expire on the date determined by the company's board of directors, which may not be later than the tenth anniversary of the date of grant. The options vest ratably over five years. During fiscal year 2001, options to purchase 700 shares of our common stock were granted to Albert Soricelli. No other options were granted during fiscal year 2001 and no options were granted during fiscal 2002 or 2003. As of January 3, 2004, options to purchase 6,625 shares of our common stock, all of which were incentive stock options, had been granted since the inception of the option plan.
Aggregate Option Exercises and Fiscal Year-End Option Value
The following table sets forth certain information regarding options held by the named executive officers at January 3, 2004. None of the named executive officers exercised any options during fiscal 2003.
|
Number of Shares of Class B Common Stock Underlying Unexercised Options at Fiscal Year End |
Value of Unexercised In-the-Money Options at Fiscal Year End |
||||||
---|---|---|---|---|---|---|---|---|
|
Exercisable |
Unexercisable |
Exercisable |
Unexercisable |
||||
David L. Wenner | 700 | | ||||||
Robert C. Cantwell | 700 | | ||||||
David H. Burke | 700 | | ||||||
Albert J. Soricelli, Jr. | 420 | 280 | ||||||
James H. Brown | 700 | |
Compensation Committee Interlocks and Insider Participation
Our board of directors has appointed a compensation committee comprised of Mr. Sherrill and Mr. Baldwin. Mr. Sherrill is a former officer of our company, although he received no compensation in such capacity. Mr. Baldwin is not and has not been an officer of our company. Each of Mr. Sherrill and Mr. Baldwin is a managing director of Bruckmann, Rosser, Sherrill & Co., Inc.
401(k) Plan
We maintain a tax-qualified defined contribution plan with a cash or deferred arrangement intended to qualify under Section 401(k) of the Internal Revenue Code of 1986. Our employees become eligible to participate in the plan upon reaching age 21 and completing one year of employment with us. Each participant in the plan may elect to defer, in the form of contributions to the plan, up to 75.0% of compensation that would otherwise be paid to the participant in the applicable year, which percentage may be increased or decreased by the administrative committee of the plan, but is otherwise not to exceed the statutorily prescribed annual limit ($12,000 in 2003 if the participant is under age 50, and $14,000 in 2003 if age is 50 or over). We make a 50.0% matching contribution with respect to each participant's elective contributions, up to six percent of such participant's compensation. Matching contributions vest over a rolling five-year period.
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Pension Plan
|
Estimated Annual Pension |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Remuneration |
(Years of Service) |
||||||||||||||
15 |
20 |
25 |
30 |
35 |
|||||||||||
$ 40,000 | $ | 4,500 | $ | 6,000 | $ | 7,500 | $ | 9,000 | $ | 10,500 | |||||
$ 60,000 | $ | 7,712 | $ | 10,283 | $ | 12,853 | $ | 15,424 | $ | 17,994 | |||||
$ 80,000 | $ | 11,162 | $ | 14,883 | $ | 18,603 | $ | 22,324 | $ | 26,044 | |||||
$100,000 | $ | 14,612 | $ | 24,083 | $ | 24,353 | $ | 29,224 | $ | 34,094 | |||||
$120,000 | $ | 18,062 | $ | 24,083 | $ | 30,103 | $ | 36,124 | $ | 42,144 | |||||
$140,000 | $ | 21,512 | $ | 28,683 | $ | 35,853 | $ | 43,024 | $ | 50,194 | |||||
$160,000 | $ | 24,962 | $ | 33,283 | $ | 41,603 | $ | 49,924 | $ | 58,244 | |||||
$180,000 | $ | 28,412 | $ | 37,883 | $ | 47,353 | $ | 56,824 | $ | 66,294 | |||||
$200,000 | $ | 31,862 | $ | 42,483 | $ | 53,103 | $ | 63,724 | $ | 74,344 |
Benefits under the plan are calculated generally under a formula of 0.75% of final average earnings, plus an additional 0.4% of final average earnings in excess of a 35-year average Social Security taxable wage base, in each case, multiplied by service limited to 35 years. The compensation covered by the pension plan is W-2 earnings and any amounts contributed to any tax qualified profit sharing plan or cafeteria plan, with compensation limited to $200,000 as required by Section 401(a)(17) of the Internal Revenue Code of 1986. As of January 3, 2004, the years of credited service for each of the executive officers named in the summary compensation table above were: Mr. Wenner, 14; Mr. Cantwell, 20; Mr. Burke, 13; Mr. Brown, 16; and Mr. Soricelli, four. The benefits listed in the pension plan table are not subject to deduction for Social Security or other offset amounts.
Equity Compensation Plan Information
The following table provides information about our common stock that may be issued upon the exercise of stock options and stock units under all of our equity compensation plans in effect as of January 3, 2004.
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|
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Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
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Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |
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Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights |
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Plan Category |
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(a) |
(b) |
(c) |
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Equity compensation plans approved by security holders | 6,625 | $ | 10.00 | 75 | ||||
Equity compensation plans not approved by security holders | 688 | $ | 10.00 | 0 | ||||
Total | 7,313 | $ | 10.00 | 75 | ||||
Material Features of Individual Arrangements Not Approved by Securityholders
Options to purchase 688 shares of our common stock have been granted pursuant to a license agreement with a third party that is neither a director, officer nor existing stockholder of our company nor an affiliate thereof. All of such options are exercisable at a price of $10.00 per share of common stock, are fully vested and expire on June 9, 2010.
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The following table sets forth information as of February , 2004 with respect to the beneficial ownership of our common stock before and after the completion of this offering, after giving effect to the to 1 stock split, and shows the number of and percentage owned by:
Unless otherwise specified, all shares are directly held.
Beneficial ownership of shares is determined under the rules of the Securities and Exchange Commission and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as indicated by footnote, and subject to applicable community property laws, each person identified in the table possesses sole voting and investment power with respect to all shares of stock held by him. Shares subject to options currently exercisable or exercisable within 60 days of February , 2004 and not subject to repurchase on that date are deemed outstanding for calculating the percentage of outstanding shares of the person holding these options, but are not deemed outstanding for purposes of calculating the percentage ownership of any other person.
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Number and Percent of Shares Beneficially Owned Prior to this Offering |
Number and Percent of Shares Beneficially Owned After this Offering Assuming No Exercise of the Over-Allotment Option |
Number and Percent of Shares Beneficially Owned After this Offering Assuming Full Exercise of the Over-Allotment Option on the Closing Date |
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Name of Beneficial Owner |
Class B Common Stock |
Percent |
Class B Common Stock |
Percentage of Total Common Shares |
Class B Common Stock |
Percentage of Total Common Shares |
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Bruckmann, Rosser, Sherrill & Co., L.P. (1)(2) | % | % | % | ||||||||||
Canterbury Mezzanine Capital II, L.P. (3)(4) | % | % | % | ||||||||||
The CIT Group/Equity Investments, Inc. (5) | % | % | % | ||||||||||
Leonard S. Polaner (6)(7)(8) | % | % | % | ||||||||||
David L. Wenner (6)(8) | % | % | % | ||||||||||
David H. Burke (6)(8) | % | % | % | ||||||||||
James H. Brown (6)(8) | % | % | % | ||||||||||
Robert C. Cantwell (6)(8) | % | % | % | ||||||||||
Albert J. Soricelli (6)(9) | % | % | % | ||||||||||
Thomas J. Baldwin (6)(10) | % | % | % | ||||||||||
Alfred Poe (6) | % | % | % | ||||||||||
William F. Callahan III (6) | % | % | % | ||||||||||
James R. Chambers (6) | % | % | % | ||||||||||
Stephen C. Sherrill (6)(10)(11) | % | % | % | ||||||||||
Nicholas B. Dunphy (12)(13) | % | ||||||||||||
All directors and officers as a group (12 persons) (7)(8)(9)(10)(12) | % | % | % |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stockholders Agreement and Registration Rights Agreement
Stockholders Agreement. Bruckmann, Rosser, Sherrill & Co., L.P., Canterbury Mezzanine Capital II, L.P., The CIT Group/Equity Investments, Inc., entities and individuals affiliated with Bruckmann, Canterbury and CIT and certain members of our board of directors and our executive officers are parties to a securities holders agreement, dated as of December 22, 1999, containing agreements among such stockholders with respect to the capital stock and corporate governance of B&G Holdings and its subsidiaries. Concurrently with, and subject to the closing of, this offering, the agreement will be restated. A copy of the form of restated securities holders agreement will be filed as an exhibit to the registration statement of which this prospectus is a part.
The restated securities holders agreement will contain provisions that may restrict the ability of our board of directors and our executive officers from transferring any Class B common stock except to their affiliates or as otherwise permitted pursuant to the terms of the securities holders agreement.
Registration Rights Agreement. Bruckmann, Rosser, Sherrill & Co., L.P., Canterbury Mezzanine Capital II, L.P., The CIT Group/Equity Investments, Inc., entities and individuals affiliated with Bruckmann, Canterbury and CIT and certain members of our board of directors and our executive officers are parties to a registration rights agreement pursuant to which B&G Holdings has granted registration rights to the stockholders of B&G Holdings with respect to its common stock. Concurrently with, and subject to the closing of the offering, the registration rights agreement will be amended. Under the restated registration rights agreement, B&G Holdings has granted to Bruckmann, Canterbury, CIT and entities and individuals affiliated with Bruckmann, Canterbury and CIT two demand registration rights with respect to the shares of common stock held by them. All of the stockholders party to the restated registration rights agreement have the right to participate, or "piggy-back," in certain registrations initiated by B&G Holdings.
Exchange of Class B Common Stock for EISs. Beginning on the 181st day after the consummation of this offering, holders of our Class B common stock will have certain rights to convert or exchange their Class B common stock into Class A common stock on a 1 to 1 basis and to further convert or exchange their Class A common stock into the equivalent value of EISs under certain circumstances.
Bruckmann, Rosser, Sherrill & Co., Inc. Management Agreement and Transaction Services Agreement
We and B&G Holdings are party to a management services agreement with Bruckmann, Rosser, Sherrill & Co., Inc., the manager of Bruckmann, Rosser, Sherrill & Co., L.P., pursuant to which Bruckmann, Rosser, Sherrill & Co., Inc. is paid $500,000 per annum for management, business and organizational strategy and merchant and investment banking services rendered to us and B&G Holdings, which services include, but are not limited to, advice on corporate and financial planning, oversight of operations, including the manufacturing, marketing and sales of our products, development of business plans, the structure of our debt and equity capitalization and the identification and development of business opportunities. Any future increase in payments under the management agreement with Bruckmann, Rosser, Sherrill & Co., L.P. are restricted by the terms of the indentures governing our company's existing 95/8% senior subordinated notes due 2007. Concurrently with, and subject to the closing of, the offering, the management agreement will be terminated.
We and Bruckmann, Rosser, Sherrill & Co., Inc. also are party to a transaction services agreement pursuant to which Bruckmann, Rosser, Sherrill & Co., Inc. will be paid a transaction fee for management, financial and other corporate advisory services rendered by Bruckmann, Rosser, Sherrill & Co., Inc. in connection with acquisitions, divestitures and financings by us, which fee will not exceed 1.0% of the total transaction value. In connection with the acquisition of the Ortega line of products, we paid transaction fees to Bruckmann, Rosser, Sherrill and Co., Inc., aggregating
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$1.0 million for financial advisory services. We recorded such transaction fees as part of the transaction costs included in the Ortega purchase price. Concurrently with and subject to the closing of the offering, the transaction services agreement will be amended to provide that transaction fees will be payable as described above unless a majority of disinterested directors determine otherwise.
Roseland Lease
We are a party to a lease for our Roseland facility with 426 Eagle Rock Avenue Associates, a real estate partnership of which Leonard S. Polaner, our Chairman, is the general partner. We pay $59,600 per month in rent to 426 Eagle Rock Avenue Associates pursuant to the Roseland lease. Beginning April 1, 2004, our monthly rent will increase to $68,500. In the opinion of management, the terms of the Roseland lease are at least as favorable to us as the terms that could have been obtained from an unaffiliated third party.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
New Revolving Credit Facility
We expect to enter into a new senior secured revolving credit facility with availability of up to $30.0 million. Our direct and indirect domestic subsidiaries will guarantee our obligations under the new revolving credit facility. The new revolving credit facility will mature five years after the closing of this offering and the other Transactions.
We expect that the new revolving credit facility will include a sub-limit for letters of credit, and any outstanding letters of credit will be deducted from availability under the new revolving credit facility. We expect that amounts drawn under the new revolving credit facility will initially bear interest at either a base rate plus a margin or LIBOR plus a margin. We will pay customary commitment fees on the unused portion of the new revolving credit facility.
We expect that the new revolving credit facility will be secured by first priority liens on substantially all of our assets and our subsidiaries' assets. We also expect that the new revolving credit facility will contain a number of negative covenants restricting, among other things, optional payments and modifications of subordinated and other indebtedness; distributions, dividends and repurchases of capital stock and other equity interests (other than the payments of dividends in respect of our Class A and Class B common stock provided that certain financial ratio tests are satisfied); acquisitions and investments; indebtedness; liens; affiliate transactions; sales of assets; and capital expenditures. We expect that the new revolving credit facility will also contain a number of financial covenants requiring, among other things, a minimum interest coverage ratio, a maximum senior leverage ratio and a maximum total leverage ratio. We expect that the new revolving credit facility will contain customary events of default.
New Senior Unsecured Indebtedness
Concurrently with this offering, we anticipate that we will incur approximately $ million of new senior unsecured indebtedness, the form and terms of which are to be determined. We expect that the terms of our new senior unsecured indebtedness will contain restrictions on our ability to pay dividends on the shares of Class A common stock that constitute the EISs and our Class B common stock.
Existing Credit Facility
We have an existing senior credit facility consisting of a term loan and a revolving credit facility. We expect to pay the outstanding principal amount under the existing senior credit facility of $149.6 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at variable rates with a weighted average interest rate as of January 3, 2004 of 4.5% per year. The terms of the existing senior credit facility allow us to prepay without premium or penalty.
Existing Senior Subordinated Notes
As of January 3, 2004, B&G Foods had $220.0 million aggregate principal amount of 95/8% Senior Subordinated Notes due 2007 outstanding. Immediately following and subject to the completion of the Transactions, we intend to call the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes for redemption. The terms of the existing senior subordinated notes currently permit us to redeem these notes, in whole or in part, at 103.208% of the principal amount, plus accrued and unpaid interest, with at least 30 days notice to the holders. We expect to pay approximately $227.1 million, plus accrued and unpaid interest up to the redemption date. At the closing of this offering and the consummation of the other Transactions, we will place cash into escrow in the amount that will be required to fully redeem our existing senior subordinated notes.
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DESCRIPTION OF ENHANCED INCOME SECURITIES (EISs)
General
We are offering EISs. Each EIS represents:
The ratio of Class A common stock to principal amount of subordinated notes represented by an EIS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. As soon as practical following the occurrence of any such event, we will file with the SEC a Current Report on Form 8-K or any other applicable form, disclosing the changes in the ratio of Class A common stock to principal amount of subordinated notes as a result of such event.
Holders of EISs are the beneficial owners of the Class A common stock and subordinated notes represented by such EISs and will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the subordinated notes indenture, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of the Class A common stock and subordinated notes, as applicable.
The EISs will be available in book-entry form only. As discussed below under "Book-Entry Settlement and Clearance," a nominee of the book-entry clearing system will be the sole registered holder of the EISs. That means you will not be a registered holder of EISs or be entitled to receive a certificate evidencing your EISs. You must rely on the procedures used by your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of EISs that are described below. We urge you to consult with your broker or financial institution to find out what those procedures are.
Voluntary Separation and Recombination
Holders of EISs, whether purchased in this offering or in subsequent offerings of EISs of the same series, may, at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control under the indenture, through their broker or other financial institution, separate their EISs into the shares of Class A common stock and subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and subordinated notes may, at any time, through their broker or other financial institution, combine the applicable number of shares of Class A common stock and principal amount of subordinated notes to form EISs. See "Book-Entry Settlement and Clearance" below for more information on the method by which delivery and surrender of EISs and delivery of shares of Class A common stock and our subordinated notes will be effected.
Our shares of Class A common stock will not be listed for separate trading on the American Stock Exchange until a sufficient number of shares are held separately and not in the form of EISs as may be necessary to satisfy any applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EISs for a period of 30 consecutive trading days, we have agreed that we will use reasonable efforts to cause the Class A common stock to be listed on the American Stock Exchange or any other exchange or quotation system on which the EISs are then listed (or were previously listed), provided that the Class A common stock would meet the applicable exchange or quotation system listing standards.
Automatic Separation
Upon the occurrence of any of the following, the EISs will be automatically separated into the shares of Class A common stock and subordinated notes represented thereby:
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Book-Entry Settlement and Clearance
DTC will act as securities depository for the EISs, the subordinated notes and shares of Class A common stock represented by the EISs, which we refer to collectively as the "securities." The subordinated notes and the shares of our Class A common stock represented by the EISs will be represented by one or more global notes and global stock certificates. The global notes and global stock certificates will be issued in fully-registered form in the name of DTC's partnership nominee, Cede & Co.
Book-entry procedures. If you intend to purchase EISs in the manner provided by this prospectus you must do so through the DTC system or through direct and indirect participants. The participant that you purchase through will receive a credit for the applicable security on DTC's records. The ownership interest of each actual purchaser of the applicable security, who we refer to as a "beneficial owner," is to be recorded on the participant's records. Beneficial owners will not receive written confirmation from DTC of their purchases, but beneficial owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the DTC participant through which the beneficial owner entered into the transaction.
All interests in the securities will be subject to the operations and procedures of DTC. The operations and procedures of DTC's settlement system may change at any time.
DTC has advised us as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of the New York State Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered under Section 17A of the Securities Exchange Act of 1934. DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between its participants through electronic book-entry changes to the accounts of its participants. DTC's participants include securities brokers and dealers, including the underwriters, banks and trust companies, clearing corporations and other organizations. Indirect access to DTC's system is also available to others such as banks, brokers, dealers and trust companies. These indirect participants clear through or maintain a custodial relationship with a DTC participant, either directly or indirectly. The rules that apply to DTC and its participants are on file with the SEC.
To facilitate subsequent transfers, all securities deposited by direct participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of securities with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the securities. DTC's records reflect only the identity of the direct participants to whose accounts such securities are credited, which may or may not be the beneficial owners. The participants will remain responsible for keeping account of their holdings on behalf of their customers.
Transfers of ownership interests in the securities are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in the applicable security except in the event that use of the book-entry system for the securities is discontinued.
Separation and recombination. Holders of EISs, whether purchased in this offering or in subsequent offerings of EISs of the same series, may, at any time after 45 days from the closing of this
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offering or such earlier date upon a Change of Control, as defined in the subordinated notes indenture, through their broker or other financial institution, separate their EISs into the shares of Class A common stock and subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and subordinated notes may, at any time, through their broker or other financial institution, combine the applicable number of shares of Class A common stock and principal amount of subordinated notes to form EISs.
In addition, the EISs will be automatically separated into the shares of Class A common stock and subordinated notes represented thereby upon the occurrence of the following:
Any voluntary or automatic separation of EISs and any subsequent combination of EISs from subordinated notes and Class A common stock, are to be accomplished by entries made by the DTC participants acting on behalf of beneficial owners. In any such case, the participant's account through which a separation or recombination is effected, will be credited and debited for the applicable securities on DTC's records. There may be certain transactional fees imposed upon you by brokers or other financial intermediaries in connection with separation or recombination of EISs and you are urged to consult your broker regarding any such transactional fees. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $9.50.
Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants, and by participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the securities. Under its usual procedures, DTC would mail an omnibus proxy to us as soon as possible after the record date. The omnibus proxy assigns Cede & Co.'s consenting or voting rights to those direct participants to whose accounts the securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).
We and the trustee will make any payments on the securities to DTC. DTC's practice is to credit direct participants' accounts on the payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the payment date. Payments by participants to beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such participant and not of DTC, us or the trustee, subject to any statutory or regulatory requirements as may be in effect from time to time.
We or the trustee will be responsible for the payment of all amounts to DTC. DTC will be responsible for the disbursement of those payments to its participants, and the participants will be responsible for disbursements of those payments to beneficial owners. We will remain responsible for any actions DTC and participants take in accordance with instructions we provide.
DTC may discontinue providing its service as securities depository with respect to the EISs, the shares of our Class A common stock or our subordinated notes at any time by giving reasonable notice to us or the trustee. If DTC discontinues providing its service as securities depository with respect to
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the EISs and we are unable to obtain a successor securities depository, you will automatically take a position in the component securities. If DTC discontinues providing its service as securities depository with respect to the shares of our Class A common stock or our subordinated notes and we are unable to obtain a successor securities depository, we will print and deliver to you certificates for those securities and you will automatically take a position in the other component securities.
Also, in case we decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository) we will print and deliver to you certificates for the various certificates of Class A common stock and subordinated notes you may own.
The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that we believe to be reliable, including DTC.
Except for actions taken by DTC in accordance with our instructions, neither we nor any trustee nor the underwriters will have any responsibility or obligation to participants, or the persons for whom they act as nominees, with respect to:
Procedures relating to subsequent issuances. The indenture governing the subordinated notes and the agreements with DTC will provide that, in the event there is a subsequent issuance of subordinated notes which are substantially identical to the subordinated notes initially represented by the EISs, each holder of subordinated notes or EISs (as the case may be) agrees that a portion of such holder's subordinated notes (whether held directly in book-entry form, or held as part of EISs) will be automatically exchanged for a portion of the subordinated notes acquired by the holders of such subsequently issued subordinated notes. Consequently, following each such subsequent issuance and exchange, each holder of subordinated notes or EISs (as the case may be) will own subordinated notes of each separate issuance in the same proportion as each other holder. Immediately following any exchange resulting from a subsequent offering, a new CUSIP number will be assigned to represent an inseparable unit consisting of the subordinated notes outstanding prior to the subsequent issuance and the subordinated notes issued in the subsequent issuance. Accordingly, the subordinated notes issued in the original offering cannot be separated from the subordinated notes issued in any subsequent offering. In addition, immediately following any exchange resulting from a subsequent offering, the EISs will consist of the inseparable unit described above representing the proportionate principal amounts of each issuance of subordinated notes (but with the same aggregate principal amount as the note (or inseparable unit) represented by the EISs immediately prior to such subsequent issuance and exchange) and the Class A common stock. All accounts of DTC participants with a position in the securities will be automatically revised to reflect the new CUSIP numbers. In the event of any voluntary or automatic separation of EISs following any such automatic exchange, holders will receive the then existing components which are the Class A common stock and the inseparable subordinated notes unit. We believe that the automatic exchange of subordinated notes described above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us or any of our agents, including the underwriters, with respect to the full amount of subordinated notes purchased by such holder. However, if such subordinated notes are issued with OID, holders of such subordinated notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of the subordinated notes or our bankruptcy prior to the maturity of the subordinated notes. See "Risk FactorsSubsequent issues of subordinated notes may cause you to recognize OID and suffer other adverse consequences." As soon as practicable following any subsequent issuance we will file with the SEC a Current Report on Form 8-K or any other applicable form disclosing the changes, if any, to the OID attributable to your subordinated notes as a result of such subsequent issuance.
EIS Transfer Agent
will be the EIS transfer agent.
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General
We have set forth below a description of the material terms and provisions of our certificate of incorporation. The following description of our capital stock is intended as a summary only and is qualified in its entirety by reference to the forms of our certificate of incorporation and bylaws, which are filed as exhibits to the registration statement, of which this prospectus forms a part and which will become effective immediately prior to this offering.
Our authorized capital stock will consist of:
After this offering, there will be shares of our Class A common stock, shares of our Class B common stock and no shares of our preferred stock outstanding.
Common Stock
Voting. The holders of our common stock are entitled to one vote per share with respect to each matter on which the holders of our common stock are entitled to vote. Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a class on all matters with respect to which holders are entitled to vote, except that so long as our sponsor investor holds greater than 10% of the outstanding shares of Class A and Class B common stock in the aggregate, our sponsor investor will be entitled to elect two directors to the board of directors. Except as otherwise required by law, holders of our common stock are not entitled to vote on any amendment to our certificate of incorporation that relates solely to the terms of one or more outstanding series of preferred stock if the holders of the affected shares are entitled to vote on the amendment.
No Cumulative Voting Rights The holders of our common stock are not entitled to cumulate their votes in the election of our directors.
Conversion. A holder of Class B common stock may convert or exchange any or all of his shares into an equal number of shares of Class A common stock. The Class A common stock is not convertible into Class B common stock.
Rights to Dividends and on Liquidation, Dissolution or Winding Up. The holders of our common stock are entitled to receive dividends as they may be lawfully declared from time to time by the board of directors of our company, subject to any preferential rights of holders of any outstanding shares of preferred stock. In the event of any liquidation, dissolution or winding up of our company, common stockholders are entitled to share ratably in our assets available for distribution to the stockholders, subject to the prior rights of holders of any outstanding preferred stock.
Upon the closing of this offering, our board of directors is expected to adopt a dividend policy pursuant to which, in the event and to the extent we have any available cash for distribution to the holders of shares of our common stock as of , , and of each fiscal year, and subject to applicable law, and the new revolving credit facility, the terms of our new senior unsecured indebtedness, the indenture governing our subordinated notes and any other then outstanding indebtedness of ours, our board of directors will declare cash dividends on our common stock. The initial dividend rate is expected to be equal to $ per share of Class A common stock per annum
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and $ per share of Class B common stock per annum, in each case subject to adjustment. We will pay these dividends quarterly on , , and .
Pursuant to our certificate of incorporation, we will not pay any dividends on the Class B common stock for any quarterly period unless and until dividends have been declared and paid in full on the Class A common stock. Our board of directors may, in its discretion, amend or repeal this dividend policy with respect to the Class A common stock. Our board of directors may decrease the level of dividends provided for the Class A common stock in this dividend policy or discontinue entirely the payment of dividends. Pursuant to our certificate of incorporation, the board of directors may not, without the approval of the two members of the board appointed by appointed by our equity investors, amend or repeal this dividend policy with respect to the Class B common stock or decrease the level of or discontinue payment of dividends on the shares of our Class B common stock. However, in no event shall the Class B common stock be amended to eliminate the provision requiring prior payment of dividends in full on each share of Class A common stock in an amount that is at least the initial dividend rate set forth herein for any quarterly period.
Preemptive and Other Subscription Rights. Common stockholders do not have preemptive, subscription or redemption rights, and are not subject to further calls or assessments.
Additional Issuance of Our Authorized Common Stock. Additional shares of our authorized common stock may be issued, as determined by the board of directors of our company from time to time, without approval of holders of our common stock, except as may be required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded.
Preferred Stock
Our certificate of incorporation provides that we may issue up to shares of our preferred stock in one or more series as may be determined by our board of directors.
Our board of directors has broad discretionary authority with respect to the rights of issued series of our preferred stock and may take several actions without any vote or action of the holders of our common stock, including:
The board of directors may authorize, without approval of holders of our common stock, the issuance of preferred stock with voting and conversion rights that could adversely affect the voting power and other rights of holders of our common stock. For example, our preferred stock may rank prior to our common stock as to dividend rights, liquidation preferences or both, may have full or limited voting rights and may be convertible into shares of our common stock. The number of authorized shares of our preferred stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of at least a majority of our common stock, without a vote of the holders of any other class or series of our preferred stock unless required by the terms of such class or series of preferred stock.
Our preferred stock could be issued quickly with terms designed to delay or prevent a change in the control of our company or to make the removal of our management more difficult. This could have
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the effect of discouraging third party bids for our common stock or may otherwise adversely affect the market price of our common stock.
We believe that the ability of our board of directors to issue one or more series of our preferred stock will provide us with flexibility in structuring possible future financings and acquisitions, and in meeting other corporate needs that might arise. The authorized shares of our preferred stock, as well as shares of our common stock, will be available for issuance without action by our common stockholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded.
Although our board of directors has no intention at the present time of doing so, it could issue a series of our preferred stock that could, depending on the terms of such series, be used to implement a stockholder rights plan or otherwise impede the completion of a merger, tender offer or other takeover attempt of our company. Our board of directors could issue preferred stock having terms that could discourage an acquisition attempt through which an acquiror may be able to change the composition of the board of directors, including a tender offer or other transaction that some, or a majority, of our stockholders might believe to be in their best interests or in which stockholders might receive a premium for their stock over the then current market price.
Composition of Board of Directors; Election and Removal of Directors
In accordance with our bylaws, the number of directors comprising our board of directors will be as determined from time to time by our board of directors and may not be divided into classes. Upon the closing of the offering it is anticipated that we will have seven directors. Each director is to hold office until his or her successor is duly elected and qualified. Directors will be elected for a term that will expire at the annual meeting of stockholders immediately succeeding their election.
Directors may be removed from office with or without cause by the affirmative vote of the holders of at least a majority of the voting power of all then-outstanding shares of our capital stock that are entitled to vote generally in the election of our directors, voting together as a single class. Subject to the rights of the holders of any series of preferred stock and subject to the rights of our sponsor investor (so long as it holds greater than 10% of the outstanding shares of Class A and Class B common stock in the aggregate) to appoint two directors to the board, our certificate of incorporation provides that in the case of any vacancies among the directors such vacancy will be filled with a candidate approved by the vote of a majority of the remaining directors, even if less than a quorum (and not by stockholders).
The filling of vacancies could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us.
At any meeting of our board of directors, a majority of the total number of directors then in office will constitute a quorum for all purposes.
Stockholder Action
Stockholders may act by written consent, without a meeting and without notice or a vote. This provision enables stockholders to act on matters subject to a stockholder vote without waiting until the next annual or special meeting of stockholders.
Special Meetings of Stockholders
Our certificate of incorporation provides that special meetings of the stockholders may be called by the chairman of the board of directors or by a majority of the board of directors or the holders of at least 20% of our outstanding voting stock.
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Section 203 of the Delaware General Corporation Law
Our company is subject to Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns (or, in some cases, within three years prior, did own) 15% or more of the corporation's voting stock. Under Section 203, a business combination between the corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:
The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that might result in a premium over the market price for the shares of our common stock.
Other Anti-Takeover Provisions of Our Certificate of Incorporation and Bylaws
Our certificate of incorporation and bylaws contain several provisions, in addition to those pertaining to the issuance of additional shares of our authorized common stock and preferred stock without the approval of the holders of our common stock that could delay or make more difficult the acquisition of our company through a hostile tender offer, open market purchases, proxy contest, merger or other takeover attempt that a stockholder might consider in his or her best interest, including those attempts that might result in a premium over the market price of our common stock. Such provisions, which are described below, include advance notice procedures regarding any proposal of stockholder business to be discussed at a stockholders meeting.
Advance Notice Procedure for Director Nominations and Stockholder Proposals. Our bylaws provide that, subject to the rights of holders of any outstanding shares of our preferred stock, a stockholder may nominate one or more persons for election as directors at a meeting only if written notice of the stockholder's nomination has been given, either by personal delivery or certified mail, to our corporate secretary not less than 120 days nor more than 150 days before the first anniversary of the date of our proxy statement in connection with our last annual meeting of stockholders. Each notice must contain:
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Our corporate secretary will deliver all notices to the nominating committee of our board of directors for review. After review, the nominating committee will make its recommendation regarding nominees to our board of directors. Defective nominations will be disregarded.
For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice of the proposed business in writing to our corporate secretary. To be timely, a stockholder's notice must be given, either by personal delivery or by certified mail, to our corporate secretary not less than 120 days nor more than 150 days before the first anniversary of the date of our proxy statement in connection with our last annual meeting of stockholders. Each notice must contain:
Business brought before an annual meeting without complying with these provisions will not be transacted.
Although our bylaws do not give the board the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting, our bylaws may have the effect of precluding the consideration of some business at a meeting if the proper procedures are not followed or may discourage or defer a potential acquiror from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of us.
Amendment of Our Certificate of Incorporation
Our certificate of incorporation provides that the affirmative vote of the holders of at least a majority of the voting power of all then-outstanding shares of our capital stock that are entitled to vote generally in the election of our directors, voting together as a single class is required to amend, alter, change or repeal its provisions.
Amendment of Our Bylaws
Our certificate of incorporation provides that our bylaws can be amended only by either our board of directors or the affirmative vote of the holders of at least a majority of the voting power of all then-outstanding shares of our capital stock that are entitled to vote generally in the election of our directors, voting together as a single class.
Limitation of Liability and Indemnification
Our certificate of incorporation provides that, to the full extent from time to time permitted by law, no director shall be personally liable for monetary damages for breach of any duty as a director.
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As required under current Delaware law, our certificate of incorporation currently provides that this waiver may not apply to liability:
However, in the event the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Neither the amendment or repeal of this provision of our certificate of incorporation, nor the adoption of any provision of our certificate of incorporation which is inconsistent with this provision, shall eliminate or reduce the protection afforded by this provision with respect to any matter which occurred, or any suit or claim which, but for this provision would have accrued or arisen, prior to such amendment, repeal or adoption.
Our certificate of incorporation also provides that we shall, to the fullest extent from time to time permitted by law, indemnify our directors and officers against all liabilities and expenses in any suit or proceeding, arising out of their status as an officer or director or their activities in these capacities. We shall also indemnify any person who, at our request, is or was serving as a director, officer or trustee of another corporation, joint venture, employee benefit plan trust or other enterprise.
The right to be indemnified shall include the right of an officer or a director to be paid expenses in advance of the final disposition of any proceeding, if we receive an undertaking to repay such amount if it shall be determined that he or she is not entitled to be indemnified.
Our board of directors may take such action as it deems necessary to carry out these indemnification provisions, including adopting procedures for determining and enforcing indemnification rights and purchasing insurance policies. Our board of directors may also adopt bylaws, resolutions or contracts implementing indemnification arrangements as may be permitted by law. Neither the amendment or repeal of these indemnification provisions, nor the adoption of any provision of our certificate of incorporation inconsistent with these indemnification provisions, shall eliminate or reduce any rights to indemnification relating to their status or any activities prior to such amendment, repeal or adoption.
We believe these provisions will assist in attracting and retaining qualified individuals to serve as directors.
Listing
Our shares of Class A common stock will not be listed for separate trading on the American Stock Exchange until a sufficient number of shares is held separately and not in the form of EISs as may be necessary to satisfy any applicable listing requirements. If more than such required number of our outstanding shares of Class A common stock is no longer held in the form of EISs for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the American Stock Exchange.
Transfer Agent and Registrar
The transfer agent and registrar for our Class A and Class B common stock is .
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DESCRIPTION OF SUBORDINATED NOTES
You can find the definitions of certain terms used in this description under the subheading "Certain Definitions." In this description, the words "B&G Foods" refers only to B&G Foods, Inc. and its successor in accordance with the terms of the indenture, and not to any of its subsidiaries.
B&G Foods will issue the notes under an indenture among itself, the Guarantors and , as trustee. The terms of the notes will include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended.
The following description is only a summary of the material provisions of the indenture. It does not restate the indenture in its entirety. We urge you to read the indenture because it, and not this description, define your rights as a holder of the notes. We have filed a copy of the indenture as an exhibit to the registration statement that includes this prospectus. Certain defined terms used in this description but not defined below under "Certain Definitions" have the meanings assigned to them in the indenture.
The indenture will provide for the issuance of an unlimited aggregate principal amount of additional subordinated notes having identical terms and conditions to the notes offered hereby (the "Additional Notes"), subject to compliance with the covenants contained in the indenture. Additional Notes will vote on all matters with the notes offered hereby and are required to be issued in amounts that, together with new or outstanding Class A common stock, represent EISs. The Additional Notes will be deemed to have the same accrued current period interest and defaults as the notes issued in this offering and will be deemed to be subject to the same number of Payment Blockage Periods as the notes issued in this offering.
The notes will be issued in an aggregate principal amount of $ . The registered holder of a note will be treated as the owner of it for all purposes. Only registered holders will have rights under the indenture.
Brief Description of the Notes and the Note Guarantees
The Notes
The notes:
The Note Guarantees
The notes will be guaranteed by all of B&G Foods' Domestic Subsidiaries.
Each guarantee of the notes:
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Not all of our Subsidiaries will guarantee the notes. In the event of a bankruptcy, liquidation or reorganization of any of these non-Guarantor Subsidiaries, the non-Guarantor Subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to us. The Guarantor Subsidiaries generated % of our consolidated net sales on a pro forma as adjusted basis for fiscal 2003 and % of our as adjusted consolidated assets as of January 3, 2004.
As of the date of the indenture, all of our Subsidiaries will be "Restricted Subsidiaries." However, under the circumstances described below under the caption "Certain CovenantsDesignation of Restricted and Unrestricted Subsidiaries," we will be permitted to designate certain of our Subsidiaries as "Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the indenture. Our Unrestricted Subsidiaries will not guarantee the notes.
Maturity and Interest
The notes will mature on , 2024.
Interest on the notes will accrue at the rate of % per annum and will be payable quarterly in arrears on , , and , commencing on , 2004. B&G Foods will make each interest payment to the holders of record on the immediately preceding , , and .
Interest on the notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
Within 30 days prior to the maturity of the notes, B&G Foods will use its reasonable efforts to list or quote the outstanding shares of its Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the EISs will then be listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed.
Ranking
The Indebtedness evidenced by the notes will be unsecured subordinated Indebtedness of B&G Foods, will be subordinated in right of payment, as set forth in the indenture, to all existing and future Senior Indebtedness of B&G Foods and will rank pari passu in right of payment with all existing and future Pari Passu Indebtedness of B&G Foods. The notes will be effectively subordinated to any Secured Indebtedness of B&G Foods to the extent of the value of the assets securing such Secured Indebtedness. However, payment from the money or the proceeds of Government Securities held in any defeasance or similar trust described under "Legal Defeasance and Covenant Defeasance" below is not subordinated to any Senior Indebtedness or subject to the restrictions described herein.
The Indebtedness evidenced by each Note Guarantee will be unsecured subordinated Indebtedness of the applicable Guarantor, will be subordinated in right of payment, as set forth in the indenture, to all existing and future Senior Indebtedness of such Guarantor, including the Senior Indebtedness of each Guarantor represented by such Guarantor's guarantee of the Credit Agreement, and will rank pari passu in right of payment with all existing and future Pari Passu Indebtedness of such Guarantor. The Note Guarantees will be effectively subordinated to any Secured Indebtedness of the applicable Guarantor to the extent of the value of the assets securing such Secured Indebtedness.
As of January 3, 2004, on an as adjusted basis to give effect to the offering of EISs and the Transactions as if they had occurred on that date, (i) B&G Foods would have had $ in Senior Indebtedness outstanding, $ of which would have been Secured Indebtedness, (ii) B&G Foods would have had $ in Pari Passu Indebtedness outstanding other than the notes, (iii) the Guarantors would have had $ in Senior Indebtedness outstanding, $ of which would have been Secured Indebtedness, and (iv) the Guarantors would have had $ in Pari Passu Indebtedness outstanding other than the Note Guarantees. Under the indenture, B&G Foods and its Restricted Subsidiaries, including the Guarantors, will be able to incur a substantial amount of
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additional Indebtedness, including Senior Indebtedness, under certain circumstances. See "Incurrence of Indebtedness and Issuance of Preferred Stock" below.
B&G Foods is dependent in part on the cash flow of its subsidiaries and other entities to meet its own obligations, including the payment of interest and principal obligations on the notes when due. As of January 3, 2004, on an as adjusted basis to give effect to the offering of EISs and the Transactions as if they had occurred on that date, the total liabilities of B&G Foods's subsidiaries would have been approximately $ , including trade payables. Although the indenture will limit the incurrence of Indebtedness by B&G Foods and the issuance of preferred stock of certain of B&G Foods' subsidiaries, such limitation is subject to a number of significant qualifications.
"Senior Indebtedness" with respect to B&G Foods or any Guarantor means all Indebtedness of B&G Foods or such Guarantor, including interest thereon (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to B&G Foods or any Subsidiary of B&G Foods whether or not a claim for post-filing interest is allowed in such proceeding) and other amounts (including make-whole payments, fees, expenses, reimbursement obligations under letters of credit and indemnities) owing in respect thereof, whether outstanding on the date of the indenture or thereafter incurred, unless in the instrument creating or evidencing the same or pursuant to which the same is outstanding it is provided that such obligations are not superior in right of payment to the notes or such Guarantor's Note Guarantee, as applicable; provided, however, that Senior Indebtedness shall not include, as applicable, (i) any obligation of B&G Foods to any Subsidiary of B&G Foods or of such Guarantor to B&G Foods or any Subsidiary of B&G Foods, (ii) any liability for Federal, state, local or other taxes owed or owing by B&G Foods or such Guarantor, (iii) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities), (iv) any obligations with respect to any Capital Stock, and (v) any Indebtedness incurred in violation of the indenture.
"Pari Passu Indebtedness" means (i) with respect to B&G Foods, the notes and any other Indebtedness of B&G Foods, other than Senior Indebtedness or Secured Indebtedness of B&G Foods and (ii) with respect to any Guarantor, its Note Guarantee and any other Indebtedness of such Guarantor, other than Senior Indebtedness or Secured Indebtedness of such Guarantor.
Only Senior Indebtedness or Secured Indebtedness of B&G Foods or a Guarantor will rank senior to the notes or the relevant Note Guarantee in accordance with the provisions of the indenture. The notes and each Note Guarantee will in all respects rank pari passu with all other Pari Passu Indebtedness of B&G Foods and the relevant Guarantor, respectively.
B&G Foods may not pay principal of, premium (if any) or interest on, the notes or make any deposit pursuant to the provisions described under "Defeasance" below and may not otherwise purchase, redeem or otherwise retire any notes (except that Holders may receive and retain (a) Permitted Junior Securities and (b) payments made from the trust described under "Defeasance" below so long as, on the date or dates the respective amounts were paid into the trust, such payments were made with respect to the notes without violating the subordination provisions described herein or any other material agreement binding on B&G Foods) (collectively, "pay the notes") if (i) a default in the payment of the principal of, premium, if any, or interest on any Designated Senior Indebtedness occurs and is continuing or any other amount owing in respect of any Designated Senior Indebtedness is not paid when due, or (ii) any other default on Designated Senior Indebtedness occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Designated Senior Indebtedness has been paid in full. However, B&G Foods may pay the notes without regard to the foregoing if B&G Foods and the trustee receive written notice approving such payment from the Representative of the Designated Senior Indebtedness with respect to which either of the events set forth in clause (i) or (ii) of the immediately preceding sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (i) or (ii) of the second preceding sentence) with respect to any Designated Senior Indebtedness pursuant to which
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the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or upon the expiration of any applicable grace periods, B&G Foods may not pay the notes for a period (a "Payment Blockage Period") commencing upon the receipt by the trustee (with a copy to B&G Foods) of written notice (a "Payment Blockage Notice") of such default from the Representative of the Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the trustee and B&G Foods from the Person or Persons who gave such Payment Blockage Notice, (ii) by repayment in full of such Designated Senior Indebtedness or (iii) because the default giving rise to such Payment Blockage Notice is no longer continuing). Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this paragraph and in the succeeding paragraph), unless the holders of such Designated Senior Indebtedness or the Representative of such holders have accelerated the maturity of such Designated Senior Indebtedness, B&G Foods may resume payments on the Notes after the end of such Payment Blockage Period. In no event may the total number of days during which any Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 360 consecutive day period. For purposes of this provision, no default or event of default that existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis of the commencement of a subsequent Payment Blockage Period by the Representative of such Designated Senior Indebtedness, unless such default or event of default shall have been cured or waived for a period of not less than 90 consecutive days.
Upon any payment or distribution of the assets of B&G Foods upon a total or partial liquidation or dissolution or reorganization of or similar proceeding relating to B&G Foods or its property, the holders of Senior Indebtedness will be entitled to receive payment in full of the Senior Indebtedness before the holders of notes are entitled to receive any payment, and until the Senior Indebtedness is paid in full, any payment or distribution to which holders of notes would be entitled, except as otherwise provided for in the subordination provisions of the indenture, will be made to holders of the Senior Indebtedness as their interests may appear (except that holders of notes may receive and retain (i) Permitted Junior Securities, and (ii) payments made from the trust described under "Defeasance" so long as, on the date or dates the respective amounts were paid into the trust, such payments were made with respect to the notes without violating the subordination provisions described herein or any other material agreement binding on B&G Foods). If a distribution is made to holders of notes that due to the subordination provisions of the indenture should not have been made to them, such holders are required to hold it in trust for the holders of Senior Indebtedness and to make payment to the holders of Senior Indebtedness as their interests may appear.
After the occurrence of an Event of Default, B&G Foods or the trustee shall promptly notify the holders of the Designated Senior Indebtedness (or their Representative) of such occurrence. If any Designated Senior Indebtedness is outstanding, B&G Foods may not pay the notes until five Business Days after such holders or the Representative of the Designated Senior Indebtedness receive notice of such occurrence and, thereafter, may pay the notes only if the subordination provisions of the indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the indenture, in the event of insolvency, creditors of B&G Foods who are holders of Senior Indebtedness may recover more, ratably, than the holders of notes.
The indenture will contain identical subordination provisions relating to each Guarantor's obligations under its Note Guarantee.
Methods of Receiving Payments on the Notes
If a holder of notes has given wire transfer instructions to B&G Foods, B&G Foods will pay, or cause to be paid, all principal, interest and premium, if any, on that holder's notes in accordance with
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those instructions. All other payments on the notes will be made at the office or agency of the paying agent and registrar within the City and State of New York unless B&G Foods elects to make interest payments by check mailed to the noteholders at their address set forth in the register of holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar. B&G Foods may change the paying agent or registrar without prior notice to the holders of the notes, and B&G Foods or any of its Restricted Subsidiaries may act as paying agent or registrar.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture. The registrar and the trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents in connection with a transfer of notes. Holders will be required to pay all taxes due on transfer. B&G Foods will not be required to transfer or exchange any note selected for redemption. Also, B&G Foods will not be required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed.
Note Guarantees
The notes will be guaranteed by each of B&G Foods' current and future Domestic Subsidiaries on an unsecured subordinated basis (as described under "Ranking" above). These Note Guarantees will be joint and several obligations of the Guarantors. The obligations of each Guarantor under its Note Guarantee will be limited as necessary to prevent the Note Guarantee from constituting a fraudulent conveyance under applicable law. See "Risk FactorsIf the guarantees of the subordinated notes are held to be invalid or unenforceable or are limited in accordance with their terms, the subordinated notes would be structurally subordinated to the debt of our subsidiaries."
A Guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person, other than B&G Foods or another Guarantor, unless:
The Note Guarantee of a Guarantor will be released:
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See "Repurchase at the Option of HoldersAsset Sales."
Optional Redemption
At any time and from time to time on and after , 2009, B&G Foods may redeem all or a part of the notes upon not less than 30 nor more than 60 days notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest on the notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on of the years indicated below, subject to the rights of holders of notes on the relevant record date to receive interest on the relevant interest payment date:
Year |
Percentage |
||
---|---|---|---|
2009 | % | ||
2010 | % | ||
2011 | % | ||
2012 and thereafter | 100.000 | % |
At any time prior to , 2009, B&G Foods may redeem all or a part of the notes, upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, at a redemption price equal to the sum of the present values of the redemption price of such note at the first optional redemption date described above and all required interest payments (excluding accrued but unpaid interest) due on such note through the first optional redemption date, discounted to the date of such redemption (the "Redemption Date") on a monthly basis (assuming 360-day years consisting of twelve 30-day months) at the Treasury Rate plus 50 basis points, plus accrued and unpaid interest to the Redemption Date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
Except pursuant to the preceding paragraph, the notes will not be redeemable at B&G Foods' option prior to , 2009.
Unless B&G Foods defaults in the payment of the redemption price, interest will cease to accrue on the notes or portions thereof called for redemption on the applicable redemption date.
Notice of any redemption will be mailed at least 30 days but not more than 60 days before the date of redemption to each holder of the notes to be redeemed. Unless we default in payment of the redemption price, on and after the date of redemption, interest will cease to accrue on such notes or the portions called for redemption.
Any exercise by B&G Foods of its option to redeem the notes, in whole or in part, will result in an automatic separation of the EISs.
Mandatory Redemption
B&G Foods is not required to make mandatory redemption or sinking fund payments with respect to the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of notes will have the right to require B&G Foods to repurchase all or any part of that holder's notes pursuant to a Change of Control Offer on the terms set forth in the indenture. In the Change of Control Offer (subject to the conditions required by applicable law, if any), B&G Foods will offer a Change of Control Payment in cash equal to 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest to the date of
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purchase, subject to the rights of holders of notes on the relevant record date to receive interest due on the relevant interest payment date. Within ten days following any Change of Control, B&G Foods will mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the Change of Control Payment Date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the indenture and described in such notice. Holders electing to have a note purchased pursuant to a Change of Control Offer will be required to surrender the note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the note completed, to the paying agent at the address specified in the notice of Change of Control Offer prior to the close of business on the third business day prior to the Change of Control Payment Date. In order to exercise this repurchase right, a holder must separate its EISs into the shares of Class A common stock and the notes represented thereby.
Any Change of Control Offer will be made in compliance with all applicable laws, rules and regulations, including, if applicable, Regulation 14E under the Exchange Act and the rules thereunder and all other applicable Federal and state securities laws. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this covenant, B&G Foods' compliance with those laws and regulations will not in and of itself cause a breach of its obligations under this covenant.
On the Change of Control Payment Date, B&G Foods will, to the extent lawful:
The paying agent will promptly mail to each holder of notes properly tendered the Change of Control Payment for such notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any. B&G Foods will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.
The provisions described above that require B&G Foods to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the indenture are applicable. Except as described above with respect to a Change of Control, the indenture does not contain provisions that permit the holders of the notes to require that B&G Foods repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction.
B&G Foods will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by B&G Foods and purchases all notes properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption has been given pursuant to the indenture as described above under the caption "Optional Redemption," unless and until there is a default in payment of the applicable redemption price.
In the event that at the time of such Change of Control the terms of any Senior Indebtedness restrict or prohibit the repurchase of notes pursuant to this covenant, then prior to the mailing of the notice to holders provided for above but in any event within 90 days following any Change of Control, B&G Foods shall (i) repay in full all such Senior Indebtedness or offer to repay in full all such Senior Indebtedness and repay the Senior Indebtedness of each lender who has accepted such offer or (ii) obtain the requisite consent under the agreements governing such Senior Indebtedness to permit the repurchase of the notes as provided for above.
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No assurances can be given that B&G Foods will have funds available or otherwise will be able to purchase any notes upon the occurrence of a Change of Control. The provisions of the indenture relating to a Change of Control in and of themselves may not afford holders of the notes protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving us that may adversely affect holders of the notes if such transaction is not the type of transaction included within the definition of a Change of Control. A transaction involving management or Affiliates of B&G Foods likewise will result in a Change of Control only if it is the type of transaction specified by the definition. The existence of the foregoing provisions relating to a Change of Control may or may not deter a third party from seeking to acquire us in a transaction which constitutes a Change of Control and may or may not discourage or make more difficult the removal of incumbent management.
The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the properties or assets of B&G Foods and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require B&G Foods to repurchase its notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of B&G Foods and its Subsidiaries taken as a whole to another Person or group may be uncertain.
The provisions of the indenture related to B&G Foods' obligations to make a Change of Control Offer may be waived or modified with the written consent of the holders of a majority in aggregate principal amount of the notes then outstanding.
Asset Sales
B&G Foods will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
Any Asset Sale pursuant to a condemnation, appropriation or other similar taking, including by deed in lieu of condemnation, or pursuant to the foreclosure or other enforcement of a Permitted Lien or exercise by the related lienholder of rights with respect to any of the foregoing, including by deed or assignment in lieu of foreclosure, will not be required to satisfy the conditions set forth in the
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preceding paragraph. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, B&G Foods (or the applicable Restricted Subsidiary, as the case may be) may apply such Net Proceeds:
In the case of clause (2) and (4) above, B&G Foods will be deemed to have complied with its obligations in the preceding paragraph if it enters into a binding commitment to acquire such assets or Capital Stock prior to 360 days after the receipt of the applicable Net Proceeds; provided that such binding commitment will be subject only to customary conditions and such acquisition is completed within 180 days following the expiration of the aforementioned 360 day period. If the acquisition contemplated by such binding commitment is not consummated on or before such 180th day, and B&G Foods has not applied the applicable Net Proceeds for another purpose permitted by the preceding paragraph on or before such 180th day, such commitment shall be deemed not have been a permitted application of Net Proceeds. Pending the final application of any Net Proceeds, B&G Foods may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided in the second paragraph of this covenant will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million, within 30 days thereof, B&G Foods will make an Asset Sale Offer to all holders of notes with the proceeds of sales of assets to purchase the maximum principal amount of notes that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest to the date of purchase and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, B&G Foods may use those Excess Proceeds for any purpose not otherwise prohibited by the indenture. If the aggregate principal amount of notes tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee will select the notes to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero. In order to exercise this repurchase right, a holder must separate its EIS into the shares of Class A common stock and the notes represented thereby.
Any Asset Sale Offer will be made in compliance with all applicable laws, rules and regulations, including, if applicable, Regulation 14E under the Exchange Act and the rules thereunder and all other applicable Federal and state securities laws. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this covenant, B&G Foods' compliance with those laws and regulations will not in and of itself cause a breach of its obligations under this covenant.
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The agreements governing B&G Foods' outstanding Senior Indebtedness currently prohibit B&G Foods from purchasing any notes, and also provides that certain change of control or asset sale events with respect to B&G Foods would constitute a default under these agreements. Any future credit agreement or other agreements relating to Senior Indebtedness to which B&G Foods becomes a party may contain similar restrictions and provisions. In the event an Asset Sale occurs at a time when B&G Foods is prohibited from purchasing notes, B&G Foods could seek the consent of its senior lenders to the purchase of notes or could attempt to refinance the borrowings that contain such prohibition. If B&G Foods does not obtain a consent or repay such borrowings, B&G Foods will remain prohibited from purchasing notes. In such case, B&G Foods' failure to purchase tendered notes would constitute an Event of Default under the indenture which could, in turn, constitute a default under such Senior Indebtedness. In such circumstances, the subordination provisions in the indenture would likely restrict payments to the holders of notes.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee will select notes for redemption on a pro rata basis unless otherwise required by law or applicable stock exchange requirements.
Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at its address last shown upon the registry books of B&G Food's registrar, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the notes or a satisfaction and discharge of the indenture. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that relates to that note will state the portion of the principal amount of that note that is to be redeemed. A new note in principal amount equal to the unredeemed portion of the original note will be issued in the name of the holder of notes upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on notes or portions of notes called for redemption.
Covenants Relating to EISs
Recombination of Notes and Class A Common Stock into EISs. The indenture will provide that as long as any notes are outstanding, any holder of notes and shares of Class A common stock may after 45 days from the date hereof, at any time and from time to time, recombine these securities to form EISs.
Procedures Relating to Subsequent Issuance. The indenture will provide that, in the event there is a subsequent issuance of Additional Notes, each holder of the notes or the EISs (as the case may be) agrees that a portion of such holder's notes (whether held directly in book-entry form or held as part of EISs) will be exchanged, without any further action of such holder, for a portion of the Additional Notes purchased by the holders of such Additional Notes, such that following any such additional issuance and exchange each holder of the notes or the EISs (as the case may be) owns an indivisible unit composed of the notes and Additional Notes of each issuance in the same proportion as each other holder, and the records will be revised to reflect each such exchange without any further action of such holder. The aggregate principal amount of the notes owned by each holder will not change as a result of such exchange. Any Additional notes will be guaranteed by the Guarantors on the same basis as the notes. See "Material U.S. Federal Income Tax ConsequencesConsequences to U.S. HoldersSubordinated NotesAdditional Issuances." Any such automatic exchange should not impair the rights any holder would otherwise have to assert a claim against us or the underwriters, with respect to the full amount of notes purchased by such holder except for the possibility that holders of subsequently
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issued subordinated notes having original issue discount may not be able to collect the unamortized portion of the original issue discount in the event of an acceleration of the subordinated notes or bankruptcy of B&G Foods as described under "Risk FactorsRisks Relating to the EISs and the shares of Class A common stock and Subordinated Notes Represented by the EISsSubsequent issuances of subordinated notes may cause you to recognize OID and suffer other adverse consequences."
Certain Covenants
Restricted Payments
B&G Foods will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:
unless, at the time of and after giving effect to such Restricted Payment, no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment and:
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provided that only Restricted Payments that are distributions on B&G Foods' common stock may be made pursuant to this clause (2).
The preceding provisions will not prohibit:
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For purposes of this covenant, the amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by B&G Foods or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The Fair Market Value of any assets or securities that are required to be valued by this covenant will be determined by the Board of Directors of B&G Foods whose resolution with respect thereto will be delivered to the trustee to the extent that such Fair Market Value exceeds $10.0
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million. For purposes of determining compliance with this covenant, in the event that a Restricted Payment meets the criteria of more than one of the exceptions described in clauses (1) through (10) above or is entitled to be made pursuant to the first paragraph of this covenant, B&G Foods will be permitted, in its sole discretion, to classify the Restricted Payment in any manner that complies with this covenant.
Incurrence of Indebtedness and Issuance of Preferred Stock
B&G Foods will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and B&G Foods will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that B&G Foods may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, and the Guarantors may incur Indebtedness (including Acquired Debt) or issue preferred stock, if the Fixed Charge Coverage Ratio for B&G Foods' most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or such preferred stock is issued, as the case may be, would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock or the preferred stock had been issued, as the case may be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"):
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will be deemed, in each case, to constitute an issuance of such preferred stock by such Restricted Subsidiary that was not permitted by this clause (7);
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For purposes of determining compliance with this "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, in the event that an item of proposed Indebtedness meets the criteria of
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more than one of the categories of Permitted Debt described in clauses (1) through (19) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, B&G Foods will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this covenant. Indebtedness under Credit Facilities outstanding on the date on which notes are first issued and authenticated under the indenture will initially be deemed to have been incurred on such date in reliance on the exception provided by clause (1) of the definition of Permitted Debt. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, the reclassification of preferred stock as Indebtedness due to a change in accounting principles, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that B&G Foods or any Restricted Subsidiary may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values.
The amount of any Indebtedness outstanding as of any date will be:
Liens
B&G Foods will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind (other than Permitted Liens) to secure Indebtedness of any kind on any asset now owned or hereafter acquired, unless all payments due under the indenture and the notes are secured on an equal and ratable basis with the obligations so secured (or, if such obligations are subordinated by their terms to the notes or the Note Guarantees, prior to the obligations so secured) until such time as such obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Subsidiaries
B&G Foods will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:
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However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:
Merger, Consolidation or Sale of Assets
B&G Foods will not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not B&G Foods is the surviving entity); or (2) sell, assign, transfer, convey or otherwise
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dispose of all or substantially all of the properties or assets (such amounts to be computed on a consolidated basis) of B&G Foods and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person, unless:
In addition, B&G Foods will not, directly or indirectly, lease all or substantially all of the properties and assets of it and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to any other Person.
This "Merger, Consolidation or Sale of Assets" covenant will not apply to:
Transactions with Affiliates
B&G Foods will not, and will not permit any of its Restricted Subsidiaries to, on or after the date of the indenture, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any
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transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of B&G Foods (each, an "Affiliate Transaction"), unless:
The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:
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Business Activities
B&G Foods will not, and will not permit any of its Restricted Subsidiaries to, engage in any business other than Permitted Businesses, except to such extent as would not be material to B&G Foods and its Restricted Subsidiaries taken as a whole, as reasonably determined in good faith by the Board of Directors of B&G Foods.
Additional Note Guarantees
If B&G Foods or any of its Restricted Subsidiaries acquires or creates another Domestic Subsidiary after the date of the indenture, then that newly acquired or created Domestic Subsidiary will become a Guarantor and execute a supplemental indenture and deliver an opinion of counsel (subject to customary assumptions and exceptions) satisfactory to the trustee within 10 business days of the date on which it was acquired or created; provided that any Domestic Subsidiary that constitutes an Immaterial Subsidiary need not become a Guarantor until such time as it ceases to be an Immaterial Subsidiary.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors of B&G Foods may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary the aggregate Fair Market Value of all outstanding Investments owned by B&G Foods and its Restricted Subsidiaries in the Subsidiary designated as Unrestricted will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the covenant described above under the caption "Restricted Payments" or under the definition of Permitted Investments, as determined by
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B&G Foods. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors of B&G Foods may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a Default.
Any designation of a Subsidiary of B&G Foods as an Unrestricted Subsidiary will be evidenced to the trustee by filing with the trustee a certified copy of a resolution of the Board of Directors giving effect to such designation and an Officer's Certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption "Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of B&G Foods as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock," B&G Foods will be in default of such covenant. The Board of Directors of B&G Foods may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of B&G Foods; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of B&G Foods of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation.
Limitation on Sale and Leaseback Transactions
B&G Foods will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that B&G Foods or any Guarantor may enter into a sale and leaseback transaction if:
Payments for Consent
B&G Foods will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any holder of notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the indenture or the notes unless such consideration is offered to be paid and is paid to all holders of the notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
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Reports
Whether or not required by the rules and regulations of the SEC, so long as any notes are outstanding, B&G Foods will furnish to the holders of notes or cause the trustee to furnish to the holders of notes, within the time periods specified in the SEC's rules and regulations:
provided, however, that the availability of the foregoing materials on the SEC's EDGAR service or on B&G Foods' website shall be deemed to satisfy B&G Foods' delivery obligations hereunder.
All such reports will be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K will include a report on B&G Foods' consolidated financial statements by B&G Foods' certified independent accountants. In addition, B&G Foods will file a copy of each of the reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the SEC will not accept such a filing) and will make such information available to securities analysts and prospective investors upon request.
If at any time B&G Foods is no longer subject to the periodic reporting requirements of the Exchange Act for any reason, B&G Foods will nevertheless continue filing the reports specified in the preceding paragraphs of this covenant with the SEC within the time periods specified above unless the SEC will not accept such a filing. B&G Foods will not take any action for the purpose of causing the SEC not to accept any such filings. If, notwithstanding the foregoing, the SEC will not accept B&G Foods' filings for any reason, B&G Foods will post the reports referred to in the preceding paragraphs on its website within the time periods that would apply if B&G Foods were required to file those reports with the SEC.
If B&G Foods has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraphs will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of B&G Foods and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of B&G Foods.
In addition, B&G Foods and the Guarantors agree that, for so long as any notes remain outstanding, if at any time they are not required to file the reports required by the preceding paragraphs, they will furnish to the holders of notes and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
Each of the following is an "Event of Default":
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and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10.0 million or more;
In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to B&G Foods, any Restricted Subsidiary of B&G Foods that is a Significant Subsidiary or any group of Restricted Subsidiaries of B&G Foods that, taken together, would constitute a Significant Subsidiary, all outstanding notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding notes may declare all the notes to be due and payable immediately.
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Holders of the notes may not enforce the indenture or the notes except as provided in the indenture. Subject to certain limitations, holders of a majority in aggregate principal amount of the then outstanding notes may direct the trustee in its exercise of any trust or power. The trustee may withhold from holders of the notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal, interest or premium, if any.
Subject to the provisions of the indenture relating to the duties of the trustee, in case an Event of Default occurs and is continuing, the trustee will be under no obligation to exercise any of the rights or powers under the indenture at the request or direction of any holders of notes unless such holders have offered to the trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest, when due, no holder of a note may pursue any remedy with respect to the indenture or the notes unless:
The holders of a majority in aggregate principal amount of the then outstanding notes by notice to the trustee may, on behalf of the holders of all of the notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the indenture except a continuing Default or Event of Default in the payment of interest or premium, if any, on, or the principal of, the notes.
B&G Foods is required to deliver to the trustee annually a statement regarding compliance with the indenture. Upon becoming aware of any Default or Event of Default, B&G Foods is required to deliver to the trustee a statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees, Affiliates and Stockholders
No past, present or future director, officer, employee, direct or indirect incorporator, Affiliate, stockholder or controlling Person, of B&G Foods or any Guarantor, as such, or any successor entity, will have any liability for any obligations of B&G Foods or the Guarantors under the notes, the indenture, the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
B&G Foods may at its option and at any time elect to have all of its obligations discharged with respect to the outstanding notes and all obligations of the Guarantors discharged with respect to their Note Guarantees ("Legal Defeasance"). If Legal Defeasance occurs, B&G Foods and the Guarantors will be deemed to have paid and discharged all amounts owed under the notes and the Note
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Guarantees, and the indenture will cease to be of further effect as to the notes and Note Guarantees, except for:
In addition, B&G Foods may, at its option and at any time, elect to have the obligations of B&G Foods and the Guarantors released with respect to certain covenants (including its obligation to make Change of Control Offers and Asset Sale Offers) that are described in the indenture ("Covenant Defeasance") and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default and Remedies" will no longer constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
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default under, any other material instrument to which B&G Foods or any Guarantor is a party or by which B&G Foods or any Guarantor is bound;
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the indenture or the notes or the Note Guarantees may be amended, modified or supplemented with the consent of the holders of at least a majority in aggregate principal amount of the notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes), and any past or existing Default or Event of Default or compliance with any provision of the indenture or the notes or the Note Guarantees may be waived with the consent of the holders of a majority in aggregate principal amount of the then outstanding notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each holder of notes affected, an amendment, modification, supplement or waiver may not (with respect to any notes held by a non-consenting holder):
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Notwithstanding the preceding, without the consent of any holder of notes, B&G Foods, the Guarantors and the trustee may amend, modify or supplement the indenture or the notes or the Note Guarantees:
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect as to all notes issued thereunder, when:
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to such deposit) and the deposit will not result in a breach or violation of, or constitute a default under, any other material instrument to which B&G Foods or any Guarantor is a party or by which B&G Foods or any Guarantor is bound;
In addition, B&G Foods must deliver an Officer's Certificate and an opinion of counsel (subject to customary assumptions and exceptions) to the trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
Concerning the Trustee
If the trustee becomes a creditor of B&G Foods or any Guarantor, the indenture limits the right of the trustee to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee (if the indenture has been qualified under the Trust Indenture Act) or resign.
The holders of a majority in aggregate principal amount of the then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the trustee, subject to certain exceptions. The indenture provides that in case an Event of Default occurs and is continuing, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any holder of notes, unless such holder has offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense.
Book-Entry, Delivery and Form
Except as set forth below, the notes will be issued in registered, global form. Notes will be issued at the closing of this offering only against payment in immediately available funds.
The Notes initially will be represented by one or more notes in registered, global form without interest coupons (collectively, the "Global Notes"). The Global Notes will be deposited upon issuance with the trustee as custodian for The Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee, in each case, for credit to an account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for definitive notes in registered certificated form ("Certificated Notes") except in the limited circumstances described below. See "Exchange of Global Notes for Certificated Notes." Except in the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to receive physical delivery of notes in certificated form.
Transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants, which may change from time to time.
Depository Procedures
The following description of the operations and procedures of DTC 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. B&G Foods takes no responsibility for these
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operations and procedures and urges investors to contact the system or their participants directly to discuss these matters.
DTC has advised B&G Foods that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between the Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the initial purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). 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.
DTC has also advised B&G Foods that, pursuant to procedures established by it:
Investors in the Global Notes who are Participants may hold their interests therein directly through DTC. Investors who are not Participants may hold their interests therein indirectly through organizations which are Participants. All interests in a Global Note may be subject to the procedures and requirements of DTC. 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 the Participants, which in turn act on behalf of the 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 notes registered in their names, will not receive physical delivery of notes in certificated form and will not be considered the registered owners or "holders" thereof under the indenture for any purpose.
Payments in respect of the principal of, and interest and premium, 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, B&G Foods and the trustee will treat the Persons in whose names the notes, including the Global Notes, are registered as the owners of the notes for the purpose of receiving payments and for all other purposes. Consequently, neither B&G Foods, the trustee nor any agent of B&G Foods or the trustee has or will have any responsibility or liability for:
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DTC has advised B&G Foods that its current practice, upon receipt of any payment in respect of securities such as the notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date unless DTC has reason to believe that it will not receive payment on such payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the trustee or B&G Foods. Neither B&G Foods nor the trustee will be liable for any delay by DTC or any of the Participants or the Indirect Participants in identifying the beneficial owners of the notes, and B&G Foods and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.
Transfers between the Participants will be effected in accordance with DTC's procedures, and will be settled in same-day funds.
DTC has advised B&G Foods that it will take any action permitted to be taken by a holder of notes only at the direction of one or more Participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the notes, DTC reserves the right to exchange the Global Notes for legended notes in certificated form, and to distribute such notes to its Participants.
Although DTC has agreed to the foregoing procedures to facilitate transfers of interests in the Global Notes among participants in DTC, it is under no obligation to perform or to continue to perform such procedures, and may discontinue such procedures at any time. None of B&G Foods, the trustee and any of their respective agents will have any responsibility for the performance by DTC or its Participants or indirect Participants of their respective obligations under the rules and procedures governing their operations.
Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for Certificated Notes if:
In addition, beneficial interests in a Global Note may be exchanged for Certificated Notes upon prior written notice given to the trustee by or on behalf of DTC in accordance with the indenture. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures).
Same Day Settlement and Payment
B&G Foods will make, or cause to be made, payments in respect of the notes represented by the Global Notes (including principal, premium, if any, and interest, if any) by wire transfer of immediately available funds to the accounts specified by DTC or its nominee. B&G Foods will make all payments of principal, interest and premium, if any, with respect to Certificated Notes by wire transfer of
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immediately available funds to the accounts specified by the holders of the Certificated Notes or, if no such account is specified, by mailing a check to each such holder's registered address. The notes represented by the Global Notes are expected to be eligible to trade in The PORTALSM Market and to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary market trading activity in such notes will, therefore, be required by DTC to be settled in immediately available funds. B&G Foods expects that secondary trading in any Certificated Notes will also be settled in immediately available funds.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for a full disclosure of all defined terms used therein, as well as any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
provided that the amount of Acquired Debt only at the time so acquired will include the accreted value together with any interest thereon that is more than 30 days past due; provided, further, that Indebtedness of such other Person that is redeemed, defeased, retired or otherwise repaid at the time, or immediately upon consummation, of the transaction by which such other Person is merged with or into or became a Restricted Subsidiary of such Person will not be Acquired Debt.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings.
"Asset Sale" means:
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Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
"Asset Sale Offer" has the meaning assigned to that term in the indenture governing the notes.
"Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, however, that if such sale and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of "Capital Lease Obligation."
"Available Cash" means, with respect to any specified Person for any period, the Consolidated Cash Flow of that Person for such period, minus the sum of the following, each determined for such period on a consolidated basis:
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the Option of Holders Asset Sales" and (c) through a refinancing involving the incurrence of new long-term Indebtedness.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
"Borrowing Base" means, as of any date, an amount equal to:
in each case determined in accordance with GAAP.
"Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet prepared in accordance with GAAP, and the Stated Maturity thereof shall 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 prepaid by the lessee without payment of a penalty.
"Capital Stock" means:
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"Cash Equivalents" means:
"Change of Control" means the occurrence of any of the following:
"Change of Control Offer" has the meaning assigned to that term in the indenture governing the notes.
"Change of Control Payment Date" has the meaning assigned to that term in the indenture governing the notes.
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"Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication:
in each case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that:
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"Continuing Directors" means, as of any date of determination, any member of the Board of Directors of B&G Foods who:
"Credit Agreement" means that certain Credit Agreement, to be dated as of , 2004 by and among B&G Foods, the Guarantors, Lehman Commercial Paper, Inc., as administrative agent, and the lenders from time to time party thereto, providing for up to $30.0 million of revolving credit borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and, in each case, as amended, restated, modified, renewed, refunded, replaced (whether upon or after termination or otherwise) or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time.
"Credit Facilities" means, one or more debt facilities (including, without limitation, the Credit Agreement) or commercial paper facilities, in each case, with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced (whether upon or after termination or otherwise) or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time (whether upon or after termination or otherwise) or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or the giving of written notice or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Indebtedness represented by the Credit Facilities, (ii) the New Senior Debt and (iii) any other Senior Indebtedness so designated by B&G Foods.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require B&G Foods to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that B&G Foods may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "Certain CovenantsRestricted Payments." The amount of Disqualified Stock deemed to be outstanding at any time for purposes of the indenture will be the maximum amount that B&G Foods and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends.
"Domestic Subsidiaries" means any Restricted Subsidiary of B&G Foods that was formed under the laws of the United States or any state of the United States or the District of Columbia or that guarantees or otherwise provides direct credit support for any Indebtedness of B&G Foods.
"Enhanced Income Securities" means the units of B&G Foods comprised of the notes and Class A common stock.
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"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
"Excess Cash" means, with respect to any period, Consolidated Cash Flow minus the sum of (i) cash interest expense and (ii) income tax expense, in each case, for such period.
"Existing Indebtedness" means Indebtedness of B&G Foods and its Restricted Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of the indenture, reduced to the extent such amounts are repaid, refinanced or retired.
"Fair Market Value" means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the Board of Directors of B&G Foods (unless otherwise provided in the indenture).
"Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
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for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months).
"Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of:
"GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession in the United States, which are in effect on the date of the indenture.
"Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection or standard contractual indemnities in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise).
"Guarantors" means each of:
and their respective successors and assigns, in each case, until the Note Guarantee of such Person has been released in accordance with the provisions of the indenture.
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"Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under:
"Immaterial Subsidiary" means, as of any date, any Restricted Subsidiary whose total assets, as of that date, are less than $100,000 and whose total revenues for the most recent 12-month period do not exceed $100,000; provided that a Restricted Subsidiary will not be considered to be an Immaterial Subsidiary if it, directly or indirectly, guarantees or otherwise provides direct credit support for any Indebtedness of B&G Foods.
"Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent:
if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person; provided that if the holder of such Indebtedness has no recourse to such Person other than to the asset, the amount of such Indebtedness will be deemed to be equal to the lesser of the value of such asset and the amount of the obligation so secured) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person.
"Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including guarantees or other obligations), advances or capital contributions (excluding accounts receivable, trade credit and advances to customers in the ordinary course of business and commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If B&G Foods or any Subsidiary of B&G Foods sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of B&G Foods such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of B&G Foods, B&G Foods will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of B&G Foods' Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "Certain CovenantsRestricted
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Payments." The acquisition by B&G Foods or any Subsidiary of B&G Foods of a Person that holds an Investment in a third Person will not be deemed to be an Investment by B&G Foods or such Subsidiary in such third Person if the purpose of such acquisition by B&G Foods or such Subsidiary was not the Investment in such third Person. Except as otherwise provided in the indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value.
"Joint Venture" means any joint venture between B&G Foods and/or any Restricted Subsidiary and any other Person if such joint venture is:
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement relating to a lien on an asset under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:
"Net Proceeds" means the aggregate cash proceeds received by B&G Foods or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Senior Indebtedness, secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP.
"New Senior Debt" means the new senior unsecured indebtedness that B&G Foods anticipates that it will incur simultaneous with the offering of EISs.
"New Senior Debt Guarantee" means the Guarantee by each Guarantor of B&G Foods' obligations under the New Senior Debt, executed pursuant to the provisions of the documents governing the New Senior Debt.
"Non-Recourse Debt" means Indebtedness:
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"Note Guarantee" means the Guarantee by each Guarantor of B&G Foods' obligations under the indenture and the notes, executed pursuant to the provisions of the indenture.
"Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.
"Officers' Certificate" means the officers' certificate to be delivered upon the occurrence of specified events as set forth in the indenture.
"Permitted Business" means the business of B&G Foods and its Subsidiaries as existing on the date of the indenture and any other businesses that are the same, similar or reasonably related, ancillary or complementary thereto and reasonable extensions thereof.
"Permitted Investments" means:
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"Permitted Junior Securities" means: debt or equity securities of B&G Foods or any successor corporation issued pursuant to a plan of reorganization or readjustment of B&G Foods that are subordinated to the payment of all then-outstanding Senior Indebtedness of B&G Foods at least to the same extent that the notes are subordinated to the payment of all Senior Indebtedness of B&G Foods on the issue date, so long as to the extent that any Senior Indebtedness of B&G Foods outstanding on the date of consummation of any such plan of reorganization or readjustment is not paid in full in cash on such date, either (a) the holders of any such Senior Indebtedness not so paid in full in cash have consented to the terms of such plan of reorganization or readjustment or (b) such holders receive securities which constitute Senior Indebtedness and which have been determined by the relevant court to constitute satisfaction in full in cash of any Senior Indebtedness not paid in full in cash.
"Permitted Liens" means:
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of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
"Permitted Refinancing Indebtedness" means any Indebtedness of B&G Foods or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge other Indebtedness of B&G Foods or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that:
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"Person" means any individual, corporation, limited liability company, joint stock company, joint venture, partnership, limited liability partnership, association, unincorporated organization, trust, governmental regulatory entity, country, state, agency or political subdivision thereof, municipality, county, parish or other entity.
"Principals" means BRS and the members of management of B&G Foods or any of the B&G Foods' Restricted Subsidiaries as of the date of the indenture.
"Public Equity Offering" means an offer and sale of Capital Stock (other than Disqualified Stock or Enhanced Income Securities) of B&G Foods pursuant to a registration statement that has been declared effective by the SEC pursuant to the Securities Act (other than a registration statement on Form S-8 or otherwise relating to equity securities issuable under any employee benefit plan of B&G Foods).
"Quarterly Base Dividend Level" means, for any fiscal quarter, 85% of B&G Foods' Excess Cash for the 12 month period ending on the last day of B&G Foods' then most recently ended fiscal quarter for which internal financial statements are available at the time such dividend is declared and paid divided by four (4).
"Related Party" means:
"Representative" means the trustee, agent or representative (if any) for an issue of Senior Indebtedness.
"Restricted Investment" means an Investment other than a Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.
"Securities Holders Agreement" means the securities holders agreement among BRS, certain of our existing stockholders, certain members of our board of directors and our executive officers, as amended in connection with the Transactions.
"Significant Subsidiary" means any Restricted Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the indenture.
"Permitted Business" means a business, the majority of whose revenues are derived from the production, manufacturing and/or distribution of shelf-stable foods, or the activities of B&G Foods as of the date of the indenture or any line of products, brand, business or activity that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto.
"Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the date of the indenture, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
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contingency and after giving effect to any voting agreement or stockholders' agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
"Transaction Services Agreement" means .
"Transactions" has the meaning given in this prospectus.
"Treasury Rate" means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to , 2009; provided, however, that if the period from the redemption date to , 2009 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.
"Unrestricted Subsidiary" means any Subsidiary of B&G Foods that is designated by the Board of Directors of B&G Foods as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such Subsidiary:
"Voting Stock" of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
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SHARES ELIGIBLE FOR FUTURE SALE
Future sales or the availability for sale of substantial amounts of EISs or shares of our Class A common stock or a significant principal amount of our subordinated notes in the public market could adversely affect prevailing market prices and could impair our ability to raise capital through future sales of our securities. Upon completion of this offering, we will have EISs outstanding, in respect of in the aggregate shares of our Class A common stock and $ million aggregate principal amount of our subordinated notes. All of these EISs and securities represented thereby will be freely tradable without restriction or further registration under the Securities Act, unless the EISs or securities represented thereby are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act of 1933. Upon completion of this offering, the existing financial investors and management will own shares of our Class B common stock representing an aggregate % ownership interest in us after the offering, or % if the underwriters' over-allotment option is exercised in full. Upon any subsequent sale of Class B common stock by holders thereof, the Class B common stock will automatically convert to Class A common stock and, at the option of the Class B stockholders, we will automatically exchange a portion of the Class A common stock with the purchasers for subordinated notes at an exchange rate of $ for each share of Class A common stock. We anticipate that the existing financial investors will have demand and piggyback registration rights for their shares of Class B common stock (which include automatic exchange rights upon transfer into subordinated notes), which may be converted or exchanged into shares of our Class A common stock and sold in the form of EISs, under certain circumstances. In addition, certain members of management will have piggyback registration rights for their EISs. See "Certain Relationships and Related Transactions Stockholders Agreement and Registration Rights Agreement." Registration rights may not be exercised during the lock-up period. Holders of Class B common stock may not transfer any shares during the lock-up period.
If permitted under our senior debt agreements, we may issue shares of our common stock or subordinated notes, which may be in the form of EISs, or other securities from time to time as consideration for future acquisitions and investments. In the event any such acquisition or investment is significant, the number of shares of our common stock or subordinated notes, which may be in the form of EISs, or other securities that we may issue may in turn be significant. In addition, we may also grant registration rights covering those shares of our common stock or subordinated notes and EISs, if applicable, or other securities in connection with any such acquisitions and investments.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of our counsel, Dechert LLP, the following describes the material U.S. federal income tax consequences (and certain U.S. federal estate tax consequences to Non-U.S. Holders (as defined below)) of the purchase, ownership and disposition of EISs, subordinated notes and common stock as of the date hereof by U.S. Holders (as defined below) and Non-U.S. Holders (as defined below). Except where noted, this discussion deals only with EISs held as capital assets by holders who acquired EISs upon their original issuance at their initial offering price and does not deal with special situations, such as those of:
Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date hereof, and such authorities may be repealed, revoked, modified or subject to differing interpretations, possibly on a retroactive basis, so as to result in U.S. federal income tax consequences different from those discussed below.
A "U.S. Holder" of EISs, subordinated notes or common stock means a holder that is for U.S. federal income tax purposes:
If a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes holds EISs, subordinated notes or common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a
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partner of a partnership holding EISs, subordinated notes or common stock you should consult your own tax advisors.
No statutory, administrative or judicial authority directly addresses the treatment of EISs or instruments similar to EISs for U.S. federal income tax purposes. As a result, the Internal Revenue Service ("IRS") or the courts may not agree with the tax consequences described herein. A different treatment from that assumed below could adversely affect the amount, timing and character of income, gain or loss in respect of an investment in the EISs, and, in the case of non-U.S. holders, could subject such holders to U.S. federal withholding or estate taxes with regard to the subordinated notes in the same manner as they will be with regard to the Class A common stock. Payments to non-U.S. holders would not be grossed-up for any such taxes. In addition, a different treatment could result in the loss by us of all or part of the deduction for interest paid on the subordinated notes. If you are considering the purchase of EISs, you should consult your own tax advisors concerning the particular U.S. federal income tax consequences to you of the ownership of EISs, subordinated notes or common stock, as well as any consequences to you arising under the laws of any other taxing jurisdiction.
Consequences to U.S. Holders
EISs
Allocation of Purchase Price
We believe that your acquisition of EISs should be treated as an acquisition of the shares of our Class A common stock and the subordinated notes represented by the EISs. Accordingly, we intend to treat the acquisition of EISs in this manner, and, by purchasing EISs, you will agree to such treatment. The remainder of this discussion assumes that the acquisition of EISs will be treated as an acquisition of shares of our Class A common stock and subordinated notes.
The purchase price of each EIS will be allocated between the share of Class A common stock and subordinated notes in proportion to their respective fair market values at the time of purchase. Such allocation will establish your initial tax basis in the share of Class A common stock and the subordinated notes. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of subordinated notes as $ , and by purchasing EISs, you will agree to such allocation. If this allocation is not respected, it is possible that the subordinated notes will be treated as having been issued with OID or amortizable bond premium. You generally would have to include OID in income as it accrues, in addition to stated interest on the subordinated notes, and you would be able to elect to amortize bond premium over the remaining term of the subordinated notes. The remainder of this discussion assumes that this allocation of the purchase price will be respected.
Separation and Recombination
If you were to separate your EISs into the shares of Class A common stock and subordinated notes represented thereby or recombine the applicable number of shares of Class A common stock and principal amount of subordinated notes to form EISs, you generally would not recognize gain or loss upon the separation or recombination into EISs. You would continue to take into account items of income or deduction otherwise includible or deductible, respectively, with respect to the shares of Class A common stock and the subordinated notes, and your tax basis in the shares of Class A common stock and the subordinated notes would not be affected by the separation or recombination.
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Subordinated Notes
Characterization of Subordinated Notes
As discussed in more detail in the following paragraphs, we believe that the notes should be treated as debt for U.S. federal income tax purposes, although this conclusion is not free from doubt. We will receive an opinion of our special counsel, Dechert LLP, and the lead underwriters will receive an opinion of their counsel, Debevoise & Plimpton LLP, that the notes should be so treated. Such opinions are based in part on facts described in this prospectus and on various other factual assumptions, representations and determinations (including those described below). Any alteration of such facts could adversely affect such opinions. In addition, such opinions are not binding on the IRS or the courts, and no ruling on this issue has been requested from the IRS. The IRS may challenge our position and such challenge may be successful. We will treat, and, by acquiring an EIS, each holder agrees to treat, the subordinated notes as our indebtedness for all tax purposes.
The determination of whether an instrument is treated as debt or equity for U.S. federal income tax purposes is based on all relevant facts and circumstances. There is no clear statutory definition of debt and its characterization is governed by principles developed in case law, which analyzes numerous factors (with no one factor being dispositive) that are intended to identify the economic substance of the investor's interest in the corporation. Our determination that the subordinated notes should be treated as debt for U.S. federal income tax purposes, and the opinions of counsel to this effect referred to above, are based upon the terms of the subordinated notes and, in addition, rely upon certain representations and determinations by us, the lead underwriters and an investment bank and independent appraisal firm, including representations and determinations substantially to the effect that:
In light of the determinations described above and their relevance to several of the factors analyzed in case law, and taking into account the facts and circumstances relating to the issuance of the subordinated notes, we (and our counsel) are of the view that the subordinated notes should be treated as debt for U.S. federal income tax purposes. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the subordinated notes or offered under circumstances such as the offering (i.e., offered as a unit consisting of subordinated notes and Class A common stock). In light of this absence of direct authority, neither we nor our counsel can conclude with certainty that the notes will be treated as debt for U.S. federal income tax purposes.
If the subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the subordinated notes would be treated as a dividend to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), and interest on the subordinated notes would not be deductible by us for U.S. federal income tax purposes. In addition, as discussed below under "Consequences to Non-U.S. HoldersClass A Common Stock," Non-U.S. Holders could be subject to withholding or estate taxes
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with regard to the subordinated notes in the same manner as they will be with regard to the Class A common stock. We would also be liable for withholding taxes on any interest payments previously made by us to Non-U.S. Holders that are recharacterized as dividends for U.S. federal income tax purposes. Our inability to deduct interest on the subordinated notes could materially increase our taxable income and, thus, our U.S. federal income tax liability. This would reduce our after-tax cash flow and could materially adversely affect our ability to make interest and principal payments on the subordinated notes and dividend payments on the Class A common stock.
Except where stated otherwise, the discussion of the consequences to U.S. Holders and Non-U.S. Holders described below assumes the notes will be respected as debt.
Sale, Exchange or Retirement of Subordinated Notes
Upon the sale, exchange, retirement or other disposition of an EIS, you will be treated as having sold, exchanged, retired or disposed of the subordinated notes underlying the EIS. Upon the sale, exchange, retirement or other disposition of subordinated notes, you will recognize gain or loss equal to the difference between the portion of the proceeds allocable to your subordinated notes (less an amount equal to any accrued and unpaid interest which will be treated as a payment of interest for U.S. federal income tax purposes) and your adjusted tax basis in the subordinated notes. As described above under "Consequences to U.S. HoldersEISsAllocation of Purchase Price," your tax basis in subordinated notes generally will be the portion of the purchase price of your EISs allocable to the subordinated notes, less any principal payments thereon. Such gain or loss will generally be capital gain or loss. Capital gains of individuals derived in respect of capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Additional Issuances
Subsequently issued subordinated notes may be issued with original issue discount, referred to as OID, if they are issued at a discount to their face value. The U.S. federal income tax consequences to you of the subsequent issuance of subordinated notes with OID upon a subsequent offering by us of EISs or upon the issuance of subordinated notes following an exchange by the holders of our Class B common stock for EISs are unclear. The indenture governing the subordinated notes will provide that, in the event there is a subsequent issuance of subordinated notes with a new CUSIP number having terms that are otherwise identical (other than issuance date) in all material respects to the subordinated notes represented by the EISs, each holder of subordinated notes or EISs, as the case may be, agrees that a portion of such holder's notes will be exchanged for a portion of the subordinated notes acquired by the holders of such subsequently issued subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued notes, held either as part of EISs or separately, and each holder of existing subordinated notes, held either as part of EISs or separately, will own an inseparable unit composed of a proportionate percentage of both the old subordinated notes and the newly issued subordinated notes. Because a subsequent issuance will affect the subordinated notes in the same manner, regardless of whether these subordinated notes are held as part of EISs or separately, the combination of subordinated notes and shares of common stock to form EISs, or the separation of EISs, should not affect your tax treatment.
The aggregate stated principal amount of notes owned by each holder will not change as a result of such subsequent issuance and exchange. However, under applicable law it is possible that the holders of subsequently issued notes (to the extent issued with OID) will not be entitled to a claim for the portion of their principal amount that represents unaccrued OID in the event of an acceleration of the notes or a bankruptcy proceeding occurring prior to the maturity of the notes. Whether the receipt of subsequently issued notes in exchange for previously issued notes in this automatic exchange constitutes a taxable exchange for U.S. federal income tax purposes depends on whether the subsequently issued notes are viewed as differing materially from the notes exchanged. Due to a lack of applicable
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guidance, it is unclear whether the subsequently issued notes would be viewed as differing materially from the previously issued notes for this purpose. Consequently, it is unclear whether an exchange of notes for subsequently issued notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange.
If the IRS successfully asserted that an automatic exchange following a subsequent issuance is a taxable exchange, an exchanging holder would generally recognize gain or loss in an amount equal to the difference between the fair market value of the subsequently issued notes received and such holder's adjusted tax basis in the notes exchanged. See "Notes-Sale, Exchange or Retirement of Notes." It is also possible that the IRS might successfully assert that any loss so recognized should be disallowed under the wash sale rules, in which case the holder's basis in the subsequently issued notes would be increased to reflect the amount of the disallowed loss. In the case of a taxable exchange, a holder's initial tax basis in the subsequently issued notes received in the exchange would be the fair market value of such notes on the date of exchange (adjusted to reflect any disallowed loss) and a holder's holding period in such notes would begin on the day after such exchange.
Even if the exchange is not treated as a taxable event, such exchange may have potentially adverse U.S. federal income tax consequences to holders of notes or EISs. For example, in the case of a holder that acquired notes at a premium (which premium may generally be amortized over the term of the notes), such an exchange may result in the holder's inability to amortize the portion of such premium that is attributable to the notes exchanged for subsequently issued notes. Furthermore, such issuance may increase the OID, if any, that holders were previously accruing with respect to the subordinated notes. In addition, holders that acquire notes at "market discount" may, as a result of such issuance and exchange, effectively convert a portion of such market discount into OID. Generally, market discount, unlike OID, is not required to be included in income on an accrual basis, but instead results in treating a portion of the gain realized on sale, exchange or retirement of the notes as ordinary income. Following any subsequent issuance of subordinated notes with OID and exchange we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of subordinated notes and EISs, and each holder of subordinated notes and EISs will, by purchasing EISs, agree to report OID in a manner consistent with this approach. Consequently, holders that acquire notes in this offering may be required to report OID as a result of a subsequent issuance (even though they purchased notes having no OID). This will generally result in such holders reporting more interest income over the term of the subordinated notes than they would have reported had no such subsequent issuance occurred, and any such additional interest income will be reflected as an increase in the tax basis of the subordinated notes, which will generally result in a capital loss (or reduced capital gain) upon a sale, exchange or retirement of the subordinated notes. However, the IRS may assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees). In such case, the IRS might further assert that, unless a holder can establish that it is not such a person (or a transferee thereof), all of the subordinated notes held by such holder have OID. Any of these assertions by the IRS could create significant uncertainties in the pricing of EISs and subordinated notes and could adversely affect the market for EISs and subordinated notes. You would be required to include any OID in income as ordinary income as it accrues, in advance of the receipt of cash attributable to such income.
It is possible that notes we issue in a subsequent issuance will be issued at a discount to their face value and, accordingly, may have "significant OID" and thus be classified as "applicable high yield discount obligations" (AHYDOs). If any such notes were so classified, a portion of the OID on such notes would be nondeductible by us and the remainder would be deductible only when paid. This treatment would have the effect of increasing our taxable income and may adversely affect our cash flow available for interest payments and distributions to our equityholders.
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Due to the complexity and uncertainty surrounding the U.S. federal income tax treatment of subsequent issuances and exchanges of subordinated notes, prospective investors are urged to consult their tax advisors regarding the applicable tax consequences to them in light of their particular circumstances.
Class A Common Stock
Dividends
The gross amount of dividends paid to you will be treated as dividend income to you to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Such income will be includable in your gross income as ordinary income. To the extent, if any, that the amount of dividends paid to you exceeds our current and accumulated earnings and profits, any amount in excess of our earnings and profits will be treated as a tax-free return of your tax basis in the shares of Class A common stock, and any amount in excess of such basis will be treated as capital gain from the sale of the shares. Pursuant to recently enacted legislation, if you are an individual, dividends that we pay to you through 2008 will be subject to tax at long-term capital gain rates, provided certain holding period and other requirements are satisfied.
Taxation of Capital Gains
Upon the sale, exchange, or other disposition of EISs, you will be treated as having sold, exchanged, or disposed of the shares of Class A common stock underlying the EISs. Upon the sale, exchange, or other disposition of shares of our Class A common stock, you will recognize capital gain or loss in an amount equal to the difference between the portion of the proceeds allocable to your shares of Class A common stock and your tax basis in the shares of Class A common stock. As described above under "Consequences to U.S. HoldersEISsAllocation of Purchase Price," your tax basis in the shares of Class A common stock generally will be the portion of the purchase price of your EISs allocable to the shares of Class A common stock, less any prior distributions that reduced such basis. As discussed above, capital gains of individuals derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to payments of principal, interest and dividends on our subordinated notes and common stock and to the proceeds of sale of EISs, subordinated notes and common stock paid to a U.S. Holder other than certain exempt recipients (such as corporations). A backup withholding tax will apply to such payments if you fail to provide a taxpayer identification number or certification of other exempt status or fail to report in full dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is furnished by you to the IRS.
Consequences to Non-U.S. Holders
The following discussion applies only to Non-U.S. Holders. A "Non-U.S. Holder" is a holder, other than an entity or arrangement classified as a partnership for U.S. federal income tax purposes, that is not a U.S. Holder. Special rules may apply to certain Non-U.S. Holders, such as:
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Such Non-U.S. Holders should consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them.
Subordinated Notes
Characterization of Subordinated Notes
As discussed above under "Consequences to U.S. HoldersSubordinated NotesCharacterization of Subordinated Notes," we believe the subordinated notes should be treated as debt for U.S. federal income tax purposes. However, this conclusion is not free from doubt and no ruling on this issue has been requested from the IRS. Consequently, this position may not be sustained if challenged by the IRS. If the subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the subordinated notes would be treated in the same manner as shares of Class A common stock as described below under "Consequences to Non-U.S. HoldersClass A Common StockDividends," and payments on the subordinated notes would be subject to U.S. federal withholding taxes. Payments to Non-U.S. Holders would not be grossed-up on account of any such taxes. In addition, we would be liable for withholding taxes on any interest payments previously made by us to Non-U.S. Holders that are recharacterized as dividends for U.S. federal income tax purposes. The remainder of this discussion assumes the characterization of the subordinated notes as debt for U.S. federal income tax purposes will be respected.
U.S. Federal Withholding Tax
Subject to the discussion below concerning backup withholding, no withholding of U.S. federal income tax should be required with respect to the payment of principal or interest on subordinated notes owned by you under the "portfolio interest rule," provided that:
To satisfy the requirement referred to in the final bullet above, you, or a financial institution holding the subordinated notes on your behalf, must provide, in accordance with specified procedures, our paying agent with a statement to the effect that you are not a U.S. person. Currently, these requirements will be met if (1) you provide your name and address, and certify, under penalties of perjury, that you are not a U.S. person (which certification may be made on an IRS Form W-8BEN), or (2) a financial institution holding the subordinated notes on your behalf certifies, under penalties of perjury, that such statement has been received by it and furnishes a paying agent with a copy thereof. The statement requirement referred to in the final bullet above may also be satisfied with other documentary evidence with respect to a subordinated note held in an offshore account or through certain foreign intermediaries.
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If you cannot satisfy the requirements of the "portfolio interest rule" described in the bullets above, payments of interest (including payments in respect of OID) made to you will be subject to a 30% withholding tax unless you provide us or our paying agent, as the case may be, with a properly executed:
Alternative documentation may be applicable in certain situations such as in the case of non-U.S. governments or flow-through entities organized under non-U.S. law.
U.S. Federal Income Tax
If you are engaged in a trade or business in the United States and interest on the subordinated notes is effectively connected with the conduct of such trade or business (or, if certain tax treaties apply, is attributable to your U.S. permanent establishment), you, although exempt from the withholding tax discussed above (provided the certification requirements described above are satisfied), will be subject to U.S. federal income tax on such interest on a net income basis in the same manner as if you were a U.S. Holder. In addition, if you are a foreign corporation, you may be subject to a branch profits tax equal to 30% (or lesser rate under an applicable income tax treaty) of such amount, subject to adjustments.
Sale, Exchange or Retirement of Subordinated Notes
Upon the sale, exchange, retirement or other disposition of an EIS, you will be treated as having sold, exchanged, retired or disposed of the subordinated notes underlying the EIS. Any gain realized upon the sale, exchange, retirement or other disposition of subordinated notes generally will not be subject to U.S. federal income tax unless:
U.S. Federal Estate Tax
Subordinated notes beneficially owned by an individual who at the time of death is a Non-U.S. Holder should not be subject to U.S. federal estate tax, provided that any payment to such individual on the notes would be eligible for exemption from the 30% U.S. federal withholding tax under the rules described above under "Consequences to Non-U.S. HoldersSubordinated NotesU.S. Federal Withholding Tax" without regard to the statement requirement described therein.
Class A Common Stock
Dividends
Dividends paid to you generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with your conduct of a trade or business within the United States or, if certain tax treaties apply, are attributable to your U.S. permanent establishment, are not subject to the
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withholding tax, but instead are subject to U.S. federal income tax on a net income basis at applicable graduated individual or corporate rates. Special certification and disclosure requirements must be satisfied for effectively connected income to be exempt from withholding. If you are a foreign corporation, any such effectively connected dividends received by you may be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
If you wish to claim the benefit of an applicable treaty rate (and avoid backup withholding as discussed below) for dividends, you will be required to:
Special certification and other requirements apply to certain Non-U.S. Holders that are entities rather than individuals.
If you are eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty, you may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.
Gain on Disposition of Class A Common Stock
Upon the sale, exchange, retirement or other disposition of an EIS, you will be treated as having sold, exchanged, or disposed of the share of Class A common stock underlying the EIS. You generally will not be subject to U.S. federal income tax with respect to gain recognized on a sale or other disposition of shares of our Class A common stock unless:
If you are an individual and are described in the first bullet above, you will be subject to tax on the net gain derived from the sale under regular U.S. federal income tax rates applicable to individuals. If you are described in the second bullet above, you will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by U.S. source capital losses (even though you are not considered a resident of the United States). If you are a foreign corporation and are described in the first bullet above, you will be subject to tax on your gain under regular U.S. federal income tax rates applicable to corporations and, in addition, may be subject to the branch profits tax equal to 30% of your effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty.
We believe we are not and do not anticipate becoming a "U.S. real property holding corporation" for U.S. federal income tax purposes.
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U.S. Federal Estate Tax
Shares of our common stock held by an individual Non-U.S. Holder at the time of death will be included in such holder's gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding
The amount of interest payments and dividends paid to you and the amount of tax, if any, withheld with respect to such payments will be reported annually to the IRS. Copies of the information returns reporting such interest payments, dividends and withholding may also be made available to the tax authorities in the country in which you reside under the provisions of an applicable income tax treaty.
In general, backup withholding will be required with respect to payments made by us or any paying agent to you, unless a statement described in the fifth bullet under "Consequences to Non-U.S. HoldersSubordinated NotesU.S. Federal Withholding Tax" has been received (and we or the paying agent do not have actual knowledge or reason to know that you are a U.S. person).
Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale of EISs, Class A common stock or subordinated notes within the United States or conducted through U.S.-related financial intermediaries unless a statement described in the fifth bullet under "Consequences to Non-U.S. HoldersSubordinated NotesU.S. Federal Withholding Tax" has been received (and we or the paying agent do not have actual knowledge or reason to know that you are a U.S. person) or you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is furnished by you to the IRS.
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RBC Capital Markets Corporation, Credit Suisse First Boston LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as joint book-running managers for the offering and, together with Lehman Brothers Inc. and Piper Jaffray & Co., are acting as representatives of the underwriters named below. Subject to the terms and conditions in the underwriting agreement, each underwriter named below has agreed to purchase from us, on a firm commitment basis, the respective number of EISs shown opposite its name below:
Underwriters |
Number of EISs |
||
---|---|---|---|
RBC Capital Markets Corporation | |||
Credit Suisse First Boston LLC | |||
Merrill Lynch, Pierce, Fenner & Smith Incorporated |
|||
Lehman Brothers Inc. | |||
Piper Jaffray & Co. | |||
Total | |||
The underwriting agreement provides that the underwriters' obligations to purchase our EISs are subject to approval of legal matters by counsel and to the satisfaction of other conditions. The underwriters are obligated to purchase all of the EISs (other than those covered by the over-allotment option described below) if they purchase any EISs.
Any subsequent issuance of EISs of the same series that results in an automatic exchange of a portion of your notes for a portion of the notes issued in such subsequent issuance, and/or replacement of your EISs with new EISs should not effect your rights to assert claims against the underwriters, if any, and for such purposes, you should be treated as if the automatic exchange had never occurred. However, under no circumstances shall the underwriters in this offering have any liability to you or to us, by virtue of their participation in this offering, with respect to any offering materials used in connection with any such subsequent issuance.
Commissions and Expenses
The representatives have advised us that the underwriters propose to offer the EISs directly to the public at the public offering price presented on the cover page of this prospectus and to selected dealers, who may include the underwriters, at the public offering price less a selling concession not in excess of $ per EIS. The underwriters may allow, and the selected dealers may reallow, a concession not in excess of $ per EIS to brokers and dealers. After the offering, the underwriters may change the offering price and other selling terms. The underwriters have informed us that they do not intend to confirm sales to any accounts over which they exercise discretionary authority.
The following table summarizes the underwriting discounts and commissions that will be paid to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional EISs.
|
|
Total |
|||||||
---|---|---|---|---|---|---|---|---|---|
|
Per EIS |
Without Over- Allotment |
With Over- Allotment |
||||||
Public offering price | $ | $ | $ | ||||||
Underwriting discount paid by us | $ | $ | $ |
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We estimate that the total expenses of the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts and commissions, will be approximately $ .
Over-Allotment Option
The underwriters have an option to buy up to additional EISs from us to cover sales of EISs by the underwriters which exceed the number of EISs specified in the table above at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus. The underwriters have 30 days from the date of this prospectus to exercise this option. If the underwriters exercise this option, they will each be obligated, subject to certain conditions, to purchase additional EISs approximately in proportion to the amounts specified in the table above. If any additional EISs are purchased, the underwriters will offer the additional EISs on the same terms as those on which the EISs are being offered. We will pay the expenses associated with the exercise of the over-allotment option.
Lock-Up Agreements
We have agreed that, without the prior written consent of the representatives, we will not, directly or indirectly, offer, sell or dispose of any EISs or shares of our Class A common stock or Class B common stock or subordinated notes or any securities which may be converted into or exchanged for such securities for a period of 180 days from the date of this prospectus. Our executive officers, directors and principal stockholders, have agreed under lock-up agreements not to, without the prior written consent of the representatives, directly or indirectly, offer, sell or otherwise dispose of any EISs or shares of our Class A common stock or Class B common stock or subordinated notes or any securities which may be converted into or exchanged or exercised for such securities for a period of 180 days from the date of this prospectus.
Offering Price Determination
Prior to this offering, there has been no public market for our Class A common stock, the notes or the EISs. The initial public offering price of the EISs has been negotiated between the representatives and us. In determining the initial public offering price of our EISs, the representatives considered:
We will apply to list the EISs on the American Stock Exchange under the symbol " ."
Indemnification
We have agreed to indemnify the underwriters against liabilities relating to the offering, including liabilities under the Securities Act and liabilities arising from breaches of the representations and warranties contained in the underwriting agreement and to contribute to payments that the underwriters may be required to make for these liabilities.
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Stabilization, Short Positions and Penalty Bids
The representatives may engage in over-allotment and stabilizing transactions, syndicate covering transactions and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the EISs, in accordance with Regulation M under the Securities Exchange Act of 1934:
These transactions may have the effect of raising or maintaining the market price of our EISs or preventing or retarding a decline in the market price of our EISs. As a result, the price of our EISs may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the American Stock Exchange or otherwise and, if commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our EISs. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.
Directed Share Program
At our request, the underwriters have reserved up to EISs, or % of our EISs offered by this prospectus, for sale under a directed share program to our directors, management and related parties. All of the persons purchasing the reserved EISs must commit to purchase no later than the close of business on the day following the date of this prospectus. The number of EISs available for sale to the general public will be reduced to the extent these persons purchase the reserved EISs. EISs committed to be purchased by directed share participants which are not so purchased will be reallocated for sale to the general public in the offering. All sales of EISs pursuant to the directed share program will be made at the initial public offering price set forth on the cover page of this
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prospectus. Participants in the directed share program have agreed not to sell or otherwise dispose of the EISs acquired in this program for a period of 180 days from the date of this prospectus.
Other Arrangements
Affiliates of Credit Suisse First Boston LLC own an aggregate of approximately 12% of Bruckmann, Rosser, Sherill & Co., L.P., our sponsor investor. Because of this relationship, Credit Suisse First Boston may be deemed to have a conflict of interest under NASD Conduct Rule 2720. This rule requires that the public offering price of a security be no higher than the price recommended by a qualified independent underwriter which has participated in the preparation of the registration statement and performed its usual standard of due diligence with respect to that registration statement. If we conduct this offering in accordance with NASD Conduct Rule 2720(c), the price of the EISs will be no higher than that recommended by RBC Capital Markets Corporation.
Some of the underwriters have provided, and may continue to provide, from time to time investment banking, commercial banking, advisory and other services to us for customary fees and expenses in the ordinary course of their business. Affiliates of Lehman Brothers Inc. are the arranger, administrative agent and lenders under our existing senior secured credit facility (including the senior revolving credit facility and senior term loan). We expect to use a portion of the proceeds of this offering and proceeds from the other Transactions to repay all outstanding indebtedness under our existing senior credit facility. See "Use of Proceeds." The affiliate of Lehman Brothers Inc. that is a lender under our existing senior credit facility will receive its proportionate share of the amounts paid in repayment of our existing senior credit facility.
We anticipate that affiliates of one or more of the underwriters will be the lead arranger or agents under our new revolving credit facility and will receive customary fees relating thereto. In addition, we anticipate that affiliates of some or all of the underwriters will be lenders under our new revolving credit facility.
Proceeds of this offering will be applied to pay down debt obligations owed to affiliates of Lehman Brothers Inc. and Credit Suisse First Boston LLC. If we determine that more than ten percent of the net proceeds of the offering may be paid to members or affiliates of members of the National Association of Securities Dealers, Inc. participating in the offering, the offering will be conducted in accordance with NASD Conduct Rule 2710(c)(8). This rule also requires that the public offering price of a security be no higher than the price recommended by a qualified independent underwriter. If we conduct this offering in accordance with NASD Conduct Rule 2710(c)(8), the price of the EISs will be no higher than that recommended by RBC Capital Markets Corporation.
The validity of the issuance of the EISs offered hereby and the shares of our Class A common stock and subordinated notes represented thereby, as well as the validity of the issuance of the subsidiary guarantees by the Delaware and Massachusetts subsidiary guarantors, will be passed upon for us by Dechert LLP, New York, New York. The validity of the issuance of the subsidiary guarantee by the Vermont subsidiary guarantor will be passed upon for us by , Burlington, Vermont. Certain legal matters relating to this offering will be passed upon for the underwriters by Debevoise & Plimpton LLP, New York, New York.
The consolidated financial statements and schedule of B&G Foods Holdings Corp. and subsidiaries as of December 28, 2002 and January 3, 2004, and for each of the fiscal years ended December 29, 2001, December 28, 2002 and January 3, 2004, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
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The financial statements of The Ortega Brand of Business as of December 31, 2002 and for the year then ended have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form S-1 with the Commission regarding this offering. This prospectus, which is part of the registration statement, does not contain all of the information included in the registration statement, and you should refer to the registration statement and its exhibits to read that information. As a result of the effectiveness of the registration statement, we are subject to the informational reporting requirements of the Exchange Act of 1934 and, under that Act, we will file reports, proxy statements and other information with the Commission. As required by the terms of the indenture governing our existing senior subordinated notes, prior to its merger with and into B&G Holdings, B&G Foods filed these reports with the SEC. You may read and copy the registration statement, the related exhibits and the reports, proxy statements and other information we file with the SEC at the SEC's public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You can also request copies of those documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The SEC also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file with the SEC. The site's Internet address is www.sec.gov.
You may also request a copy of these filings, at no cost, by writing or telephoning us at:
B&G
Foods, Inc.
Four Gatehall Drive, Suite 110
Parsippany, NJ 07054
(973) 401-6500
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page |
|
---|---|---|
B&G Foods Holdings Corp. and Subsidiaries: | ||
Independent Auditors' Report | F-2 | |
Consolidated Balance Sheets as of December 28, 2002 and January 3, 2004 | F-3 | |
Consolidated Statements of Operations for the years ended December 29, 2001, December 28, 2002 and January 3, 2004 | F-4 | |
Consolidated Statements of Stockholders' Equity for the years ended December 29, 2001, December 28, 2002 and January 3, 2004 | F-5 | |
Consolidated Statements of Cash Flows for the years ended December 29, 2001, December 28, 2002 and January 3, 2004, | F-6 | |
Notes to Consolidated Financial Statements | F-7 | |
Schedule IIValuation and Qualifying Accounts | F-31 | |
The Ortega Brand of Business: |
||
Independent Auditors' Report | F-32 | |
Statements of Net Assets Sold as of December 31, 2002 and June 30, 2003 (unaudited) | F-33 | |
Statements of Direct Revenue and Direct Expenses for the year ended December 31, 2002 and for the six months ended June 30, 2002 (unaudited) and June 30, 2003 (unaudited) | F-34 | |
Notes to Financial Statements | F-35 |
F-1
The
Board of Directors and Stockholders
B&G Foods Holdings Corp.:
We have audited the accompanying consolidated balance sheets of B&G Foods Holdings Corp. and subsidiaries as of December 28, 2002 and January 3, 2004, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 29, 2001, December 28, 2002 and January 3, 2004. In connection with our audits of the consolidated financial statements, we also have audited the schedule of valuation and qualifying accounts for the years ended December 29, 2001, December 28, 2002 and January 3, 2004. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of B&G Foods Holdings Corp. and subsidiaries as of December 28, 2002 and January 3, 2004, and the results of their operations and their cash flows for the years ended December 29, 2001, December 28, 2002 and January 3, 2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
New
York, New York
February 10, 2004
F-2
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
|
December 28, 2002 |
January 3, 2004 |
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---|---|---|---|---|---|---|---|---|---|
Assets | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 15,866 | $ | 8,092 | |||||
Trade accounts receivable, less allowance for doubtful accounts of $464 and $526 in 2002 and 2003, respectively | 21,900 | 22,348 | |||||||
Inventories | 67,536 | 80,789 | |||||||
Prepaid expenses | 2,024 | 2,336 | |||||||
Deferred income taxes | 1,485 | 115 | |||||||
Total current assets | 108,811 | 113,680 | |||||||
Property, plant and equipment, net |
37,414 |
43,940 |
|||||||
Goodwill | 112,319 | 188,629 | |||||||
Trademarks | 162,781 | 193,481 | |||||||
Other assets | 9,348 | 10,209 | |||||||
Total assets | $ | 430,673 | $ | 549,939 | |||||
Liabilities and Stockholders' Equity | |||||||||
Current liabilities: | |||||||||
Current installments of long-term debt | $ | 370 | $ | 1,500 | |||||
Trade accounts payable | 18,826 | 19,816 | |||||||
Accrued expenses | 19,441 | 24,819 | |||||||
Due to related party | 208 | 208 | |||||||
Total current liabilities | 38,845 | 46,343 | |||||||
Long-term debt, excluding current maturities |
273,426 |
367,296 |
|||||||
Other liabilities | 291 | 347 | |||||||
Deferred income taxes | 40,046 | 42,774 | |||||||
Total liabilities | 352,608 | 456,760 | |||||||
Commitments and contingencies (Notes 5, 6, 12 and 13) | |||||||||
Mandatorily redeemable preferred stock: |
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Series C senior preferred stock, $0.01 par value per share, liquidation value $37,664 and $43,122 in 2002 and 2003, respectively. Designated 25,000 shares; issued and outstanding 25,000 shares in 2002 and 2003 |
37,714 |
43,188 |
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Stockholders' equity: |
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13% Series A cumulative preferred stock, $0.01 par value per share, liquidation value of $41,109 and $46,453 in 2002 and 2003, respectively. Designated 22,000 shares; issued and outstanding 20,341 shares in 2002 and 2003 | | | |||||||
13% Series B cumulative preferred stock, $0.01 par value per share, liquidation value of $19,496 and $22,031 in 2002 and 2003, respectively. Designated 35,000 shares; issued and outstanding 12,311 shares in 2002 and 2003 | | | |||||||
Common stock, $0.01 par value per share. Authorized 250,000 shares; issued and outstanding 105,500 shares in 2002 and 2003 | 1 | 1 | |||||||
Additional paid in capital | 31,345 | 31,329 | |||||||
Accumulated other comprehensive loss | (20 | ) | (74 | ) | |||||
Retained earnings | 9,025 | 18,735 | |||||||
Total stockholders' equity | 40,351 | 49,991 | |||||||
Total liabilities and stockholders' equity | $ | 430,673 | $ | 549,939 | |||||
See accompanying Notes to consolidated financial statements.
F-3
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
|
Year ended |
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---|---|---|---|---|---|---|---|---|---|---|---|
|
December 29, 2001 |
December 28, 2002 |
January 3, 2004 |
||||||||
Net sales (Note 2(g)) | $ | 279,779 | $ | 293,677 | $ | 328,356 | |||||
Cost of goods sold | 192,525 | 203,707 | 226,174 | ||||||||
Gross profit | 87,254 | 89,970 | 102,182 | ||||||||
Operating expenses: |
|||||||||||
Sales, marketing and distribution expenses (Note 2(g)) | 34,922 | 35,852 | 39,477 | ||||||||
General and administrative expenses | 14,120 | 4,911 | 6,313 | ||||||||
Management feesrelated party | 500 | 500 | 500 | ||||||||
Environmental clean-up expenses | 950 | 100 | | ||||||||
Operating income | 36,762 | 48,607 | 55,892 | ||||||||
Other expenses: |
|||||||||||
Gain on sale of assets | (3,112 | ) | | | |||||||
Derivative gain | | (2,524 | ) | | |||||||
Interest expense, net | 29,847 | 26,626 | 31,205 | ||||||||
Income before income taxes | 10,027 | 24,505 | 24,687 | ||||||||
Provision for income taxes | 4,029 | 9,260 | 9,519 | ||||||||
Net income | $ | 5,998 | $ | 15,245 | $ | 15,168 | |||||
Less: preferred stock dividends accumulated and related charges | 10,352 | 11,739 | 13,336 | ||||||||
Net (loss) income available to common stockholders | $ | (4,354 | ) | $ | 3,506 | $ | 1,832 | ||||
Basic net (loss) income available to common stockholders per common share (Note 2) | $ | (41.27 | ) | $ | 33.23 | $ | 17.36 | ||||
Diluted net (loss) income available to common stockholders per common share (Note 2) | $ | (41.27 | ) | $ | 24.87 | $ | 12.99 | ||||
See accompanying Notes to consolidated financial statements.
F-4
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands, except per share information)
|
Preferred Stock Series A |
Preferred Stock Series B |
|
|
|
Accumulated Other Comprehensive (Loss) Income |
|
|
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Common Stock |
|
|
|
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|
Additional Paid in Capital |
Retained (Deficit) Earnings |
Total Stockholders' Equity |
||||||||||||||||||||||||||
|
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||
Balance at December 30, 2000 | 20,321 | $ | | 10,000 | $ | | 102,500 | $ | 1 | $ | 31,327 | $ | (12 | ) | $ | (3,288 | ) | $ | 28,028 | ||||||||||
Foreign currency translation | | | | | | | | (36 | ) | | (36 | ) | |||||||||||||||||
Net income | | | | | | | | | 5,998 | 5,998 | |||||||||||||||||||
Comprehensive income | 5,962 | ||||||||||||||||||||||||||||
Accretion of series C senior preferred stock | | | | | | | | | (4,163 | ) | (4,163 | ) | |||||||||||||||||
Accretion of series C senior preferred stock warrants | | | | | | | (16 | ) | | | (16 | ) | |||||||||||||||||
Issuance of series A preferred stock, at $1,000 per share | 20 | | | | | | 20 | | | 20 | |||||||||||||||||||
Issuance of common stock, at $10 per share | | | | | 3,000 | | 30 | | | 30 | |||||||||||||||||||
Balance at December 29, 2001 | 20,341 | | 10,000 | | 105,500 | 1 | 31,361 | (48 | ) | (1,453 | ) | 29,861 | |||||||||||||||||
Foreign currency translation | | | | | | | | 28 | | 28 | |||||||||||||||||||
Net income | | | | | | | | | 15,245 | 15,245 | |||||||||||||||||||
Comprehensive income | 15,273 | ||||||||||||||||||||||||||||
Accretion of series C senior preferred stock | | | | | | | | | (4,767 | ) | (4,767 | ) | |||||||||||||||||
Accretion of series C senior preferred stock warrants | | | | | | | (16 | ) | | | (16 | ) | |||||||||||||||||
Balance at December 28, 2002 | 20,341 | | 10,000 | | 105,500 | 1 | 31,345 | (20 | ) | 9,025 | 40,351 | ||||||||||||||||||
Foreign currency translation | | | | | | | | (54 | ) | | (54 | ) | |||||||||||||||||
Net income | | | | | | | | | 15,168 | 15,168 | |||||||||||||||||||
Comprehensive income | | | 15,114 | ||||||||||||||||||||||||||
Accretion of series C senior preferred stock | | | | | | | | | (5,458 | ) | (5,458 | ) | |||||||||||||||||
Accretion of series C senior preferred stock warrants | | | | | | | (16 | ) | | | (16 | ) | |||||||||||||||||
Balance at January 3, 2004 | 20,341 | $ | | 10,000 | $ | | 105,500 | $ | 1 | $ | 31,329 | $ | (74 | ) | $ | 18,735 | $ | 49,991 | |||||||||||
See accompanying Notes to consolidated financial statements.
F-5
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
|
Year ended |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
December 29, 2001 |
December 28, 2002 |
January 3, 2004 |
|||||||||||
Cash flows from operating activities: | ||||||||||||||
Net income | $ | 5,998 | $ | 15,245 | $ | 15,168 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
Depreciation and amortization | 14,290 | 5,300 | 6,014 | |||||||||||
Amortization of deferred debt issuance costs and bond discount | 1,972 | 2,686 | 2,839 | |||||||||||
Write-off of deferred debt issuance costs | | | 1,831 | |||||||||||
Deferred income taxes | 3,832 | 5,532 | 4,382 | |||||||||||
Gain from sale of assets | (3,112 | ) | | | ||||||||||
Provision for doubtful accounts | 118 | 84 | 711 | |||||||||||
Changes in assets and liabilities, net of effects from business acquired: | ||||||||||||||
Trade accounts receivable | 2,432 | (363 | ) | (1,159 | ) | |||||||||
Inventories | (2,788 | ) | (1,394 | ) | (6,542 | ) | ||||||||
Prepaid expenses | 303 | (234 | ) | (63 | ) | |||||||||
Other assets | (400 | ) | 33 | (1 | ) | |||||||||
Trade accounts payable | (3,525 | ) | (2,430 | ) | 990 | |||||||||
Accrued expenses | 2,263 | 1,903 | 3,205 | |||||||||||
Other liabilities | 87 | 55 | 56 | |||||||||||
Net cash provided by operating activities | 21,470 | 26,417 | 27,431 | |||||||||||
Cash flows from investing activities: |
||||||||||||||
Capital expenditures | (3,904 | ) | (6,283 | ) | (6,442 | ) | ||||||||
Net proceeds from sale of assets | 24,090 | | | |||||||||||
Payments for acquisition of business | | | (118,179 | ) | ||||||||||
Net cash provided by (used in) investing activities | 20,186 | (6,283 | ) | (124,621 | ) | |||||||||
Cash flows from financing activities: |
||||||||||||||
Payments of long-term debt | (40,048 | ) | (114,417 | ) | (55,231 | ) | ||||||||
Proceeds from issuance of long-term debt | | 98,760 | 150,000 | |||||||||||
Proceeds from issuance of equity and capital contributions | 50 | | | |||||||||||
Payments of debt issuance costs | | (3,694 | ) | (5,299 | ) | |||||||||
Net cash (used in) provided by financing activities | (39,998 | ) | (19,351 | ) | 89,470 | |||||||||
Effect of exchange rate fluctuations on cash and cash equivalents | (36 | ) | 28 | (54 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents | 1,622 | 811 | (7,774 | ) | ||||||||||
Cash and cash equivalents at beginning of period | 13,433 | 15,055 | 15,866 | |||||||||||
Cash and cash equivalents at end of period | $ | 15,055 | $ | 15,866 | $ | 8,092 | ||||||||
Supplemental disclosures of cash flow information: | ||||||||||||||
Cash interest | $ | 29,966 | $ | 22,975 | $ | 26,483 | ||||||||
Cash income taxes | $ | 271 | $ | 3,778 | $ | 3,708 | ||||||||
See accompanying Notes to consolidated financial statements.
F-6
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts)
(1) Nature of Operations
Organization
B&G Foods Holdings Corp. and subsidiaries (the "Company") is majority owned by Bruckmann, Rosser, Sherrill & Co., L.P. ("BRS"), a private equity investment firm, and minority owned by management, directors and certain other investors. The Company's only asset and operations consist of its ownership of B&G Foods, Inc. and its subsidiaries (collectively "B&G Foods").
Nature of Operations
The Company operates in one industry segment and manufactures, sells and distributes a diverse portfolio of high quality branded, shelf-stable food products. The Company's products include pickles, peppers, jams and jellies, canned meats and beans, spices, syrups, hot sauces, maple syrup, salad dressings, taco shells, seasonings, dinner kits, taco sauces, refried beans, salsa and other specialty food products which are sold to retailers and food service establishments. The Company distributes these products to retailers in the greater New York metropolitan area through a direct-store-organization sales and distribution system and elsewhere in the United States through a nationwide network of independent brokers and distributors. Sales of a number of the Company's products tend to be seasonal; however, in the aggregate, the Company's sales are not heavily weighted to any particular quarter. Sales during the first quarter of the fiscal year are generally below that of the following three quarters.
Business and Credit Concentrations
The Company's exposure to credit loss in the event of non-payment of accounts receivable by customers is represented in the amount of such receivables. The Company performs ongoing credit evaluations of its customers' financial condition. As of January 3, 2004, the Company does not believe it has any significant concentration of credit risk with respect to its trade accounts receivable. The Company had no customers in fiscal 2001, 2002 or 2003 that exceeded 10% of consolidated net sales.
Disposition
On January 17, 2001, the Company completed the sale of its wholly owned subsidiary, Burns & Ricker, Inc. ("Burns & Ricker"), to Nonni's Food Company, Inc. ("Nonni's") (the "B&R Disposition") pursuant to a stock purchase agreement of the same date under which the Company sold all of the issued and outstanding capital stock of Burns & Ricker to Nonni's for $26,000 in cash. The gain on the sale, net of transaction expenses, was approximately $3,100. The Company applied the net cash proceeds from the B&R Disposition toward the partial prepayment of term loans, as required under the Company's then existing credit facility.
Acquisition and Accounting
On August 21, 2003, the Company acquired certain assets of The Ortega Brand of Business ("Ortega" or the "Ortega Acquisition") for approximately $118,179 in cash (the "Ortega Purchase Price"), including transaction costs, from Nestlé Prepared Foods Company ("Nestlé"). The Ortega Purchase Price was subject to a final adjustment based upon a defined inventory calculation in the related purchase agreement. In connection with this transaction, the Company entered into a $200,000 senior secured credit facility comprised of a $50,000 five-year revolving credit facility and a $150,000
F-7
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(1) Nature of Operations (Continued)
six-year term loan facility. The proceeds of such senior secured credit facility were used to fund the Ortega Acquisition and refinance the Company's then-existing credit facility. See Note 6 (Long-term Debt).
In connection with the Ortega Acquisition, the Company paid transaction fees to Bruckmann, Rosser, Sherrill and Co., Inc., a related party, aggregating $1,000. The Company recorded such transaction fees as part of the Ortega Purchase Price.
The Ortega Acquisition has been accounted for using the purchase method of accounting and, accordingly, the assets acquired, liabilities assumed, and results of operations are included in the consolidated financial statements from the date of the Ortega Acquisition. The excess of the Ortega Purchase Price over the fair value of identifiable net assets acquired represents goodwill. Trademarks are deemed to have an indefinite useful life and are not amortized.
The following table sets forth the allocation of the Ortega Purchase Price. The cost of the Ortega Acquisition has been allocated to tangible and intangible assets as follows:
Property, plant and equipment | $ | 5,964 | |||
Goodwill | 76,310 | ||||
Indefinite-life intangible assetstrademarks | 30,700 | ||||
Other assets, principally net current assets | 6,960 | ||||
Other liabilities, principally net current liabilities | (2,039 | ) | |||
Deferred income tax asset | 284 | ||||
Total | $ | 118,179 | |||
Unaudited Pro Forma Summary of Operations
The following unaudited pro forma summary of operations for the fiscal years ended December 28, 2002 and January 3, 2004 presents the operations of the Company as if the Ortega Acquisition had occurred as of December 30, 2001. In addition to including the results of operations of the Ortega business, the unaudited pro forma information gives effect to interest on additional borrowings and changes in depreciation and amortization of property, plant and equipment.
|
Year ended (unaudited) |
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|
December 28, 2002 |
January 3, 2004 |
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Net sales | $ | 371,130 | $ | 374,813 | ||
Net income | 17,807 | 18,451 | ||||
Basic net income available to common stockholders per common share | $ | 57.52 | $ | 48.48 | ||
Diluted net income available to common stockholders per common share | $ | 43.04 | $ | 36.28 |
The unaudited pro forma information presented above does not purport to be indicative of the results that actually would have been attained if the Ortega Acquisition, and the related financing
F-8
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(1) Nature of Operations (Continued)
transactions, had occurred as of December 30, 2001 and is not intended to be a projection of future results.
(2) Summary of Significant Accounting Policies
(a) Fiscal Year and Basis of Presentation
The Company utilizes a 52-53 week fiscal year ending on the Saturday closest to December 31. Fiscal years 2001 and 2002 contain 52 weeks each. Fiscal year 2003, which ended January 3, 2004, contains 53 weeks.
The financial statements are presented on a consolidated basis. All intercompany balances and transactions have been eliminated.
(b) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, all highly liquid debt instruments with maturities of three months or less when acquired are considered to be cash and cash equivalents.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out and average cost methods.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Plant and equipment under capital leases are stated at the present value of the minimum lease payments. Depreciation on plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets, 12 to 20 years for buildings and improvements, 5 to 10 years for machinery and equipment, and 3 to 5 years for office furniture and vehicles. Plant and equipment held under capital leases and leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Expenditures for maintenance, repairs and minor replacements are charged to current operations. Expenditures for major replacements and betterments are capitalized.
(e) Goodwill and Trademarks
The Company adopted the Financial Accounting Standard Board's ("FASB") Statement of Financial Accounting Standard ("SFAS") No. 142 "Goodwill and Other Intangible Assets" on December 30, 2001. Goodwill and intangible assets not subject to amortization are tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets."
Prior to the adoption of SFAS No. 142, goodwill was amortized on a straight line basis over 40 years and trademarks were amortized on a straight-line basis over 31 to 40 years. The amount of goodwill and other intangible asset impairment, if any, was measured based on projected discounted future net operating cash flows using a discount rate reflecting the Company's average cost of funds.
F-9
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(2) Summary of Significant Accounting Policies (Continued)
(f) Deferred Debt Issuance Costs
Debt issuance costs are capitalized and amortized using the effective interest method over the term of the related debt agreements and are classified as other non-current assets. Amortization of deferred debt issuance costs for fiscal years 2001, 2002 and 2003 was $1,972, $2,508 and $2,608, respectively. During the third quarter of fiscal 2003, a write-off of $1,831 of deferred debt costs was incurred in connection with the payment in full of the Term Loan B under the Company's then-existing Term Loan Agreement dated as of March 15, 1999.
(g) Revenue Recognition
Revenues are recognized when products are shipped. The Company reports all amounts billed to a customer in a sale transaction as revenue, including those amounts related to shipping and handling. Shipping and handling costs are included in cost of goods sold. As further described below, certain coupons and promotional expenses are recorded as a reduction of net sales.
In April 2001, the Emerging Issue Task Force ("EITF") reached a consensus with respect to EITF Issue No. 00-25, "Vendor Income Statement Characterization of Consideration to a Purchaser of the Vendor's Products or Services" (as codified by EITF Issue 01-09), which became effective for the Company in the first quarter of 2002. The consensus includes a conclusion that consideration from a vendor to a retailer is presumed to be a reduction to the selling prices of the vendor's products and, therefore, should be characterized as a reduction of sales when recognized in the vendor's income statement. As required, the Company implemented the provisions of such EITF consensus in the first quarter of fiscal 2002 and, as a result, has reclassified certain prior period expenses as a reduction of net sales. Such reclassification reduces sales and gross margin, but does not have an impact on the Company's operating income or net income. Such expenses reclassified in accordance with the EITF consensus, as a reduction of net sales and sales, marketing and distribution expenses was $51,200 million for fiscal 2001.
As required, the Company implemented the provisions of EITF Issue No. 00-14, "Accounting for Certain Sales Incentives" (as codified by EITF Issue 01-09) and Issue No. 00-25, "Vendor Income Statement Characterization of Consideration to a Purchaser of the Vendor's Products or Services" in the first quarter of fiscal 2002. The following table summarizes the reclassification of the prior period amounts as if the aforementioned new EITF consensuses had been implemented effective December 31, 2000:
|
Year Ended December 29, 2001 |
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|
As Previously Presented |
Reclassified |
||||
Net sales | $ | 332,433 | $ | 279,779 | ||
Gross profit | $ | 139,908 | $ | 87,254 | ||
Sales, marketing and distribution expenses | $ | 87,576 | $ | 34,922 |
(h) Advertising Costs
Advertising costs are expensed as incurred. Advertising costs amounted to approximately $1,833, $2,202 and $3,499, for the fiscal years 2001, 2002, and 2003, respectively.
F-10
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(2) Summary of Significant Accounting Policies (Continued)
(i) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities of the Company are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided when it is more likely than not that all or some portion of the deferred tax asset will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.
(j) Pension Plans
The Company has defined benefit pension plans covering substantially all of its employees. The Company's funding policy is to contribute annually the amount recommended by its actuaries.
In 2003, the FASB revised Statement No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The FASB's revision of Statement No. 132 requires new annual disclosures about the types of plan assets, investment strategy, measurement date, plan obligations and cash flows as well as the components of the net periodic benefit cost recognized in interim periods. In addition, SEC registrants are now required to disclose its estimates of contributions to the plan during the next fiscal year and the components of the fair value of total plan assets by type (e.g., equity securities, debt securities, real estate and other assets). The Company adopted the provisions of Statement No. 132 (revised), except for expected future benefit payments, which must be disclosed for fiscal years ending after June 15, 2004.
(k) Fair Value of Financial Instruments
Cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued expenses and due to related party are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments. The fair value of the $220,000 Senior Subordinated Notes at January 3, 2004, based on quoted market prices, was $226,600. The carrying value of the Company's remaining borrowings approximates their fair value based on the current rates available to the Company for similar instruments.
(l) Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management of the Company to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates made by management involve trade and consumer promotion expenses, allowances for excess, obsolete and unsaleable inventories, and the recoverability of goodwill, trademarks, property, plant and equipment and deferred tax assets. Actual results could differ from those estimates.
F-11
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(2) Summary of Significant Accounting Policies (Continued)
(m) Impairment of Long-Lived Assets
In accordance with SFAS No. 144, long-lived assets, such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet.
Goodwill and trademarks not subject to amortization are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's fair value.
The Company performed an assessment to determine whether goodwill of the Company was impaired as of December 29, 2001, December 28, 2002 and January 3, 2004. In connection therewith, the Company determined that its operations consisted of one reporting unit. Under SFAS No. 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The Company determined that, as of December 29, 2001 and December 28, 2002 and January 3, 2004, the fair value of the Company's single reporting unit exceeded its carrying amount, and therefore there is no indication that goodwill was impaired as of such dates. The Company will perform its annual impairment review each fiscal year end to measure goodwill for impairment.
Effective as of December 30, 2001, the Company ceased the amortization of goodwill and all trademarks having indefinite useful lives. For fiscal 2001, amortization expense related to goodwill was $3,100 and $5,400 for trademarks.
The following table reconciles previously reported net income to net income adjusted as if the provisions of SFAS No. 142 were in effect in fiscal 2001:
|
Year ended December 29, 2001 |
||
---|---|---|---|
Reported net income | $ | 5,998 | |
Add back: Goodwill amortization, net of income taxes | 1,839 | ||
Add back: Trademark amortization, net of income taxes | 3,271 | ||
Adjusted net income | $ | 11,108 | |
Prior to the adoption of SFAS No. 142 and No. 144, the Company accounted for long-lived assets in accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The impairment criteria and measurement requirements of SFAS No. 144 are substantially unchanged from those of SFAS No. 121 for assets held and used.
F-12
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(2) Summary of Significant Accounting Policies (Continued)
(n) Derivative Financial Instruments
The Company accounts for its derivative and hedging transactions in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" (collectively referred to as "Statement No. 133"). Statement No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and requires an entity to recognize all derivative instruments either as an asset or a liability in the balance sheet and to measure such instruments at fair value. These fair value adjustments are to be included either in the determination of net income or as a component of accumulated other comprehensive income (loss) depending on the nature of the transaction. The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes (see Note 6).
In April 2003, the FASB issued Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." Statement No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company adopted Statement No. 149 on July 1, 2003 and will apply it prospectively, as applicable.
(o) Stock Option Plan
The Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123, "Accounting for Stock-Based Compensation", permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
F-13
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(2) Summary of Significant Accounting Policies (Continued)
The following table illustrates the pro forma effect on net (loss) income if the fair value based method had been applied to all outstanding and unvested awards in each period.
|
2001 |
2002 |
2003 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Net income as reported | $ | 5,998 | $ | 15,245 | $ | 15,168 | |||||
Add stock-based employee compensation expense included in reported net income, net of tax | | | | ||||||||
Deduct stock-based employee compensation expense determined under fair-value-based method for all awards, net of tax | (1 | ) | (1 | ) | (1 | ) | |||||
Pro forma net income | $ | 5,997 | $ | 15,244 | $ | 15,167 | |||||
Basic net (loss) income available to common stockholders per common share | $ | (41.28 | ) | $ | 33.22 | $ | 17.35 | ||||
Diluted net (loss) income available to common stockholders per common share | $ | (41.28 | ) | $ | 24.86 | $ | 12.99 |
(p) Adoption of New Accounting Standards
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". Statement No. 150 establishes standards with respect to how an issuer classifies and measures in its statements of financial position certain financial instruments with characteristics of both liabilities and equity. Statement No. 150 requires that an issuer classify a financial instrument that is within the scope of such Statement as a liability because such financial instrument embodies an obligation of the issuer. The Company adopted Statement No. 150 on June 1, 2003 which has not impacted the Company's accounting for the mandatorily redeemable preferred stock.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51". This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. The application of this Interpretation has not had a material effect on the Company's consolidated financial statements.
(q) Reclassifications
Certain amounts in 2001 and 2002 have been reclassified to conform with the 2003 presentation.
(r) Earnings Per Share
The Company calculates earnings per share in accordance with SFAS No. 128, "Earnings Per Share." Basic earnings per share is calculated by dividing net (loss) income available to common shares (net (loss) income less dividends accumulating during the period for 13% Series A and B cumulative preferred stock and Series C senior preferred stock and other charges) by average common shares outstanding. Diluted earnings per share is calculated similarly, except that it includes the dilutive effect
F-14
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(2) Summary of Significant Accounting Policies (Continued)
of the assumed exercise of outstanding options and warrants (see note 10) for all periods presented. The mandatorily redeemable preferred stock is excluded from the calculation as their conversion is contingent upon an initial public offering by the Company, see note 9.
|
Fiscal Year Ended |
||||||||
---|---|---|---|---|---|---|---|---|---|
|
December 29, 2001 |
December 28, 2002 |
January 3, 2004 |
||||||
|
(Shares in thousands) |
||||||||
Net income | $ | 5,998 | $ | 15,245 | $ | 15,168 | |||
Less: preferred stock dividends accumulated and related charges | 10,352 | 11,739 | 13,336 | ||||||
(Loss) income available to common stockholders | $ | (4,354 | ) | $ | 3,506 | $ | 1,832 | ||
Basic shares outstanding | 105.5 | 105.5 | 105.5 | ||||||
Basic net (loss) income available to common stockholders per common share | $ | (41.27 | ) | $ | 33.23 | $ | 17.36 | ||
Diluted shares outstanding | 105.5 | 141.0 | 141.0 | ||||||
Diluted net (loss) income available to common stockholders per common share | $ | (41.27 | ) | $ | 24.87 | $ | 12.99 | ||
(3) Inventories
Inventories consist of the following:
|
December 28, 2002 |
January 3, 2004 |
|||||
---|---|---|---|---|---|---|---|
Raw materials and packaging | $ | 13,601 | $ | 14,916 | |||
Work in process | 1,623 | 1,555 | |||||
Finished goods | 52,312 | 64,318 | |||||
Total | $ | 67,536 | $ | 80,789 | |||
(4) Property, Plant and Equipment, net
Property, plant and equipment, net consists of the following:
|
December 28, 2002 |
January 3, 2004 |
||||||
---|---|---|---|---|---|---|---|---|
Land | $ | 3,012 | $ | 3,149 | ||||
Buildings and improvements | 14,431 | 17,146 | ||||||
Machinery and equipment | 37,924 | 46,404 | ||||||
Office furniture and vehicles | 7,472 | 8,759 | ||||||
Construction-in-progress | | 15 | ||||||
62,839 | 75,473 | |||||||
Less: accumulated depreciation | (25,425 | ) | (31,533 | ) | ||||
Total | $ | 37,414 | $ | 43,940 | ||||
F-15
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts)
(5) Leases
The Company has several noncancelable operating leases, primarily for its corporate headquarters, warehouses, transportation equipment and machinery. These leases generally require the Company to pay all executory costs such as maintenance, taxes and insurance.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) for the periods set forth below are as follows:
Years ended December: |
|
||||
---|---|---|---|---|---|
2004 | $ | 3,742 | |||
2005 | 3,238 | ||||
2006 | 1,927 | ||||
2007 | 1,438 | ||||
2008 | 1,426 | ||||
Thereafter | 620 | ||||
Total | $ | 12,391 | |||
Total rental expense was $3,116, $2,957 and $3,161, for the fiscal years 2001, 2002 and 2003, respectively.
The Company leases a manufacturing and warehouse facility from the Chairman of the Board of Directors of the Company under an operating lease which expires in April 2009. Total rent expense associated with this lease was $769 for fiscal years 2001, 2002 and 2003.
(6) Long-term Debt
Long-term debt consists of the following:
|
December 28, 2002 |
January 3, 2004 |
||||||
---|---|---|---|---|---|---|---|---|
Senior secured credit facility: | ||||||||
Revolving credit facility | $ | | $ | | ||||
Term Loan | | 149,625 | ||||||
Term Loan B | 54,856 | | ||||||
95/8% Senior Subordinated Notes due August 1, 2007, net of unamortized discount of $1,060 and $829 at December 28, 2002 and January 3, 2004, respectively | 218,940 | 219,171 | ||||||
Total long-term debt | 273,796 | 368,796 | ||||||
Less current installments | 370 | 1,500 | ||||||
Long-term debt, excluding current installments | $ | 273,426 | $ | 367,296 | ||||
On March 15, 1999, the Company, specifically its wholly owned subsidiary B&G Foods, entered into a $280,000 senior secured credit facility (the "Prior Senior Secured Credit Facility"). The Prior Senior Secured Credit Facility was comprised of a $60,000 five-year Revolving Credit Facility, a $70,000 (initial amount) five-year Term Loan Facility ("Term Loan A") and a $150,000 (initial amount) seven-
F-16
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(6) Long-term Debt (Continued)
year Term Loan Facility ("Term Loan B" and collectively with Term Loan A, the "Term Loan Facilities"). Interest on the Prior Senior Secured Credit Facility was determined based on several alternative rates as stipulated in the Prior Senior Secured Credit Facility, including the base lending rate per annum plus an applicable margin or LIBOR plus an applicable margin. At December 28, 2002 the interest rate for Term Loan B was 5.40%. At December 29, 2001, the interest rate for Term Loan A and Term Loan B was 7.31% and 6.17% to 7.56%, respectively. The Prior Senior Secured Credit Facility was secured by substantially all of the Company's assets.
On August 21, 2003, the Company, specifically its wholly owned subsidiary B&G Foods, entered into a newly amended and restated $200,000 senior secured credit facility, which was further amended and restated as of September 9, 2003 (the "Senior Secured Credit Facility"), comprised of a $50,000 five-year revolving credit facility ("Revolving Credit Facility") and a $150,000 six-year term loan facility ("Term Loan"). The proceeds of the Term Loan and of certain drawings under the Revolving Credit Facility were used: (i) to fund the Ortega Acquisition and to pay related transaction fees and expenses; and (ii) to fully pay off the Company's remaining obligations under Term Loan B of the Company's Prior Senior Secured Credit Facility. In connection therewith, the Company capitalized approximately $5,300 of new deferred debt issuance costs related to the Senior Secured Credit Facility and, in accordance with the applicable guidance of the FASB's Emerging Issues Task Force, wrote off $1,831 of deferred financing costs related to the Company's then-existing Term Loan B. With respect to the Senior Secured Credit Facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.52% at January 3, 2004). The Senior Secured Credit Facility is secured by substantially all of the Company's assets. The Senior Secured Credit Facility provides for mandatory prepayments upon the occurrence of certain events, including material asset dispositions and issuances of securities. The Senior Secured Credit Facility contains covenants that restrict, among other things, the Company's ability to incur additional indebtedness, pay dividends and create certain liens. The Senior Secured Credit Facility also contains certain financial covenants, which, among other things, specify and define maximum capital expenditure limits, a minimum total interest coverage ratio and a maximum leverage ratio. Proceeds of the Senior Secured Credit Facility are restricted to funding the Company's working capital requirements, capital expenditures and acquisitions of companies in the same line of business as the Company, subject to certain additional criteria. The Senior Secured Credit Facility limits expenditures on acquisitions to $50,000 per acquisition unless the Company can satisfy certain leverage ratio requirements. The outstanding balances for the Revolving Credit Facility and the Term Loan at January 3, 2004 were $0 and $149,625, respectively.
The Revolving Credit Facility requires an annual commitment fee of an amount equal to 0.5% of the average daily unused portion of the Revolving Credit Facility. The Revolving Credit Facility also provides a maximum commitment for letters of credit of $5,000. The available borrowing capacity under the Revolving Credit Facility, net of outstanding letters of credit of $1,300, was approximately $48,700 at January 3, 2004.
The Company, specifically its wholly owned subsidiary B&G Foods, has outstanding $220,000 of 95/8% Senior Subordinated Notes (the "Notes") due August 1, 2007 with interest payable semiannually on February 1 and August 1 of each year, of which $120,000 principal amount was originally issued in August 1997 and $100,000 principal amount (the "New Notes") was issued by the Company through a
F-17
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(6) Long-term Debt (Continued)
private offering of the notes completed on March 7, 2002 at a discount of $1,240. The Notes contain certain transfer restrictions. The proceeds from the issuance of the New Notes were used to pay off, in its entirety, the then outstanding balance under the Company's then-existing Term Loan A, and to reduce the amount outstanding under the Company's then-existing Term Loan B, and pay related deferred debt issuance costs.
As part of a registration rights agreement dated March 7, 2002, the Company agreed to offer to exchange an aggregate principal amount of up to $220,000 of its 95/8% Senior Subordinated Notes due 2007 (the "Exchange Notes") for a like principal amount of its Notes outstanding (the "Exchange Offer"). The terms of the Exchange Notes are identical in all material respects to those of the Notes (including principal amount, interest rate, maturity and guarantees), except for certain transfer restrictions and registration rights relating to the New Notes. The Exchange Offer was completed on June 27, 2002.
The indentures for the Notes contain certain covenants that, among other things, limit the ability of the Company to incur additional debt, pay dividends or make certain other restricted payments, enter into certain transactions with affiliates, make certain asset dispositions, merge or consolidate with, or transfer substantially all of its assets to, another person, as defined, encumber assets under certain circumstances, restrict dividends and other payments from subsidiaries, engage in sale and leaseback transactions, issue capital stock, as defined, or engage in certain business activities.
The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after August 1, 2002 at 104.813% of their principal amount plus accrued and unpaid interest and Liquidated Damages, as defined, if any, beginning August 1, 2002, and thereafter at prices declining annually to 100% on or after August 1, 2003. Upon the occurrence of a Change in Control, as defined, the Company will be required to make an offer to repurchase the Notes at a price equal to 101% of the principal amount, together with accrued and unpaid interest and Liquidated Damages, as defined, if any, to the date of repurchase. The Notes are not subject to any sinking fund requirements.
On March 21, 2002, the Company entered into an interest rate swap agreement with a major financial institution pursuant to which the Company agreed to pay a variable rate of three-month LIBOR plus 5.65% on a notional amount of $100,000 in exchange for a fixed rate of 9.625%. Because the interest rate swap did not qualify as an effective hedge, changes in the fair value are recorded in the consolidated statement of operations. The Company sold the interest rate swap agreement on August 7, 2002 for $2,524. Included in the fiscal 2002 consolidated statement of operations is a derivative gain representing the change in fair value of the interest rate swap of $2,524.
The Company has no assets or operations independent of its direct and indirect subsidiaries. All of the Company's indirect wholly owned subsidiaries (the "Guarantors") jointly and severally, and fully and unconditionally, guarantee the Notes (the "Subsidiary Guarantees"). There are no significant restrictions on the ability of the Company or any of its Guarantors, to obtain funds from its subsidiaries by dividend or loan. Consequently, separate financial statements have not been presented for the Guarantors because management has determined that they would not be material to investors. The Subsidiary Guarantee of each Guarantor is subordinate to the prior payment in full of all senior debt, as defined. As of January 3, 2004, the Company and its subsidiaries had senior debt and additional
F-18
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(6) Long-term Debt (Continued)
liabilities (including trade accounts payable, accrued expenses, amounts due to related parties, deferred income taxes and other liabilities) aggregating approximately $456,760.
At December 28, 2002 and January 3, 2004, accrued interest of $9,328 and $9,726, respectively, is included in accrued expenses in the accompanying consolidated balance sheets.
The aggregate maturities of long-term debt are as follows:
Years ended December: | |||||
2004 | $ | 1,500 | |||
2005 | 1,500 | ||||
2006 | 1,500 | ||||
2007 | 220,671 | ||||
2008 | 143,625 | ||||
Total | $ | 368,796 | |||
(7) Income Taxes
Income taxes consist of the following:
|
Year ended |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
December 29, 2001 |
December 28, 2002 |
January 3, 2004 |
||||||||
Current: | |||||||||||
Federal | $ | 54 | $ | 3,252 | $ | 4,150 | |||||
State | 168 | 476 | 987 | ||||||||
Subtotal | 222 | 3,728 | 5,137 | ||||||||
Deferred: | |||||||||||
Federal | 2,995 | 4,694 | 3,754 | ||||||||
State | 812 | 838 | 628 | ||||||||
Subtotal | 3,807 | 5,532 | 4,382 | ||||||||
Total | $ | 4,029 | $ | 9,260 | $ | 9,519 | |||||
F-19
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(7) Income Taxes (Continued)
Income tax expense differs from the expected income tax expense (computed by applying the U.S. federal income tax rate of 34% to income before income tax expense) as a result of the following:
|
Year ended |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
December 29, 2001 |
December 28, 2002 |
January 3, 2004 |
||||||||
Computed expected tax expense | $ | 3,409 | $ | 8,332 | $ | 8,394 | |||||
Increase (decrease): | |||||||||||
State income taxes, net of federal income tax benefit | 647 | 867 | 1,066 | ||||||||
Nondeductible expenses, principally amortization of goodwill in 2001 | 855 | 61 | 59 | ||||||||
Gain on sale of assets | (844 | ) | | | |||||||
Other | (38 | ) | | | |||||||
Total | $ | 4,029 | $ | 9,260 | $ | 9,519 | |||||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
|
December 28, 2002 |
January 3, 2004 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Deferred tax assets: | |||||||||
Accounts receivable, principally due to allowance | $ | 44 | $ | 48 | |||||
Inventories, principally due to additional costs capitalized for tax purposes | 355 | 948 | |||||||
Accruals and other liabilities not currently deductible | 1,539 | 1,989 | |||||||
Net operating loss carryforwards | 3,338 | 2,560 | |||||||
Deferred financing costs | 206 | 871 | |||||||
Total gross deferred tax assets | 5,482 | 6,416 | |||||||
Less valuation allowance | (1,282 | ) | (1,282 | ) | |||||
Net deferred tax assets | 4,200 | 5,134 | |||||||
Deferred tax liabilities: | |||||||||
Plant and equipment | (4,559 | ) | (5,470 | ) | |||||
Intangible assets | (37,439 | ) | (42,070 | ) | |||||
Derivative gain | (763 | ) | (253 | ) | |||||
Total gross deferred tax liabilities | (42,761 | ) | (47,793 | ) | |||||
Net deferred tax liability | $ | (38,561 | ) | $ | (42,659 | ) | |||
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled
F-20
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(7) Income Taxes (Continued)
reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income and reversal of deferred tax liabilities over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 28, 2002 and January 3, 2004. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during future periods are reduced. The valuation allowance at December 28, 2002 and January 3, 2004 was $1,282 and represents the allowance for certain fully reserved state net operating loss carryforwards of $23,206 and $22,955, respectively, which are available to offset future state taxable income, if any, through 2007. The Company established a valuation allowance for the deferred tax assets associated with state net operating loss carryforwards at December 28, 2002 because management believes that based upon historical and projected state taxable income, it is not more likely than not that the deferred tax asset related to such net operating loss carryforwards will not be realized. Any future utilization of acquired state net operating loss carryforwards will result in an adjustment to goodwill to the extent it reduces the valuation allowance.
At January 3, 2004, the Company has net operating loss carryforwards for federal income tax purposes of $3,566 which are available to offset future federal taxable income, if any, through 2020. As a result of the Company's acquisitions in prior years, the annual utilization of the net operating loss carryforwards acquired is limited under certain provisions of the Internal Revenue Code.
(8) Redeemable Preferred Stock
The Company's Certificate of Incorporation provides that they may issue 100,000 shares of Preferred Stock, $.01 par value per share, 22,000 of which are currently designated as the 13% Series A Cumulative Preferred Stock (the "13% Series A Cumulative Preferred Stock"), 35,000 shares of which are currently designated as the 13% Series B Cumulative Preferred Stock (the "13% Series B Cumulative Preferred Stock") and 25,000 of which are currently designated as the Series C Senior Preferred Stock (the "Series C Senior Preferred Stock"(See note 9)).
With respect to dividend rights and rights on liquidation, winding up and dissolution of the Company, the Series C Senior Preferred Stock ranks senior to the 13% Series B Cumulative Preferred Stock and each rank senior to the 13% Series A Cumulative Preferred Stock. The Series C Senior Preferred Stock, the 13% Series B Cumulative Preferred Stock and the 13% Series A Cumulative Preferred Stock each rank senior to the Common Stock of the Company.
13% Series A Cumulative Preferred Stock
Dividends. Each holder of 13% Series A Cumulative Preferred Stock is entitled to receive, when, as and if declared by the Board of Directors of the Company, out of funds legally available therefor, cash dividends on each share of 13% Series A Cumulative Preferred Stock at a rate per annum equal to 13%, which dividends are cumulative without interest, whether or not earned or declared, on a daily basis, and are payable annually in arrears. These dividends amount to $20,768 and $26,113 as of
F-21
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(8) Redeemable Preferred Stock (Continued)
December 28, 2002 and January 3, 2004. The liquidation value aggregates to $41,109 and $46,453 as of December 28, 2002 and January 3, 2004.
Optional Redemption. The Company may, at its option, redeem at any time, from any source of funds legally available therefore, in whole or in part, any or all of the shares of 13% Series A Cumulative Preferred Stock, at a redemption price equal to 100% of the then effective liquidation preference per share, plus an amount equal to a prorated dividend for the period from the dividend payment date immediately prior to the redemption date to the redemption date.
13% Series B Cumulative Preferred Stock
Dividends. Each holder of 13% Series B Cumulative Preferred Stock is entitled to receive, when, as and if declared by the Board of Directors of the Company, out of funds legally available therefor, cash dividends on each share of 13% Series B Cumulative Preferred Stock at a rate per annum equal to 13%, which dividends are cumulative without interest, whether or not earned or declared, on a daily basis, and are payable annually in arrears. These dividends amount to $9,496 and $12,031 as of December 28, 2002 and January 3, 2004. The liquidation value aggregates to $19,496 and $22,031 as of December 28, 2002 and January 3, 2004.
Optional Redemption. The Company may, at its option, redeem at any time, from any source of funds legally available therefore, in whole or in part, any or all of the shares of 13% Series B Cumulative Preferred Stock, at a redemption price equal to 100% of the then effective liquidation preference per share, plus an amount equal to a prorated dividend for the period from the dividend payment date immediately prior to the redemption date to the redemption date.
Warrants. The holders of the 13% Series B Cumulative Preferred Stock received warrants exercisable to purchase an aggregate of 11,735.61 shares of Common Stock, with an exercise price of $0.01 per share and an expiration date of December 22, 2009. These warrants remain outstanding at January 3, 2004.
(9) Mandatorily Redeemable Preferred Stock
Series C Senior Preferred Stock
Dividends. When and as declared by the Company's Board of Directors and to the extent permitted under the General Corporation Law of the State of Delaware, the Company will pay preferential dividends to the holders of the Series C Senior Preferred Stock. Dividends on each share of Series C Senior Preferred Stock (each a "Senior Share") accrue at a rate of 14% per annum. Such dividends accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Company legally available for the payment of dividends. To the extent that all accrued dividends are not paid on each June 30 and December 31 of each year beginning June 30, 2000 (the "Dividend Reference Dates"), all dividends which have accrued on each Senior Share outstanding during the six-month period (or other period in the case of the initial Dividend Reference Date) ending upon each such Dividend Reference Date will be accumulated and added to the liquidation value of such Senior Shares. These dividends amount to $12,664 and $18,122 as of
F-22
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(9) Mandatorily Redeemable Preferred Stock (Continued)
December 28, 2002 and January 3, 2004. The liquidation value aggregates to $37,664 and $43,122 as of December 28, 2002 and January 3, 2004. Such dividends are charged to net income available to common stockholders.
In the sole discretion of the Company, any dividends accruing on the Senior Shares may be paid, in lieu of cash dividends, by the issuance of additional Senior Shares (including fractional Senior Shares) having an aggregate liquidation value at the time of such payment equal to the amount of the dividend to be paid; provided, that if the Company pays less than the total amount of dividends then accrued on the Senior Preferred Stock in the form of additional Senior Shares, such payment in Senior Shares shall be made pro rata to the holders of Senior Shares based upon the aggregate accrued but unpaid dividends on the Senior Shares held by each such holder.
Mandatory Redemption. On the earliest of (x) December 22, 2009, (y) the date of consummation of a change in control as defined in the Certificate of Designation for the Series C Senior Preferred Stock and (z) six months after the date of consummation of an initial public offering (the "Scheduled Redemption Date"), the Company is required to redeem all issued and outstanding Senior Shares, at a price per Senior Share equal to the liquidation value of $25,000 (plus all accumulated, accrued and unpaid dividends thereon).
Optional Redemption. The Company may at any time, except within ninety days prior to the date of consummation of an initial public offering, redeem all or any portion of the Series C Senior Preferred Stock then outstanding at a price per Series C Senior Share equal to the optional redemption prices (expressed as percentages of liquidation value thereof) set forth below plus all accumulated, accrued and unpaid dividends thereon, if any, to the applicable redemption date, if redeemed during the 12-month period beginning on December 22 in the years indicated below:
Year |
Percentage |
||
---|---|---|---|
1999 | 107 | % | |
2000 | 106 | % | |
2001 | 105 | % | |
2002 | 104 | % | |
2003 | 103 | % | |
2004 | 102 | % | |
2005 | 101 | % | |
2006 and thereafter | 100 | % |
Notwithstanding the foregoing sentence and subject to the rights of the holders of Senior Shares described below with respect to conversion, upon the consummation at any time of an initial public offering, the Company may redeem all or any portion of the Series C Senior Preferred Stock then outstanding at a price per Senior Share equal to the liquidation value thereof (plus all accumulated, accrued and unpaid dividends thereon).
For each Senior Share which is to be redeemed, the Company will be obligated on the redemption date to pay to the holder thereof an amount in immediately available funds (or other assets of the Companys resulting from a change in control in the case of a redemption pursuant to a change in
F-23
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(9) Mandatorily Redeemable Preferred Stock (Continued)
control) equal to the liquidation value thereof (plus all accumulated, accrued and unpaid dividends thereon).
Optional Conversion. Upon the consummation of an initial public offering (the "Conversion Event"), each Senior Share shall, at the one-time option of the holder of such Senior Share, be converted (and the rights of the holder of the Senior Shares shall cease) into a number of shares of the Company's Common Stock equal to the (i) liquidation value of such Senior Share as of the date of such Conversion Event (plus all accumulated, accrued and unpaid dividends thereon) divided by (ii) the price at which each share of Common Stock is concurrently sold in such initial public offering.
Warrants. The holders of Senior Shares received warrants exercisable to purchase an aggregate of 16,429.86 shares of Common Stock, with an exercise price of $0.01 per share and an expiration date of December 22, 2009. The fair value of the warrants granted during 1999 was $10 on the date of issuance using the Black Scholes pricing model with the following weighted assumptions:
|
2001 |
|
---|---|---|
Expected dividend yield | 0.0% | |
Risk-free interest rate | 4.75% | |
Expected life | 10 years | |
Expected annual volatility | 67% |
The warrants were accounted for as a discount of the mandatorily redeemable preferred stock and the accretion of such warrants are charged to net income available for common stockholders.
(10) Capital Stock and Stock Option Plan
1997 Incentive Stock Option Plan. In 1997, the Company adopted the B&G Foods Holdings Corp. 1997 Incentive Stock Option Plan (the "Option Plan") for the Company's and its subsidiaries' key employees. The Option Plan authorizes for grant to key employees and officers options for up to 6,700 shares of Holding's common stock. The Option Plan authorizes the Company to grant either (i) options intended to constitute incentive stock options under the Internal Revenue Code of 1986 or (ii) non-qualified stock options. The Option Plan provides that it may be administered by the Company's Board of Directors or a committee designated by Companys' Board of Directors. The Company's Board of Directors has designated a committee comprised of Stephen C. Sherrill and Thomas J. Baldwin. Options granted under the Option Plan will be exercisable in accordance with the terms established by the Company's Board of Directors. Under the Option Plan, the Company's Board of Directors determines the exercise price of each option granted, which in the case of incentive stock options, cannot be less than fair value. All option grants have been made at fair value as determined by a third party valuation. Options will expire on the date determined by the Company's Board of Directors, which may not be later than the tenth anniversary of the date of grant. The options vest ratably over 5 years. During fiscal year 2001, options to purchase 700 shares of our common stock were granted to an executive of the Company. No other options were granted during fiscal year 2001 and no options were granted during fiscal 2002 or 2003. As of January 3, 2004, options to purchase 6,625 shares of our common stock, all of which were incentive stock options, had been granted since the inception of the Option Plan, and 75 additional shares were available for grant under the plan.
F-24
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(10) Capital Stock and Stock Option Plan (Continued)
Other Stock Options. Pursuant to the terms of a license agreement between Emeril's Food of Love Productions, LLC ("EFLP") and B&G Foods, Inc. dated June 2000, the Company granted EFLP and William Morris Agency, Inc. 619 and 69 stock options, respectively. All such options are exercisable at a price of $10.00 per share of Common Stock, are fully vested and expire on June 9, 2010. The Company recorded the options at fair value and expensed such options in 2000.
The per share weighted average fair value of stock options granted during 2001 was $8.33 on the date of grant using the Black Scholes option-pricing model with the following weighted assumptions:
|
2001 |
|
---|---|---|
Expected dividend yield | 0.0% | |
Risk-free interest rate | 4.9% | |
Expected life | 10 years | |
Expected annual volatility | 67% |
Stock option activity during the periods indicated is as follows:
|
Number of shares |
Option exercise price per share |
Weighted-avg. exercise price per share |
||||||
---|---|---|---|---|---|---|---|---|---|
Options outstanding at December 30, 2000 | 6,613 | $ | 10.00 | $ | 10.00 | ||||
Granted | 700 | 10.00 | 10.00 | ||||||
Canceled | | | | ||||||
Options outstanding at December 29, 2001 | 7,313 | $ | 10.00 | 10.00 | |||||
Granted | | | | ||||||
Canceled | | | | ||||||
Options outstanding at December 28, 2002 | 7,313 | $ | 10.00 | 10.00 | |||||
Granted | | | | ||||||
Canceled | | | | ||||||
Options outstanding at January 3, 2004 | 7,313 | $ | 10.00 | 10.00 | |||||
Options exercisable at January 3, 2004 | 7,033 | $ | 10.00 | 10.00 | |||||
At January 3, 2004, the exercise prices and weighted-average remaining contractual life of outstanding options were $10.00 per share and three to seven years, respectively.
At December 28, 2002 and January 3, 2004, the number of options exercisable was 6,205 and 6,345, respectively, and the weighted-average exercise price of those options were $10.00 per share.
Warrants. As of January 3, 2004, the Company had issued and outstanding presently exercisable warrants to purchase an aggregate of 28,165.47 shares of Common Stock, with an exercise price of $0.01 per share and an expiration date of December 22, 2009.
F-25
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts)
(11) Pension Benefits
The Company has defined benefit pension plans covering substantially all of its employees. The benefits are based on years of service and the employee's compensation, as defined. The Company makes annual contributions to the plans equal to the maximum amount that can be deducted for income tax purposes. The following table sets forth our defined benefit pension plans' benefit obligation, fair value of plan assets and funded status recognized in the consolidated balance sheets:
|
December 28, 2002 |
January 3, 2004 |
|||||
---|---|---|---|---|---|---|---|
Change in benefit obligation: | |||||||
Benefit obligation at beginning of period | $ | 9,415 | $ | 11,366 | |||
Acquired plan | 0 | 360 | |||||
Amendment to plan | 0 | 10 | |||||
Actuarial gain | 828 | 2,955 | |||||
Service cost | 716 | 985 | |||||
Interest cost | 667 | 832 | |||||
Benefits paid | (260 | ) | (321 | ) | |||
Benefit obligation at end of period | 11,366 | 16,187 | |||||
The accumulated benefit obligation at December 28, 2002 and January 3, 2004 was $8,708 and $12,333, respectively. |
|||||||
Change in plan assets: |
|||||||
Fair value of plan assets at beginning of period | 5,740 | 6,790 | |||||
Actual (loss) gain on plan assets | (70 | ) | 914 | ||||
Employer contributions | 1,380 | 2,408 | |||||
Benefits paid | (260 | ) | (321 | ) | |||
Fair value of plan assets at end of period |
6,790 |
9,791 |
|||||
Employer contributions and benefits paid in the above table include only those amounts contributed directly to, or paid directly from, plan assets. |
|||||||
Funded status |
(4,576 |
) |
(6,396 |
) |
|||
Unrecognized prior service cost |
6 |
14 |
|||||
Unrecognized net actuarial loss | 1,515 | 4,104 | |||||
Accrued pension cost | $ | (3,055 | ) | $ | (2,278 | ) | |
Amount recognized in the consolidated balance sheets: |
|||||||
Accrued benefit cost at beginning of period | $ | (3,545 | ) | $ | (3,055 | ) | |
Acquired plan | 0 | 360 | |||||
Net periodic pension cost | 890 | 1,271 | |||||
Contributions | 1,380 | 2,408 | |||||
Accrued pension cost at end of period | $ | (3,055 | ) | $ | (2,278 | ) | |
F-26
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(11) Pension Benefits (Continued)
Weighted-average assumptions as of December 28, 2002 and January 3, 2004 |
|||||||
Discount rate | 6.75 | % | 6.25 | % | |||
Rate of compensation increase | 4.00 | % | 4.00 | % | |||
Expected long-term rate of return | 7.25-8.25 | % | 6.50-8.25 | % |
Net periodic cost includes the following components:
|
Year ended |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
December 29, 2001 |
December 28, 2002 |
January 3, 2004 |
||||||||
Service costbenefits earned during the period | $ | 652 | $ | 716 | $ | 985 | |||||
Interest cost on projected benefit obligation | 601 | 667 | 832 | ||||||||
Expected return on plan assets | (515 | ) | (503 | ) | (632 | ) | |||||
Net amortization and deferral | (53 | ) | 10 | 86 | |||||||
Net pension cost | $ | 685 | $ | 890 | $ | 1,271 | |||||
The asset allocation for the Company's pension plans at the end of 2002 and 2003, and the target allocation for 2004, by asset category, follows. The fair value of plan assets for these plans is $6,790 and $9,791 at the end of 2002 and 2003, respectively. The expected long-term rate of return on these plan assets was 8.25% in 2002 and 8.25% in 2003.
The Company's pension plan assets are managed by outside investment managers; assets are rebalanced at the end of each quarter. The Company's investment strategy with respect to pension assets is to maximize return while protecting principal. The investment manager has the flexibility to adjust the asset allocation and move funds to the asset class that offers the most opportunity for investment returns.
|
|
Percentage of Plan Assets at Year End |
|||||
---|---|---|---|---|---|---|---|
Asset Category |
Target Allocation 2004 |
||||||
2003 |
2002 |
||||||
Equity securities | 62 | % | 88 | % | 39 | % | |
Fixed income securities | 37 | % | 7 | % | 40 | % | |
Cash | 1 | % | 5 | % | 21 | % | |
Total | 100 | % | 100 | % | 100 | % | |
F-27
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(11) Pension Benefits (Continued)
Information about the expected cash flows for the pension plans follows:
|
Pension Benefits |
||
---|---|---|---|
Company contribution | |||
2004 | $ | 1,300 | |
Expected Benefit Payments |
|||
2004 | $ | 353 | |
2005 | 405 | ||
2006 | 439 | ||
2007 | 557 | ||
2008 | 617 | ||
2009-2013 | 4,627 |
The Company sponsors a defined contribution plans covering substantially all of its employees. Employees may contribute to this plan and these contributions are matched at varying amounts by the Company. Contributions for the matching component of this plan amounted to $453, $523 and $587 for the fiscal 2001, fiscal 2002 and fiscal 2003, respectively.
Pension expense relating to a multi-employer pension plan amounted to $390, $459 and $559 for the fiscal 2001, fiscal 2002 and fiscal 2003, respectively.
(12) Related-Party Transactions
The Company is party to a management agreement (the "Management Agreement") with Bruckmann, Rosser, Sherrill & Co., Inc. ("BRS & Co."), the manager of BRS, pursuant to which BRS & Co. is paid an annual fee of $500 per year for certain management, business and organizational strategy, and merchant and investment banking services. The Management Agreement will expire on the earlier of December 27, 2006 and the date that BRS owns less than 20% of the outstanding common stock of the Company.
The Company is also party to a transaction services agreement pursuant to which BRS & Co. will be paid a transaction fee for management, financial and other corporate advisory services rendered by BRS & Co. in connection with acquisitions by the Company, which fee will not exceed 1.0% of the total transaction value. In connection with the Ortega Acquisition, the Company paid transaction fees to BRS aggregating $1,000. The Company recorded such transaction fees as part of the Ortega Purchase Price. No such fees were paid in fiscal years 2001 and 2002.
As described in Note 5, the Company leases a manufacturing and warehouse facility from the Chairman of the Board of Directors of the Company.
"Due to related party" at December 28, 2002 and January 3, 2004 includes management fees to BRS.
F-28
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(13) Commitments and Contingencies
On January 17, 2001, the Company became aware that fuel oil from its underground storage tank at its Roseland, New Jersey facility had been released into the ground and into a brook adjacent to such property. Since January 17, 2001, together with the Company's environmental services firms, B&G has worked to clean-up the oil in cooperation with the New Jersey Department of Environmental Protection "NJDEP". After completion of the work the Company submitted the findings to the NJDEP along with recommendations for no further action. The NJDEP responded that additional investigation was required before it could agree to the no further action recommendations. The additional work has been conducted and the Company is awaiting the NJDEP's response. While the NJDEP could assert that more work is required, the cost of such work is not expected to have a material adverse effect on B&G's consolidated financial condition, results of operations or liquidity. The Company recorded a charge of $1,100 in the first quarter of fiscal 2001 to cover the expected cost of the clean-up. In the third quarter of fiscal 2001, B&G received an insurance reimbursement of $200 and accrued an additional $100 for certain remaining miscellaneous expenses. Management believes that substantially all estimated expenses relating to this matter have been incurred and paid as of January 3, 2004. At December 28, 2002 there was $100 accrued related to this matter.
In January 2002, the Company was named as a third-party defendant in an action regarding environmental liability under the Comprehensive Environmental Response, Compensation and Liability Act, or Superfund, for alleged disposal of waste by White Cap Preserves, an alleged predecessor of the Company, at the Combe Fill South Landfill, a Superfund site. In February 2003, B&G paid $100 in settlement of all asserted claims arising from this matter, and in March 2003, a bar order was entered by the United States District Court for the District of New Jersey protecting B&G, subject to a limited re-opener clause, from any claims for contribution, natural resources damages and certain other claims related to the action until such time that the litigation is dismissed. The $100 and a portion of the legal fees were reimbursed by the purchaser of White Cap Preserves pursuant to an indemnity wherein they acquired that liability.
The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these other matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.
The Company is subject to environmental regulations in the normal course of business. Management believes that the cost of compliance with such regulations will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.
On January 3, 2004, the Company had purchase commitments with various suppliers to purchase certain raw materials in the aggregate amount of approximately $8,926. Management believes that all such commitments will be fulfilled within one year.
F-29
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002 and January 3, 2004
(Dollars in thousands, except per share amounts) (Continued)
(14) Quarterly Financial Data (unaudited)
|
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
Year |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales | ||||||||||||||||
2003 | $ | 67,454 | $ | 76,369 | $ | 83,310 | $ | 101,223 | $ | 328,356 | ||||||
2002 | $ | 66,210 | $ | 77,850 | $ | 70,900 | $ | 78,717 | $ | 293,677 | ||||||
Gross profit | ||||||||||||||||
2003 | $ | 20,066 | $ | 23,507 | $ | 26,085 | $ | 32,524 | $ | 102,182 | ||||||
2002 | $ | 20,705 | $ | 24,274 | $ | 22,197 | $ | 22,794 | $ | 89,970 | ||||||
Net income available to common stockholders | ||||||||||||||||
2003 | $ | (1,047 | ) | $ | 742 | $ | (154 | ) | $ | 2,291 | $ | 1,832 | ||||
2002 | $ | 124 | $ | 1,812 | $ | 886 | $ | 684 | $ | 3,506 | ||||||
Basic net (loss) income available to common stockholders per common share | ||||||||||||||||
2003 | $ | (9.92 | ) | $ | 7.03 | $ | (1.46 | ) | $ | 21.71 | $ | 17.36 | ||||
2002 | $ | 1.18 | $ | 17.18 | $ | 8.40 | $ | 6.47 | $ | 33.23 | ||||||
Diluted net (loss) income available to common stockholders per common share | ||||||||||||||||
2003 | $ | (9.92 | ) | $ | 5.26 | $ | (1.46 | ) | $ | 16.25 | $ | 12.99 | ||||
2002 | $ | 0.88 | $ | 12.85 | $ | 6.28 | $ | 4.86 | $ | 24.87 |
F-30
Schedule II
B&G FOODS HOLDINGS CORP. AND SUBSIDIARIES
Schedule of Valuation and Qualifying Accounts
(Dollars in thousands)
Column A |
Column B |
Column C |
Column D |
Column E |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Additions |
|
|
|||||||||
Description |
Balance at beginning of period |
Charged to costs and expenses |
Charged to other accountsdescribe |
Deductionsdescribe |
Balance at end of period |
||||||||
Year ended December 29, 2001: | |||||||||||||
Allowance for doubtful accounts | $ | 465 | $ | 118 | | $ | 128 | (a) | $ | 455 | |||
Environmental reserves | | $ | 1,200 | | $ | 1,120 | (b) | $ | 80 | ||||
Year ended December 28, 2002: |
|||||||||||||
Allowance for doubtful accounts | $ | 455 | $ | 84 | | $ | 75 | (a) | $ | 464 | |||
Environmental reserves | $ | 80 | $ | 100 | | $ | 80 | (c) | $ | 100 | |||
Year ended January 3, 2004: |
|||||||||||||
Allowance for doubtful accounts | $ | 464 | $ | 711 | | $ | 649 | (a) | $ | 526 | |||
Environmental reserves | $ | 100 | $ | | | $ | 100 | (c) | $ | |
F-31
The
Board of Directors
Nestlé Prepared Foods Company:
We have audited the accompanying Statement of Net Assets Sold as of December 31, 2002 and the related Statement of Direct Revenue and Direct Expenses for the year ended December 31, 2002 of The Ortega Brand of Business ("Ortega"). These financial statements are the responsibility of Nestlé Prepared Foods Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with 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.
The accompanying financial statements were prepared to present the assets sold and the liabilities assumed pursuant to the Asset Purchase Agreement (the "Agreement") between Nestlé Prepared Foods Company, Ortega Holdings Inc. (formerly known as O Brand Acquisition Corp.) and B&G Foods, Inc. as described in note 2, and the direct revenue and direct expenses of Ortega, and are not intended to be a complete presentation of Ortega's financial position, results of operations, or cash flows.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets sold of Ortega as of December 31, 2002, and Ortega's direct revenue and direct expenses for the year ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.
As discussed in note 2 to the financial statements, Ortega restated its statement of net assets sold as of December 31, 2002.
/s/ KPMG LLP Short Hills, New Jersey October 10, 2003, except as to the second paragraph of note 2, which is as of November 7, 2003 |
F-32
THE ORTEGA BRAND OF BUSINESS
Statements of Net Assets Sold
December 31, 2002
(Dollars in Thousands)
|
Dec. 31, 2002 |
June 30, 2003 |
||||||
---|---|---|---|---|---|---|---|---|
|
|
(unaudited) |
||||||
Assets: | ||||||||
Inventory | $ | 6,347 | $ | 6,658 | ||||
Property, Plant & Equipment, net | 7,094 | 6,525 | ||||||
Total Assets | $ | 13,441 | $ | 13,183 | ||||
Liabilities: | ||||||||
Accrued Liabilities | $ | 2,157 | $ | 1,660 | ||||
Total Liabilities | 2,157 | 1,660 | ||||||
Net Assets Sold | $ | 11,284 | $ | 11,523 | ||||
See accompanying notes to the financial statements.
F-33
THE ORTEGA BRAND OF BUSINESS
Statements of Direct Revenue and Direct Expenses
Year Ended December 31, 2002
(Dollars in Thousands)
|
Year Ended Dec. 31, 2002 |
Six Months Ended June 30, 2002 |
Six Months Ended June 30, 2003 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
|
(unaudited) |
(unaudited) |
|||||||
Direct Revenue, net | $ | 77,453 | $ | 38,069 | $ | 37,479 | ||||
Direct Sales Commissions | 1,790 | 451 | 1,273 | |||||||
Direct Cost of Sales | 41,220 | 20,825 | 19,681 | |||||||
Direct Transportation | 4,612 | 2,098 | 2,115 | |||||||
Margin Contribution | 29,831 | 14,695 | 14,410 | |||||||
Direct Marketing and Other Expenses | 10,563 | 4,196 | 5,875 | |||||||
Product Contribution | 19,268 | 10,499 | 8,535 | |||||||
Direct Fixed Distribution | 2,498 | 1,185 | 1,125 | |||||||
Direct Selling, Administrative and Other | 7,663 | 3,746 | 4,153 | |||||||
Excess of Direct Revenue over Direct Expenses | $ | 9,107 | $ | 5,568 | $ | 3,257 | ||||
See accompanying notes to the financial statements.
F-34
THE ORTEGA BRAND OF BUSINESS
Notes to Financial Statements
(Dollars in Thousands)
December 31, 2002
(Information as of June 30, 2003 and for the six months ended
June 30, 2002 and
June 30, 2003 is unaudited)
(1) Background
The Ortega brand of business ("Ortega") of Nestlé Prepared Foods Company (the "Seller") and certain of its affiliates (together with the Seller, "Nestlé") is a leading manufacturer of shelf-stable Mexican food products for the retail and foodservice markets in the United States of America. Ortega's products include taco shells, seasonings, dinner kits, taco sauce, peppers, refried beans, salsa and related Mexican food products sold under the Ortega brand.
On July 29, 2003, B&G Foods, Inc. ("B&G") and Ortega Holdings Inc. (formerly known as O Brand Acquisition Corp.), a wholly-owned subsidiary of B&G (the "Buyer"), entered into an asset purchase agreement (the "Agreement") with the Seller, pursuant to which the Buyer purchased certain assets and assumed certain liabilities of Nestlé pertaining to the Ortega brand of Mexican food products and the Stoughton, Wisconsin manufacturing facility. This transaction was consummated on August 21, 2003. Excluded from the sale were the Ortega lines of cheese sauces, dipping cups and the Ortega ¡Amigo! dispensing units sold into the foodservice and club channels which Nestlé will continue to sell under the Ortega brand through a transitional license. Prior to this transaction, the Ortega business was operated as a part of Nestlé. During the year ended December 31, 2002, approximately 87% of Ortega sales were to retail customers with the remaining 13% to customers in the foodservice channel.
(2) Basis of Presentation
The Statement of Net Assets Sold and the Statement of Direct Revenue and Direct Expenses consist of account balances specifically identified by Nestlé's management. The accompanying financial statements were prepared to present only certain assets sold to and liabilities assumed by B&G pursuant to the Agreement and revenue and expenses related to the Ortega branded products of Nestlé. While these financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, they are not intended to be a complete presentation of the assets, liabilities, revenue and expenses of the Ortega brand of business.
The Company has restated its statements of net assets sold at June 30, 2003 (unaudited) and December 31, 2002, to reflect a reduction of inventory in the amount of $1,618 and $2,139, respectively. This reduction was due to certain inventory at these respective dates that was held at a supplier and owned by the supplier, but was included in inventory when the Ortega account balances were identified by Nestle's management when preparing the statements of net assets sold for Ortega which were included in the Form 8-K/A filed by B&G Foods, Inc. with the Securities and Exchange Commission on October 20, 2003. The reduction of inventory had no effect on the accompanying statements of direct revenue and direct expenses of Ortega for the six month periods ended June 30, 2003 (unaudited) and 2002 (unaudited) and the year ended December 31, 2002 as Nestle also recorded an offsetting liability, which was not an assumed liability in the Agreement, in an amount equal to such inventory, and no amounts were recorded that effected Ortega's results of operations until such time that the products were shipped to third party customers.
Nestlé does not account for Ortega as a separate entity. Accordingly, the information included in the accompanying financial statements has been obtained from Nestlé's consolidated financial records.
F-35
THE ORTEGA BRAND OF BUSINESS
Notes to Financial Statements
(Dollars in Thousands)
December 31, 2002
(Information as of June 30, 2003 and for the six months ended
June 30, 2002 and June 30, 2003 is unaudited) (Continued)
(2) Basis of Presentation (Continued)
The financial statements include allocations as discussed in note 3. Nestlé's management believes that the allocations are reasonable; however, these allocated expenses are not necessarily indicative of costs that would have been incurred by Ortega on a stand-alone basis, since certain other expenses, as discussed in note 3, are incurred for services provided to, or on behalf of, Ortega that are not included in the accompanying financial statements. Tax expense has not been included in the Statement of Direct Revenue and Direct Expenses, as this expense is not specifically identifiable to Ortega.
The Statement of Net Assets Sold includes only those assets and liabilities that are included in the Agreement. Additionally, the Statement of Direct Revenue and Direct Expenses excludes the results of discontinued operations, namely a frozen line of Ortega products that was launched in 1999 and subsequently discontinued in 2002.
Under Nestlé's centralized cash management system, cash requirements of Ortega are provided directly by Nestlé, and cash generated by Ortega is remitted directly to Nestlé. Transaction systems (e.g., payroll, employee benefits, accounts receivable, accounts payable) used to record and account for cash transactions are provided by centralized company organizations outside the defined scope of the Ortega business. Most of the corporate systems are not designed to track assets/liabilities and receipts/payments on a product specific basis. Given these constraints, and the fact that only certain assets and liabilities of Ortega have been sold, a statement of cash flows could not be prepared.
(3) Significant Accounting Policies
Revenue is recognized when the products are shipped and when the risks and rewards of ownership of the goods have been transferred to the buyer. Direct revenue represents the sale of products, net of sales rebates and an estimate of product returns. Volume, promotional, price, cash and other discounts and customer incentives are accounted for as a reduction of revenue in accordance with Emerging Issues Task Force ("EITF") No. 01-09, "Accounting for the Consideration Given by a Vendor to a Customer."
Direct cost of sales includes all variable and fixed costs associated with producing the product, including raw materials, packaging supplies, direct labor, indirect labor, the cost of goods purchased from third parties and fixed factory overheads including depreciation.
Direct marketing expenses represent all non-trade promotion marketing, which includes media advertising, fixed promotions and market research. Other expenses primarily include packaging design costs, product donations and plant trials. Direct marketing and other expenses includes allocated overhead expenses of $43, $173, and $359 for the six-month periods ended June 30, 2003 (unaudited) and June 30, 2002 (unaudited) and the year ended December 31, 2002, respectively. Direct marketing
F-36
THE ORTEGA BRAND OF BUSINESS
Notes to Financial Statements
(Dollars in Thousands)
December 31, 2002
(Information as of June 30, 2003 and for the six months ended
June 30, 2002 and June 30, 2003 is unaudited) (Continued)
(3) Significant Accounting Policies (Continued)
and other expenses are allocated based on an estimate of the sales of Ortega compared to the combined total sales of the Seller and Nestlé USA, Inc. ("Nestlé USA"), an affiliate of the Seller.
Direct fixed distribution expenses represent costs associated with the operation of Nestlé's centralized distribution facilities, including storage and handling, facility-related inventory management and order entry systems and related corporate administrative support services. Direct fixed distribution includes $281, $345, and $728 of allocated overhead costs for the six-month periods ended June 30, 2003 (unaudited) and June 30, 2002 (unaudited), and the year ended December 31, 2002, respectively, allocated to Ortega based on an estimate of the sales of Ortega compared to the combined total sales of the Seller and Nestlé USA.
Direct selling, administrative and other expenses are either specifically identifiable to Ortega, or are allocated to Ortega based on an estimate of the sales of Ortega compared to the combined total sales of the Seller and Nestlé USA. Direct selling, administrative and other expenses includes allocated overhead expenses of $2,819, $2,288, and $4,696 for the six-month periods ended June 30, 2003 (unaudited) and June 30, 2002 (unaudited), and the year ended December 31, 2002, respectively. Such allocated expenses represent those charges that are attributable to Ortega, and include Nestlé's related expenses, such as employee benefits, human resources, management information systems, finance and selling and other general and administrative expenses. Certain other expenses that are provided to Ortega by Nestlé but are not directly attributable or specifically identifiable to Ortega have been excluded from the allocation of direct selling, administrative and other expenses in the accompanying financial statements. These expenses primarily include Nestlé's corporate-related costs such as executive compensation, corporate identity promotional costs, training and conference center costs, derivative valuations, and general corporate expenses.
Finished goods inventories are stated at the lower of cost or market, with cost being determined using the average cost and first-in, first-out methods. Raw material inventories are stated at actual cost.
Property, plant and equipment are stated at cost, net of accumulated depreciation directly related to the assets. Alterations and major overhauls that extend the lives or increase the capacity of the assets are capitalized. Ordinary repairs and maintenance are charged to operating costs. Depreciation is computed using the straight-line method over the estimated useful lives. Land is not depreciated.
F-37
THE ORTEGA BRAND OF BUSINESS
Notes to Financial Statements
(Dollars in Thousands)
December 31, 2002
(Information as of June 30, 2003 and for the six months ended
June 30, 2002 and June 30, 2003 is unaudited) (Continued)
(3) Significant Accounting Policies (Continued)
The rates of depreciation used are based on the following useful lives:
Land improvements | 20 to 40 years | |
Buildings | 10 to 50 years | |
Plant and machinery | 5 to 17 years | |
Tools, furniture, and sundry | 2 to 10 years | |
Vehicles | 3 years | |
Information technology equipment | 5 years |
When properties are retired or otherwise disposed of, related cost and accumulated depreciation are removed from the accounts. Any related gain or loss has been excluded from the Statement of Direct Revenue and Direct Expenses.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Actual results could differ from these estimates. In addition, these financial statements include allocations and estimates that are not necessarily indicative of the costs and expenses that would have resulted if Ortega had been operated as a separate entity, or the future results of Ortega.
(4) Inventory
Inventory is as follows:
|
December 31, 2002 |
June 30, 2003 |
|||||
---|---|---|---|---|---|---|---|
|
|
(unaudited) |
|||||
Raw Materials | $ | 885 | $ | 692 | |||
Finished Goods | 5,462 | 5,966 | |||||
Total Inventory | $ | 6,347 | $ | 6,658 | |||
F-38
THE ORTEGA BRAND OF BUSINESS
Notes to Financial Statements
(Dollars in Thousands)
December 31, 2002
(Information as of June 30, 2003 and for the six months ended
June 30, 2002 and June 30, 2003 is unaudited) (Continued)
(5) Property, Plant and Equipment, net
Property, plant and equipment are summarized as follows:
|
December 31, 2002 |
||||
---|---|---|---|---|---|
Land | $ | 130 | |||
Buildings | 2,516 | ||||
Plant and Machinery | 11,233 | ||||
Furniture and Equipment | 181 | ||||
Vehicles | 17 | ||||
Information Technology Equipment | 379 | ||||
14,456 | |||||
Less Accumulated Depreciation |
(7,362 |
) |
|||
Property, Plant & Equipment, net | $ | 7,094 | |||
(6) Accrued Liabilities
Accrued liabilities are as follows:
|
December 31, 2002 |
June 30, 2003 |
|||||
---|---|---|---|---|---|---|---|
|
|
(unaudited) |
|||||
Accrued Sick Leave & Vacation | $ | 163 | $ | 179 | |||
Accrued Broker Commissions | 419 | 292 | |||||
Accrued Coupon Redemption | 1,387 | 978 | |||||
Accrued Freight | 188 | 211 | |||||
Total Accrued Liabilities | $ | 2,157 | $ | 1,660 | |||
(7) Commitments and Contingencies
From time to time, Nestlé is involved in litigation arising from its ordinary course of business. Such litigation, as defined in the Agreement, is the responsibility of Nestlé.
Ortega does not have any material commitments or contingencies.
F-39
Through and including , 2004 (25 days after the date of this prospectus), all dealers effecting transactions in the EISs, whether or not participating in this offering, 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.
Enhanced Income Securities (EISs)
$ PER EIS
RBC CAPITAL MARKETS
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
LEHMAN BROTHERS
PIPER JAFFRAY
P R O S P E C T U S
, 2004
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by our company in connection with the distribution of the securities being registered are as follows:
|
Amount (1) |
|||
---|---|---|---|---|
Securities and Exchange Commission Registration Fee | $ | 71,586 | ||
National Association of Securities Dealers, Inc. filing fee | $ | 30,500 | ||
American Stock Exchange Listing Fee* | ||||
Accounting Fees and Expenses* | ||||
Legal Fees and Expenses* | ||||
Transfer Agent and Registrar Fees and Expenses* | ||||
Printing and Engraving Expenses* | ||||
Miscellaneous Fees and Expenses* | ||||
Total | $ | |||
Item 14. Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law B&G Foods may indemnify any person who was or 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 B&G Foods) by reason of the fact that such person is or was a director, officer, employee, or agent of B&G Foods, or is or was serving at the request of B&G Foods 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 such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of B&G Foods, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful.
In addition, under Section 145 B&G Foods may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of B&G Foods to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of B&G Foods, or is or was serving at the request of B&G Foods as a director, officer, employee or agent of B&G Foods, or is or was serving at the request of B&G Foods as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of B&G Foods and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to B&G Foods unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the
II-1
circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper.
Section 145 also provides that to the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or defense of any claim issue or matter therein, such person shall be indemnified against expenses (including attorney's fees) actually and reasonably incurred by such person in connection therewith.
Furthermore, Section 145 provides that nothing in the above-described provisions shall be deemed exclusive of any other rights to indemnification or advancement of expenses to which any person may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Under Section 102(b)(7) of the Delaware General Corporation Law B&G Foods may in its certificate of incorporation eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability: (i) for any breach of the director's duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the Delaware General Corporation Law (pertaining to certain prohibited acts including unlawful payment of dividends or unlawful purchase or redemption of the corporation's capital stock); or (iv) for any transaction from which the director derived an improper personal benefit.
Our certificate of incorporation provides that our directors shall be entitled to the benefits of all limitations on the liability of directors generally permissible under Delaware law and that we shall indemnify all persons whom we are permitted to indemnify to the full extent permitted under Section 145 of the Delaware General Corporation Law.
In addition, our bylaws provide for the indemnification of our directors and officers to the fullest extent permitted under Delaware law as in effect from time to time and by our certificate of incorporation.
Item 15. Recent Sales of Unregistered Securities
In the three years prior to the filing of this registration statement, we or B&G Foods issued and sold the following unregistered securities:
Preferred Stock and Options for Common Stock.
On October 1, 2001, we issued and sold 3,000 shares of our common stock and 20 shares of our 13% Series A Cumulative Preferred Stock to one of our officers for an aggregate purchase price of $50,000. These sales were made in reliance on Section 4(2) of the Securities Act.
On October 1, 2001, we issued options to purchase 700 shares of our common stock at an exercise price of $10.00 per share to one of our officers under our 1997 Incentive Stock Option Plan. This issuance was made in reliance on Rule 701 promulgated under the Securities Act.
The issuances of the securities in the transactions above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act promulgated thereunder as transactions by an issuer not involving a public offering, where the purchaser represented his intention to acquire the securities for investment only and not with a view to distribution, or Rule 701 promulgated under the Securities Act as transactions pursuant to a compensatory benefit plan or a written contract relating to compensation. All recipients either received adequate information about us or had access, through employment or other relationships, to such information.
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Appropriate legends, setting forth that the securities had not been registered and the applicable restrictions on transfer, were affixed to the stock certificates issued in the above transactions. No underwriters were employed in any of the above transactions.
Senior Subordinated Notes.
On March 7, 2002 B&G Foods issued and sold an additional $100.0 million aggregate principal amount of its 95/8% Senior Subordinated Notes due 2007 to repay existing indebtedness and pay related fees and expenses. The senior subordinated notes were sold to certain initial purchasers pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. The initial purchasers resold the senior subordinated notes to qualified institutional buyers pursuant to Rule 144A of the Securities Act. In connection with that sale, B&G Foods agreed to complete an exchange offer for the senior subordinated notes. Pursuant to the Registration Rights Agreement, B&G Foods offered to exchange $220.0 million aggregate principal amount of its new 95/8% senior subordinated notes due 2007, the issuance of which were registered under the Securities Act, for $120.0 million aggregate principal amount of its registered senior subordinated notes and $100.0 million aggregate principal amount of its newly privately placed senior subordinated notes. The exchange offer was completed on June 27, 2002.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
1.1 | Form of Underwriting Agreement.* | |
2.1 |
Stock Purchase Agreement dated July 2, 1998 by and among BGH Holdings, Inc., Maple Grove Farms of Vermont, Inc., Up Country Naturals of Vermont, Inc., Les Produits Alimentaires Jacques et Fils Inc., William F. Callahan and Ruth M. Callahan. (Filed with the Securities and Exchange Commission as Exhibit 2.1 to Commission Filing No. 333-39813 on August 3, 1998 and incorporated herein by reference) |
|
2.2 |
Asset Purchase Agreement dated as of January 12, 1999 by and among Polaner, Inc. (f.k.a. Roseland Distribution Company), International Home Foods, Inc. and M. Polaner, Inc. (Filed with the Securities and Exchange Commission as Exhibit 1 to our company's report on Form 8-K filed February 19, 1999 and incorporated herein by reference) |
|
2.3 |
Asset and Stock Purchase Agreement dated as of January 28, 1999 by and among The Pillsbury Company, Indivined B.V., IC Acquisition Company, Heritage Acquisition Corp. and, as guarantor, B&G Foods, Inc. (Filed as Exhibit 2.1 to our company's report on Form 8-K filed April 1, 1999 and incorporated herein by reference) |
|
2.4 |
Asset Purchase Agreement dated as of July 29, 2003 by and among Nestlé Prepared Foods Company (formerly known as Nestlé USA Prepared Foods Division, Inc.), Ortega Holdings Inc. (formerly known as O Brand Acquisition Corp.) and B&G Foods, Inc. (Filed with the Securities and Exchange Commission as Exhibit 2.1 to the Company's Report on Form 8-K filed August 22, 2003 and incorporated herein by reference) |
|
2.5 |
Intellectual Property Purchase Agreement dated as of August 21, 2003 between Société des Produits Nestlé S.A., Nestec Ltd., and O Brand Acquisition Corp. (filed herewith) |
|
3.1 |
Form of Certificate of Incorporation of B&G Foods, Inc. (following the consummation of the merger of B&G Foods, Inc. with and into B&G Foods Holdings Corp.).* |
II-3
3.2 |
Form of Bylaws of B&G Foods, Inc. (following the consummation of the merger of B&G Foods, Inc. with and into B&G Foods Holdings Corp.).* |
|
3.3 |
Certificate of Incorporation of B&G Foods, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.1 to Amendment No. 1 to Registration Statement No. 333-39813 on January 14, 1998 and incorporated herein by reference) |
|
3.4 |
Bylaws of B&G Foods, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.2 to Amendment No. 1 to Registration Statement No. 333-39813 on January 14, 1998 and incorporated herein by reference) |
|
3.5 |
Certificate of Incorporation of BGH Holdings, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.3 to Amendment No. 1 to Registration Statement No. 333-39813 on January 14, 1998 and incorporated herein by reference) |
|
3.6 |
Bylaws of BGH Holdings, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.4 to Amendment No. 1 to Registration Statement No. 333-39813 on January 14, 1998 and incorporated herein by reference) |
|
3.7 |
Certificate of Incorporation of Maple Groves Farms of Vermont, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.5 to Amendment No. 1 to Registration Statement No. 333-86062 on May 9, 2002 and incorporated herein by reference) |
|
3.8 |
Bylaws of Maple Groves Farms of Vermont, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.6 to Amendment No. 1 to Registration Statement No. 333-86062 on May 9, 2002 and incorporated herein by reference) |
|
3.9 |
Certificate of Incorporation of Trappey's Fine Foods, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.7 to Amendment No. 1 to Registration Statement No. 333-39813 on January 14, 1998 and incorporated herein by reference) |
|
3.10 |
Bylaws of Trappey's Fine Foods, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.8 to Amendment No. 1 to Registration Statement No. 333-39813 on January 14, 1998 and incorporated herein by reference) |
|
3.11 |
Certificate of Incorporation for Bloch & Guggenheimer, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.9 to Amendment No. 1 to Registration Statement No. 333-39813 on January 14, 1998 and 63 incorporated herein by reference) |
|
3.12 |
Bylaws of Bloch & Guggenheimer, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.10 to Amendment No. 1 to Registration Statement No. 333-39813 on January 14, 1998 and incorporated herein by reference) |
|
3.13 |
Certificate of Incorporation of Ortega Holdings Inc. (formerly known as O Brand Acquisition Corp.). (Filed with the Securities and Exchange Commission as Exhibit 3.1 to Current Report on Form 8-K on November 13, 2003 and incorporated herein by reference) |
|
3.14 |
Bylaws of Ortega Holdings Inc. (formerly known as O Brand Acquisition Corp.). (Filed with the Securities and Exchange Commission as Exhibit 3.2 to Current Report on Form 8-K on November 13, 2003 and incorporated herein by reference) |
|
3.15 |
Certificate of Incorporation of Les Produits Alimentaires Jacques Et Fils, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.13 to Amendment No. 1 to Registration Statement No. 333-86062 on May 9, 2002 and incorporated herein by reference) |
|
3.16 |
Bylaws of Les Produits Alimentaires Jacques Et Fils, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.14 to Amendment No. 1 to Registration Statement No. 333-86062 on May 9, 2002 and incorporated herein by reference) |
II-4
3.17 |
Certificate of Incorporation of Polaner, Inc. (f.k.a. Roseland Distribution Company). (Filed with the Securities and Exchange Commission as Exhibit 3.15 to Amendment No. 1 to Registration Statement No. 333-39813 on January 14, 1998 and incorporated herein by reference) |
|
3.18 |
Bylaws of Polaner, Inc. (f.k.a. Roseland Distribution Company). (Filed with the Securities and Exchange Commission as Exhibit 3.16 to Amendment No. 1 to Registration Statement No. 333-39813 on January 14, 1998 and incorporated herein by reference) |
|
3.19 |
Certificate of Incorporation of Heritage Acquisition Corp. (Filed with the Securities and Exchange Commission as Exhibit 3.17 to Amendment No. 1 to Registration Statement No. 333-86062 on May 9, 2002 and incorporated herein by reference) |
|
3.20 |
Bylaws of Heritage Acquisition Corp. (Filed with the Securities and Exchange Commission as Exhibit 3.18 to Amendment No. 1 to Registration Statement No. 333-86062 on May 9, 2002 and incorporated herein by reference) |
|
3.21 |
Declaration of Trust of William Underwood Company. (Filed with the Securities and Exchange Commission as Exhibit 3.19 to Amendment No. 1 to Registration Statement No. 333-86062 on May 9, 2002 and incorporated herein by reference) |
|
3.22 |
Bylaws of William Underwood Company. (Filed with the Securities and Exchange Commission as Exhibit 3.20 to Amendment No. 1 to Registration Statement No. 333-86062 on May 9, 2002 and incorporated herein by reference) |
|
4.1 |
Indenture dated as of August 11, 1997 between B&G Foods, Inc, BGH Holdings, Inc., RWBV Acquisition Corp., BRH Holdings, Inc., Bloch & Guggenheimer, Inc., Polaner, Inc. (f.k.a. Roseland Distribution Company), Burns & Ricker, Inc., Roseland Manufacturing, Inc., and RWBW Brands Company and The Bank of New York, as trustee. (Filed with the Securities and Exchange Commission as Exhibit 4.1 to Registration Statement No. 333-39813 on November 7, 1997 and incorporated herein by reference) |
|
4.2 |
First Supplemental Indenture dated as of May 31, 2000 (to the Indenture dated as of August 11, 1997) between B&G Foods, Inc., BGH Holdings, Inc., RWBV Acquisition Corp., Bloch & Guggenheimer, Inc., Polaner, Inc. (f.k.a. Roseland Distribution Company), Burns & Ricker, Inc., Trappey's Fine Foods, Inc., Maple Groves Farms of Vermont, Inc., William Underwood Company, Heritage Acquisition Corp. and the Bank of New York. (Filed with the Securities and Exchange Commission as Exhibit 4.2 to Amendment No. 1 to Registration Statement No. 333-86062 on May 9, 2002 and incorporated herein by reference) |
|
4.3 |
Second Supplemental Indenture dated as of February 28, 2002 (to the Indenture dated as of August 11, 1997) between B&G Foods, Inc., BGH Holdings, Inc., RWBV Acquisition Corp., Bloch & Guggenheimer, Inc., Polaner, Inc. (f.k.a. Roseland Distribution Company), Trappey's Fine Foods, Inc., Maple Groves Farms of Vermont, Inc., William Underwood Company, Heritage Acquisition Corp., Les Produits Alimentaires Jacques Et Fils, Inc. and the Bank of New York. (Filed with the Securities and Exchange Commission as Exhibit 4.3 to Amendment No. 1 to Registration Statement No. 333-86062 on May 9, 2002 and incorporated herein by reference) |
|
4.4 |
Third Supplemental Indenture dated as of October 30, 2003 (to the Indenture dated as of August 11, 1997) between B&G Foods, Inc., BGH Holdings, Inc., Bloch & Guggenheimer, Inc., Polaner, Inc. (f.k.a. Roseland Distribution Company), Trappey's Fine Foods, Inc., Maple Groves Farms of Vermont, Inc., William Underwood Company, Heritage Acquisition Corp., Les Produits Alimentaires Jacques Et Fils, Inc., Ortega Holdings Inc. and the Bank of New York. (Filed herewith) |
II-5
4.5 |
Indenture dated as of March 7, 2002 between B&G Foods, Inc, BGH Holdings, Inc., RWBV Acquisition Corp., Bloch & Guggenheimer, Inc., Polaner, Inc., Maple Groves Farms of Vermont, Inc., Les Produits Alimentaires Jacques Et Fils, Inc., Heritage Acquisition Corp., Trappey's Fine Foods, Inc., William Underwood Company and The Bank of New York, as trustee. (Filed with the Securities and Exchange Commission as Exhibit 4.4 to Registration Statement No. 333-86062 on April 11, 2002 and incorporated herein by reference) |
|
4.6 |
First Supplemental Indenture dated as of October 30, 2003 (to the Indenture dated March 7, 2002) between B&G Foods, Inc, BGH Holdings, Inc., Bloch & Guggenheimer, Inc., Polaner, Inc., Maple Groves Farms of Vermont, Inc., Les Produits Alimentaires Jacques Et Fils, Inc., Heritage Acquisition Corp., Trappey's Fine Foods, Inc., William Underwood Company, Ortega Holdings Inc. and The Bank of New York, as trustee. (Filed herewith) |
|
4.7 |
Form of 95/8% Senior Subordinated Notes due 2007. (Included in Exhibit 4.1 and 4.5) |
|
4.8 |
Indenture dated as of , 2004 between B&G Foods, Inc. and .* |
|
4.9 |
Form of Subordinated Note (included in Exhibit 4.8).* |
|
4.10 |
Form of stock certificate for Class A common stock.* |
|
4.11 |
Form of Deposit Agreement (including form of Enhanced Income Security).* |
|
5.1 |
Opinion from Dechert LLP regarding legality. * |
|
8.1 |
Opinion from Dechert LLP regarding tax matters. * |
|
10.1 |
Registration Rights Agreement dated as of August 11, 1997 by and among B&G Foods, Inc., the guarantors party thereto, Lehman Brothers, Inc. and Lazard Freres & Co., LLC. (Filed with the Securities and Exchange Commission as Exhibit 10.1 to Registration Statement No. 333-39813 on November 7, 1997 and incorporated herein by reference) |
|
10.2 |
Purchase Agreement dated August 6, 1997 among B&G Foods, Inc., the Guarantors party thereto, Lehman Brothers, Inc., and Lazard Freres & Co., LLC. (Filed with the Securities and Exchange Commission as Exhibit 10.2 to Registration Statement No. 333-39813 on November 7, 1997 and incorporated herein by reference) |
|
10.3 |
Guaranty dated as of January 12, 1999 of B&G Foods, Inc. in favor of International Home Foods, Inc. and M. Polaner, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3 to the Company's Report on Form 8-K filed February 19, 1999 and incorporated herein by reference) |
|
10.4 |
Amended and Restated Revolving Credit Agreement dated as of August 21, 2003 among B&G Foods Holdings Corp., B&G Foods, Inc., as borrower, the several banks and other financial institutions or entities from time to time parties thereto, Lehman Brothers Inc., as Arranger, Lehman Commercial Paper Inc., as Administrative Agent, and the Other Agents named therein. (Included in Exhibit 10.5, as further amended and restated as of September 9, 2003) |
|
10.5 |
First Amendment dated as of September 9, 2003 to the Amended and Restated Revolving Credit Agreement, dated as of August 21, 2003, among B&G Foods Holdings Corp., B&G Foods, Inc., the several banks and other financial institutions or entities from time to time parties to the Revolving Credit Agreement, Lehman Brothers Inc., as arranger, Lehman Commercial Paper Inc., as administrative agent, and The Bank of New York, as the Existing Issuing Lender. (Filed with the Securities and Exchange Commission as Exhibit 10.1 to Current Report on Form 8-K on November 13, 2003 and incorporated herein by reference) |
II-6
10.6 |
Amended and Restated Term Loan Agreement dated as of August 21, 2003 among B&G Foods Holdings Corp., B&G Foods, Inc., as borrower, the several banks and other financial institutions or entities from time to time parties thereto, Lehman Brothers Inc., as Arranger, Lehman Commercial Paper Inc., as Administrative Agent, and the Other Agents named therein. (Included in Exhibit 10.7, as further amended and restated as of September 9, 2003) |
|
10.7 |
First Amendment dated as of September 9, 2003 to the Amended and Restated Term Loan Agreement, dated as of August 21, 2003, among B&G Foods Holdings Corp., B&G Foods, Inc., the several banks and other financial institutions or entities from time to time parties thereto, Lehman Brothers Inc., as arranger, and Lehman Commercial Paper Inc., as administrative agent. (Filed with the Securities and Exchange Commission as Exhibit 10.2 to Current Report on Form 8-K on November 13, 2003 and incorporated herein by reference) |
|
10.8 |
Amended and Restated Guarantee and Collateral Agreement dated as of August 21, 2003 by B&G Foods Holdings Corp., B&G Foods, Inc., and certain of its subsidiaries in favor of Lehman Commercial Paper, Inc., as Administrative Agent. (Filed with the Securities and Exchange Commission as Exhibit 10.3 to Current Report on Form 8-K on November 13, 2003 and incorporated herein by reference) |
|
10.9 |
Purchase Agreement dated as of March 4, 2002 between B&G Foods, Inc., BGH Holdings, Inc., RWBV Acquisition Corp., Bloch & Guggenheimer, Inc., Polaner, Inc., Trappey's Fine Foods, Inc., Maple Grove Farms of Vermont, Inc., Les Produits Alimentaires Jacques et Fils, Inc., Heritage Acquisition Corp., William Underwood Company and The Bank of New York. (Filed with the Securities and Exchange Commission as Exhibit 10.12 to Registration Statement No. 333-86062 on April 11, 2002 and incorporated herein by reference) |
|
10.10 |
Registration Rights Agreement dated as of March 7, 2002 between B&G Foods, Inc., BGH Holdings, Inc., RWBV Acquisition Corp., Bloch & Guggenheimer, Inc., Polaner, Inc., Trappey's Fine Foods, Inc., Maple Grove Farms of Vermont, Inc., Les Produits Alimentaires Jacques et Fils, Inc., Heritage Acquisition Corp., William Underwood Company, Lehman Brothers Inc. and Fleet Securities, Inc. (Filed with the Securities and Exchange Commission as Exhibit 10.13 to Registration Statement No. 333-86062 on April 11, 2002 and incorporated herein by reference) |
|
10.11 |
Revolving Credit Agreement dated as of , 2004, between B&G Foods, Inc. and certain financial institutions as the lenders.* |
|
12.1 |
Computation of Ratio of Earnings to Fixed Charges. (Filed herewith) |
|
21.1 |
Subsidiaries of the Company and the additional registrants. (Filed herewith) |
|
23.1 |
Consent of KPMG LLP. (Filed herewith) |
|
23.2 |
Consent of KPMG LLP. (Filed herewith) |
|
23.3 |
Consent of Dechert LLP. (Included in Exhibit 5.1) * |
|
24.1 |
Power of attorney. (Included on signature pages) |
|
25.1 |
Statement of eligibility and qualification of on Form T-1. * |
(b) Financial Statement Schedules
Schedule II B&G Foods, Inc. Schedule of Valuation and Qualifying Accounts
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Schedules not listed above are omitted because of the absence of the conditions under which they are required or because the information required by such omitted schedules is set forth in the financial statements or the notes thereto.
Item 17. Undertakings
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Pursuant to the requirements of the Securities Act of 1933, the registrants have duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Parsippany, State of New Jersey on February 10, 2004.
B&G FOODS HOLDINGS CORP. | ||||
By: |
/s/ DAVID L. WENNER David L. Wenner President |
|||
B&G FOODS, INC. BGH HOLDINGS, INC. BLOCH & GUGGENHEMER, INC. HERITAGE ACQUISITION CORP. MAPLE GROVES FARMS OF VERMONT, INC. ORTEGA HOLDINGS INC. POLANER, INC. TRAPPEY'S FINE FOODS, INC. WILLIAM UNDERWOOD COMPANY |
||||
By: |
/s/ DAVID L. WENNER David L. Wenner President |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of David L. Wenner and Robert C. Cantwell, his true and lawful attorney-in-fact and agent, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this registration statement, including post-effective amendments, as well as any related registration statement (or amendment thereto) filed pursuant to Rule 462 promulgated under the Securities Act of 1933, 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, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all that said attorneys-in-fact and agents or any of them or their substitute or substitutes may lawfully do or cause to be done by virtue thereof.
This power of attorney may be executed in multiple counterparts, each of which shall be deemed an original, but which taken together shall constitute one instrument.
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Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.
B&G FOODS HOLDINGS CORP.
Name |
Title |
Date |
||
---|---|---|---|---|
/s/ DAVID L. WENNER David L. Wenner |
President and Director (Principal Executive Officer) |
February 10, 2004 | ||
/s/ ROBERT C. CANTWELL Robert C. Cantwell |
Executive Vice President of Finance and Chief Financial Officer (Principal Financial Officer and Accounting Officer) |
February 10, 2004 |
||
/s/ THOMAS J. BALDWIN Thomas J. Baldwin |
Director |
February 10, 2004 |
||
/s/ STEPHEN C. SHERRILL Stephen C. Sherrill |
Director |
February 10, 2004 |
||
/s/ NICHOLAS B. DUNPHY Nicholas B. Dunphy |
Director |
February 10, 2004 |
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B&G FOODS, INC
Name |
Title |
Date |
||
---|---|---|---|---|
/s/ DAVID L. WENNER David L. Wenner |
President and Director (Principal Executive Officer) |
February 10, 2004 | ||
/s/ ROBERT C. CANTWELL Robert C. Cantwell |
Executive Vice President of Finance and Chief Financial Officer (Principal Financial Officer and Accounting Officer) |
February 10, 2004 |
||
/s/ THOMAS J. BALDWIN Thomas J. Baldwin |
Director |
February 10, 2004 |
||
/s/ ALFRED POE Alfred Poe |
Director |
February 10, 2004 |
||
/s/ STEPHEN C. SHERRILL Stephen C. Sherrill |
Director |
February 10, 2004 |
||
/s/ LEONARD S. POLANER Leonard S. Polaner |
Director |
February 10, 2004 |
||
/s/ WILLIAM F. CALLAHAN III William F. Callahan III |
Director |
February 10, 2004 |
||
/s/ NICHOLAS B. DUNPHY Nicholas B. Dunphy |
Director |
February 10, 2004 |
||
/s/ JAMES R. CHAMBERS James R. Chambers |
Director |
February 10, 2004 |
BGH HOLDINGS, INC.
Name |
Title |
Date |
||
---|---|---|---|---|
/s/ DAVID L. WENNER David L. Wenner |
President (Principal Executive Officer) |
February 10, 2004 | ||
/s/ ROBERT C. CANTWELL Robert C. Cantwell |
Executive Vice President of Finance and Secretary (Principal Financial Officer and Accounting Officer) |
February 10, 2004 |
||
/s/ STEPHEN C. SHERRILL Stephen C. Sherrill |
Director |
February 10, 2004 |
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BLOCH & GUGGENHEIMER, INC.
Name |
Title |
Date |
||
---|---|---|---|---|
/s/ DAVID L. WENNER David L. Wenner |
President (Principal Executive Officer) |
February 10, 2004 | ||
/s/ ROBERT C. CANTWELL Robert C. Cantwell |
Executive Vice President and Assistant Secretary (Principal Financial Officer and Accounting Officer) |
February 10, 2004 |
||
/s/ STEPHEN C. SHERRILL Stephen C. Sherrill |
Vice President and Director |
February 10, 2004 |
HERITAGE ACQUISITION CORP.
Name |
Title |
Date |
||
---|---|---|---|---|
/s/ DAVID L. WENNER David L. Wenner |
President and Secretary (Principal Executive Officer) | February 10, 2004 | ||
/s/ ROBERT C. CANTWELL Robert C. Cantwell |
Vice President of Finance, Treasurer and Assistant Secretary (Principal Financial Officer and Accounting Officer) |
February 10, 2004 |
||
/s/ STEPHEN C. SHERRILL Stephen C. Sherrill |
Director |
February 10, 2004 |
MAPLE GROVE FARMS OF VERMONT, INC.
Name |
Title |
Date |
||
---|---|---|---|---|
/s/ DAVID L. WENNER David L. Wenner |
President and Treasurer (Principal Executive Officer) |
February 10, 2004 | ||
/s/ ROBERT C. CANTWELL Robert C. Cantwell |
Executive Vice President or Finance and Secretary (Principal Financial Officer and Accounting Officer) |
February 10, 2004 |
||
/s/ STEPHEN C. SHERRILL Stephen C. Sherrill |
Director |
February 10, 2004 |
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ORTEGA HOLDINGS INC.
Name |
Title |
Date |
||
---|---|---|---|---|
/s/ DAVID L. WENNER David L. Wenner |
President and Secretary (Principal Executive Officer) |
February 10, 2004 | ||
/s/ ROBERT C. CANTWELL Robert C. Cantwell |
Vice President of Finance, Treasurer and Assistant Secretary (Principal Financial Officer and Accounting Officer) |
February 10, 2004 |
||
/s/ STEPHEN C. SHERRILL Stephen C. Sherrill |
Director |
February 10, 2004 |
POLANER, INC.
Name |
Title |
Date |
||
---|---|---|---|---|
/s/ DAVID L. WENNER David L. Wenner |
President (Principal Executive Officer) |
February 10, 2004 | ||
/s/ ROBERT C. CANTWELL Robert C. Cantwell |
Executive Vice President and Secretary (Principal Financial Officer and Accounting Officer) |
February 10, 2004 |
||
/s/ STEPHEN C. SHERRILL Stephen C. Sherrill |
Director |
February 10, 2004 |
TRAPPEY'S FINE FOODS, INC.
Name |
Title |
Date |
||
---|---|---|---|---|
/s/ DAVID L. WENNER David L. Wenner |
President (Principal Executive Officer) |
February 10, 2004 | ||
/s/ ROBERT C. CANTWELL Robert C. Cantwell |
Executive Vice President of Finance and Secretary (Principal Financial Officer and Accounting Officer) |
February 10, 2004 |
||
/s/ STEPHEN C. SHERRILL Stephen C. Sherrill |
Director |
February 10, 2004 |
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WILLIAM UNDERWOOD COMPANY
Name |
Title |
Date |
||
---|---|---|---|---|
/s/ DAVID L. WENNER David L. Wenner |
President and Secretary (Principal Executive Officer) |
February 10, 2004 | ||
/s/ ROBERT C. CANTWELL Robert C. Cantwell |
Vice President of Finance, Treasurer, Secretary and Trustee (Principal Financial Officer and Accounting Officer) |
February 10, 2004 |
||
/s/ STEPHEN C. SHERRILL Stephen C. Sherrill |
Trustee |
February 10, 2004 |
||
/s/ THOMAS J. BALDWIN Thomas J. Baldwin |
Trustee |
February 10, 2004 |
||
/s/ LEONARD S. POLANER Leonard S. Polaner |
Trustee |
February 10, 2004 |
||
/s/ JAMES BROWN James Brown |
Trustee |
February 10, 2004 |
||
/s/ DAVID BURKE David Burke |
Trustee |
February 10, 2004 |
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